In the ever-changing landscape of business ownership, deciding to sell a portion of your business can be a strategic move that unlocks substantial value in your company. A partial sale can provide fresh capital or bring in new partners to help drive business forward. In this article, we’ll walk through the benefits of selling part of a business and how to navigate the complexities of it.

Advantages of Selling Part of Your Business

Many business owners are passionate about their company, but some face limitations in capital that restrict their growth plans. By selling a portion of the business—whether an asset or an equity stake—to a strategic investor, an owner could secure the necessary resources for expansion while retaining control over key decisions.

Partnering with another investor or company allows you to share the risk with someone else, while also leveraging their expertise and resources. This helps to reduce risk when trying to expand, develop new products, or begin new ventures. Selling part of the business to a key employee or external investor could also help facilitate succession planning. This allows you to retain talent and prepare for a smooth transition of ownership when you eventually depart from the business. Divesting non-core assets can free up capital for core operations and strengthen the overall financial health of the business.

Reaching More Qualified Buyers by Selling Part of Your Business

Selling a part of your company could help you reach more qualified buyers than selling it in its entirety. The Small Business Association (SBA) now allows partial business acquisitions to be funded with SBA loans. This could allow an existing business owner to get SBA qualified if a special license is needed, but the buyer doesn’t have time to acquire it before closing. The buyer can “buy-in” to the business but must purchase at least 81% of it. If they acquire less than that the seller will be required to guarantee the loan. The sale is structured as a stock sale, providing the seller with additional tax benefits as well. Stock sales are taxed at a lower capital gains rate than asset sales, and in C-corporations the corporate-level taxes are bypassed.

Utilizing a Partial Sale Strategy to Stay Involved in Your Business

Some owners are looking ahead to retirement, or the next stage of life, but aren’t completely prepared to leave their business entirely. If you are someone who wants to gradually transition away from running a business full-time, a partial sale may be the ideal strategy for you. It could allow you to partially cash out and maintain an influential role in the company. This could give you some extra time to align your exit strategy with your post-sale life, as well as ensure the future of the business stays on track with new ownership. This strategy also offers an additional financial incentive. When you decide to sell the remainder of your stock in the company, you’ll have the benefit of another big payday with all the additional value you created along the way.

Creating Value through the Strategic Sale of a Part of a Business

Selling part of your business can be a powerful strategy for unlocking hidden value. Strategic partnerships and the infusion of new capital can fuel expansion, research and development, and market penetration. Collaborating with an established company can also boost your brand reputation and attract new customers. Strategic buyers often bring specialized knowledge, operational efficiencies, or distribution networks that benefit your business. Partial sales provide immediate cash flow that can be used for debt repayment, investment in other ventures, or rewarding key employees.

By carefully crafting a strategic sales approach, you can maximize the value you receive from selling part of your business. Keep in mind that such transactions can take time and are often very complicated. You should not try to negotiate or execute transactions like this without representation from an experienced M & A advisor, such as a business broker.

Types of Partial Sales

Choosing the appropriate type of partial sale will depend on your motivation for selling. Each can unlock significant value for your business, and each has its own advantages. The best option depends on your specific goals and the nature of the asset you wish to sell. Consulting with an experienced business broker can help you choose the most suitable path for your business.

• Equity or Asset Stake: Selling a percentage of ownership in your company to investors or strategic partners in exchange for capital.
• Divestiture: Selling a specific business unit, product line, or subsidiary to streamline operations and focus on core strengths.
• Spin-off: Creating a new, independent company from part of your existing business to unlock value for both entities and attract targeted investors.
• Joint Venture: Partnering with another company to co-own and operate a new venture, combining expertise and resources for mutual benefit.

Assessing Your Business’s Readiness

Before initiating a partial sale, it’s crucial to focus on a few key areas to assess your business’s readiness. Your business must have a strong financial track record, showing profitability, manageable debt, and a clear growth trajectory. This is a crucial part of attracting buyers. The business must operate in a growing industry with a sustainable competitive advantage. This can position it for a higher valuation. Your company must also have streamlined operations, a skilled workforce, and well-defined processes. These characteristics signal that your business is primed for continued success. Addressing these factors will also help you attract more qualified buyers and potentially secure a higher price.

The Do’s and Don’ts of Selling Part of Your Business

Do:

• Plan Early: A successful partial sale requires careful planning. Assemble a team of legal and financial advisors to navigate the complexities of the transaction.
• Know Your Value: Obtain a professional valuation of your business to establish a realistic asking price and avoid undervaluing your equity.
• Target the Right Buyers: Identify potential buyers who understand your industry, appreciate your value proposition, and have the resources to support your growth strategy.
• Prepare a Compelling Offering: Develop a clear sales pitch that highlights the benefits of partnering with your business and the unique value you offer.
• Negotiate Skillfully: Be prepared to negotiate key deal terms such as ownership percentage, valuation, and governance structure.

Don’t:

• Go It Alone: The M&A process is complex. Partnering with an experienced M&A advisor ensures a smooth transaction and protects your interests.
• Overestimate Your Value: An inflated asking price can deter serious buyers. Be realistic in your expectations and base your valuation on industry data.
• Neglect Due Diligence: Transparency is crucial. Provide potential buyers with comprehensive access to financial records and other relevant information to facilitate a smooth process.
• Rush the Process: Finding the right buyer takes time. Don’t feel pressured to accept the first offer. A well-managed sale process ensures you find the ideal partner for long-term success.
• Underestimate Communication: Maintain open communication with key stakeholders, including employees and management. Address concerns and provide regular updates throughout the process.
• Assure Confidentiality: If approaching a competitor as a potential buyer, share limited information upfront and gradually disclose more as the sale progresses. An experienced business broker is a valuable buffer between you and potential buyers who knows how and when to disclose confidential information.

The decision to sell a part of your business is one with many nuances that requires thoughtful consideration and strategic planning. If you think that this is a strategy that may fit with your business and financial goals, consult with us at Corporate Investment Business Brokers (CIBB). We have experience structuring deals for businesses of all sizes and industries throughout Southwest Florida. Contact us to get a free business valuation estimate and start the process by discovering what your company is worth.