Loss Making Company – Which Option Would You Choose?

I talked to a gentleman last week who had a bit of a puzzle. He had started and run 2 very successful businesses.

Then a few years ago he retired and stepped down from running them day to day handing over the reins to his children. One business is still highly successful and is very profitable. The other is making losses.

He reckons that the loss making business could be brought back to substantial profit if he can find a great salesman as currently the orders are pretty stagnant.

The whole thing is complicated somewhat by the fact that he owns a well located office building in London and leases another near where the Olympics is going to be held. So he could pretty easily sell the office building and consolidate into the leased building in the short-term.

He and his family are completely independent of their businesses and if they sold them and the property tomorrow they’d be able to lead good lives with no money worries.

That means he has some interesting options:

Option 1: Sell the loss maker

The upsides are:

• He stops the cash draining from the business
• He gets some compensation for the work he and his family’s put into it

The downsides are:

• His son loses a job he enjoys and is good at
• He wont get the money the business would be worth with the order book that a good salesperson could get
• Another small investment in getting a good salesperson could make a massive return and he would have to watch as another owner did exactly that

Option 2: Sell both business

The upsides are:

• He releases cash from both businesses
• Selling both businesses together means that he might get more overall
• He can also sell his office block to get more cash as the businesses wont need it
• He and his children can afford never to work again

The downsides are:

• Both his children lose businesses they’re good at
• A business legacy and example for his grandchildren is lost
• The loss maker may negatively affect the effective selling price for the profitable business

Option 3: Get a great salesman in

The upsides are:

• A great salesman will turn the order bank around to produce a profitable company
• A more profitable company means his son continues to do the job he enjoys
• His other child can continue to make money with the profitable company
• He can consolidate the company into the leased building and sell the office block giving more cash
• He can demonstrate how business works to his grandchildren

The downsides are:

• He’s retired, does he really want the hassle of getting and managing a new salesperson?
• If the salesman can’t get the orders he’s poured good money after bad and will have to get rid of the company anyway

I know what I’d do…

What would you do and why?