There are many reasons why you might want to sell a percentage of your business, but whatever the reason, it’s important to understand how to do it in the right way. Here’s what you need to know.
Is selling part of your business right for you?
Selling part of your business is not an easy decision to make. However, it might be something you want to consider if you need to raise additional funds for your business, whether you’re looking to expand or pay off debts, or if you want to refocus your business and reduce costs.
Ideally, you want to take a year or two to prepare for the sale as this can help you to improve your financial records, business structure and customer base to make the business more profitable. In turn, this will enable you to keep the business running smoothly and help make the transition process easier for your buyer.
Remember, too, that finding a buyer can take several months, so you’ll need to have patience.
Why consider selling a percentage of your business?
Some of the reasons you might consider selling a percentage of your business include:
- Reducing responsibilities: If you have too much on your plate, selling part of your business can help reduce some of your responsibilities and allow you to focus on what’s most important for your business.
- Raising capital: Selling off a portion of your business can enable you to raise capital which can help you to pay off debts or expand into new areas.
- Refocusing your business: If part of your business is performing particularly well, you might want to focus on this area and sell off other parts of your company.
- Discarding non-performing assets: Similarly, if part of your business is underperforming, you might want to cut your losses and get rid of this portion of your business through a partial sale. This can enable you to streamline your business and improve your business’ financial health.
- Maintaining share value: If your business is publicly listed and trades on a stock exchange and you’re ultimately looking to get rid of the company, it can be better to sell off parts of your company slowly rather than all at once. Selling your business in one go can reduce shareholder confidence and affect your company’s share price.
- Changing leadership: A particular area of your business might require leadership from a knowledgeable expert to enable it to be sustainable over the long term. In which case you might feel it’s best to sell this part of your business to a suitable buyer.
Steps to selling part of your business
Once you’ve decided to sell, there are a few steps you need to take to get the ball rolling.
Decide how much you want to sell
First of all, you need to decide how much of the business you want to sell. You might decide to sell off the underperforming portion of your business. Or, if you’re looking for investment in your business, you might want to sell off 10% to 20% to help you raise the funds you need. It’s important to consider how much you’re comfortable selling as well as what an investor would need to make the investment worthwhile.
You will also need to know how to value your business.
Choose how you want to sell:
Next, you need to consider how you want to sell. Some of the options open to you are outlined below.
An asset sale can work for you if you want to sell off a particular part of your business that’s underperforming or if you want to generate cash. Assets can include land, equipment or intellectual property.
With an asset sale, you usually lose complete control over the asset you’re selling. This means you should think carefully about whether that asset might become profitable in the long term, or if it’s possible to lease the asset instead.
Divestiture is a term often used to address the disposal of company assets, subsidiaries or services through an asset sale.
If you’re looking to generate extra cash for your business, you might prefer to invite investors to buy a stake in your company. Be aware that this can dilute your control of the business, although the level of investor involvement can vary.
Another option is a management buyout (MBO). This enables the company’s existing management team to pool their funds together and buy a stake in your business. This could be suitable if you are looking to retire and you’re happy for the management team to take full control and ownership of the business, or if you want to get rid of a subsidiary or business division.
Where to sell your business
There are a number of websites that list businesses for sale, so you might want to advertise on one of these. Alternatively, you could list your business for sale on local or business publications. Social media is another way to advertise your business or you could simply approach potential buyers directly.
If you can, it’s a good idea to line up two to three potential buyers in case one or two of them drop out. You’ll also need to be prepared to negotiate as many buyers will want to get a lower price or better terms. It’s therefore sensible to have a little wiggle room in your valuation, but also have a minimum amount in mind.
If you’re concerned about the sale process, you might want to use a broker as they can help you find buyers and help you get the best deal. You will usually need to pay a percentage of the business value to your broker (typically up to 10%), but in return, you might find that you get a higher price for the portion of your business you’re looking to sell. Using a broker can also save you time searching for buyers, give you access to more options and take care of the negotiating for you.