Find distressed business opportunities at the right time

A business described as ‘distressed’ may not necessarily reflect the business’s overall potential for profitability. A business may be overburdened with debt, struggling with interest payments or unable to fulfil repayment schedules with creditors. It may be behind in meeting tax obligations to HMRC. In many cases, ‘distressed’ businesses have an underlying trading profitability. Under the right management there is no reason these businesses cannot be turned around.

The potential to make good returns by buying distressed businesses persuaded Simon Elliot to make a bid for Hopkinson Catering. The business was in administration, but Elliot could see that this was largely down to a £1m tax bill. Looking back, he thinks the chairman, brought in by the husband and wife owners, had too many other interests to keep a sufficiently close eye on what the recently appointed finance director was up to. Click here for the full details of how Simon turned this business around.

Timing
In this post-recession climate a growing number of entrepreneurs are considering buying up distressed businesses, capitalising on any opportunity they find and often adding valuable assets to existing portfolios. The key to making the most of these opportunities is finding them at the right time.

Winding-up petitions
A winding-up petition is an application made to the courts to wind up a company (close down a business) and can be made by parties outside the firm, such as creditors, or by the company’s directors themselves. If a winding-up petition is successful, the company will be ordered to wind up. Effectively, the company ceases to exist and if the business is insolvent at the time, payments to all creditors will not have to be made – instead each creditor tends to receive a proportion of what they are owed. If there are substantial assets involved, or it is thought that the creditors can be better served by an attempt to save the business as a going concern, administrators will be appointed.

For anyone looking to buy a business, keeping abreast of any winding-up petitions issued is a shrewd strategy, as these notices are an indicator that a business may be heading for insolvency. Firms in this situation can offer great opportunities for investors.

A typical example of the window of opportunity winding-up petitions present can be seen with Fixit Reinforcement Limited, a steel reinforcement subcontractor, which had a winding-up petition lodged against it at the courts on the 10th of November 2011 and later fell into administration on the 9th of March 2012.

Find out first
The Business Sale Report provides daily notifications for businesses that have had winding-up petitions lodged against them, in some cases our subscribers will have been notified up to six weeks in advance of the company falling into administration.

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