How to Sell Your Business in Portions

One of the most important decisions you’ll ever make is whether to sell your entire business or a portion of it. It’s not the easiest decision to make since for decades or a significant part of your life you may have been investing your funds and energy into the business. No matter what you deal with in your industry you might have to make the decision to let the company go or a portion of it.

There’re a number of reasons why selling your business in portions makes sense.

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Re-strategize and focus on core areas of the company

After a number of years you might find yourself with a large business with diverse areas of focus. However, you might feel letting a part of it go and focusing on a core area of the company is a better idea with impressive returns. By letting some assets or certain business units go you’ll be effectively focusing on specific portions of the business. Letting these portions go allows you to focus on what you execute better than anyone else and where your competencies will be used better. Every company has those areas where it’s strongest and highly gifted and it could make a lot of sense to focus on these sections by selling the business in portions.

Some specific units of the company aren’t really working

Over the years you may have built a business with so many units, or acquired other business components leaving you with a substantially busy, varied and hefty investment. However, with time you might want to let these units go or recoup any loss that could have been made during their acquisition and development. Allowing some of these portions go can leave you in a better position financially, while allowing you to put in more time and resources to those areas of the company that works. Even better, always remember that by letting an underperforming unit of the business go and allow another entity to take over or purchase it could leave you financially sound; losses that were being made from it won’t be there. Allowing a weaker portion of a business to be taken over is a sound management strategy that works very well.

You want to use a part of the money to expand

At times, raising funds to expand a business isn’t always easy for diverse reasons. Getting a loan for it might not be a good idea while seeking funding elsewhere might be costly or just too hard such as a result of the Covid-19 pandemic where funding of any kind is almost impossible to get. By infusing some money into the business you’re able to do so much, such as purchasing new machinery and equipment for the company, lease or purchase a new facility or asset. If you could sell your business in portions and raise the funds without having to seek external funding sources you might end up getting what you need to expand your establishment without having to seek loans or funding that might see strangers owning a stake in your company.

Access valuable resource probably hard to bring in your business on your own

At times the benefits of selling a business in portions aren’t just monetary but way bigger. By allowing a specific unit to go, you might end up with something way better for the long haul. These are synergies capable of bringing in lots of profits and more. For instance a gas service station and a taxi fleet service could come together through the purchase of a portion of the business and servicing the taxis with enough fuel could be really lucrative for your business. At the end of the day, it’s all about the right doors opening up and opportunities being accomplished. Selling your business in portions might allow you to make the most of available synergies.

Reduces the cost of doing business

Letting it go in portions could help you lower the cost of doing business or lower the price of a major expense. For instance, if you deal with raw materials you might feel that allowing another entity to purchase a piece of your business could allow you to access the raw materials at a reduced cost or free. Essentially, it’s all a question of whether selling in portions offers any advantage or perks.

Strategic sale of a business in portions lower the impetus of a real threat

You might not want to sell your business in its entirety; just a few parts of it for strategic reasons. For instance, in case you face high months and low ones over a whole year you might want to think about letting some parts go. For instance, a real estate company faces financial issues and slow returns if lots of people begin to rent.

When property such as residences and business premises start selling fast everything changes and a property management agency dealing with renters is usually affected. It means that when one of the companies is doing well the other is arguably facing serious repercussions. However, if one was to sell a part or two of their business to the other, it’s possible the other company will remain afloat; they will be covering each other from the effects of a change in the market. If risks are averted by allowing certain portions of the business to go then it makes a lot of sense to let them go.

No prior claims

Selling a business in portions works quite fine and keeps all involved covered from all future claims. For instance, when a company decides to sell assets such as facilities, land or equipment, including sharing customers among others there’s always a protection against any prior claim. It means that were the government, a past employee or a regulatory body to make a claim against the asset it would be the prerogative of the past owner to deal with the matter. As such, it’s hard for business being sold in portions to lack any takers. Actually, letting them know they’re covered against any prior claim can help your business sell some of its units fast.

Brings intangible capital into the business

Selling a business partly might end up bringing up lots of important intangible capital the company might be in dire need of. It can be a highly required skill set, intellectual rights and property or a very rare knowledge. Partial business sales might bring in these advantages allowing it to remain solid than it ever was. The person could be a skilled engineer, advisor or has a place in an influential board somewhere. Linking your interests allow you to make the most of the individual asset and they also get what they wanted; assets of your company, stake or just a place in its management and future trajectory, among others.

How does it work

With all manner of reasons to sell your business in portions you can actually do it in diverse ways. In contrast with complete sales, where you will completely end any future involvement with the establishment unless otherwise courtesy of a contract allowing you to keep working in the company in some special capacity, partial sales work rather uniquely.

In more ways than one they’re great at raising capital or beginning the process of complete transition to another owner as well as incentivizing employees. Prior to beginning the process of selling the business in parts you might want to mull over how much of your business you want to let go.

You could be seeking to continue controlling the largest stake of the business or have no problem with minority investment that takes away your ability to make any decision or influence anything in the company as before. Be that as it may, you can sell the business in portions in diverse way.

#1 You could go public

For a sizable business at times going public might be the only way to allow it to be sold in portions. Even so, it’s not easy trying to get a company listed, considering the cost involved, disclosure necessities and auditing requirements that need to be met way before it happens. If this is a route you’ve no problem with it can help the business raise huge amounts of funds and grow the capital without really letting the business go while raising the value of the company.

#2 Find private investment

Allowing private investment to take over some parts of your business is also another way. At times going public can be costly, time consuming and legally demanding. Selling the portions to a private investor or more could actually work. Even better, the affordable, faster, quiet and smooth private share selling process is liked by most private investors. With so many complications associated with raising capital through other means, soliciting investors to take over some of your units has lots of benefits.

Even so, the far you can go to find these investors and getting into legal agreements could be limited or require some governmental input to allow it to go through depending on your geography.

A unique way of allowing portions of the business to go is through venture capital, where the shares of the business are offered to hungry venture-capital investors ready to part with their money for a stake in your company. At the end of the day, the business will raise sufficient capital needed for other needs. Do note that if you decide to go with this route selling a significant number of shares might require allowing private investors to join the management team of the company or representation in the board.

#3 Selling business units to small takers

At times selling your business in portions is best done to smaller investments in the wider mix of things. While allowing large investors to take over might take a while it can be rather easier than dealing with smaller takers. However, you’ve the benefit of finding and handpicking the specific type of investor you’re ready to work with. Sometimes, these might be people, former workmates, relatives, friends or previous employees you already know or have a working relationship with. Such investors are also much better if you need people who will make personal commitments and compromises and might not demand a position on the board or management. Even so, if you needed a lot of capital smaller takers might not get you the huge funding you might need and a complex legal process might be needed to accommodate each of them.

4# A portion to current staff

Another easier way of selling your business in portions involves allowing your employees to take up some open shares. As individuals who work daily to grow the profits and customer base of the business giving them a chance to own some of it can bring in much needed growth and also allow you to see if members of staff have confidence in the company. Staff stock ownership schemes do work when structured well and the perfect way of retaining loyal and hardworking employees and motivating them to give their best. Even so, if all you need is to raise capital for the business selling the business to employees might not be the best practical route to take.

Related: Selling a Business to Employees

When divestment makes sense

Divestment, sometimes known as divestiture, can be a perfect way of selling the segments of your business as you might want.

Divestment is essentially letting the assets of a business go through diverse ways, including a closure, exchange, sale among others. Letting the resources of a business go can be instigated by diverse reasons as already discussed, from being an effective way of generating more funds for the company, selling some underperforming redundant units of the business, guaranteeing the establishment doesn’t close or declare bankruptcy through selling some of its assets to increasing its resale value, among others.

To sell a portion of a business, such as a company unit, store or product department, one of the best ways of doing so is through selling a list/portfolio of a business’s assets. A portfolio of assets includes the resources of a company that are intangible, for example customer agreements, contractual pacts, trademarks, intellectual property, customer lists among others, and tangible resources, for instance company land and premises, equipment, machinery, among others.

In such asset sales it’s worth noting that the buyer won’t assume any liability that may result later on. Also, the owner will retain the legal control of the business though he/she cannot influence how the sold assets will be used.

Related: Selling Assets vs Selling Shares

No matter how you sell your business, note that you’re the ultimate decision maker. You must decide the bulk of your business you intend to allow others to control or buy.

Published by ExitAdviser


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