If you’re wondering whether to sell part of your business or start winding it down you should ask yourself one question: would selling a portion of my business increase the value of the part I retain.
If you’re wondering whether to sell part of your business or start winding it down you should ask yourself one question: would selling a portion of my business increase the value of the part I retain.
Here are some scenarios where the answer might be ‘yes.
Enables Expansion
Would a cash injection from a partial business sale allow you to buy the equipment or hire staff needed in order to expand? Through expanding and reaching new markets, the part of the business you retain could be worth more than the existing business.
Create Value
Could selling part of your business create synergies that would add value for the portion you retain?
Grow Revenue
Is there an opportunity for the investing company to refer business? For example, if you run an auto-workshop and the potential investor owns a courier service and wants you to service their fleet, it could be a mutually beneficial investment.
Reduce Costs
The sale might be a good idea if it could reduce your operating costs. Combined, your two companies might have better buying power. There could be opportunities to share equipment or pool resources. A sale might help you save money in the long run.
Intellectual Capital
Anyone who invests in your business becomes invested. Your interests are now linked and it’s in their best interests to see you succeed. If they’re able to bring intellectual property, knowledge or skills that can increase the value of your business, selling part of your business could make sense.
Reduce Risk
Could selling part of your business help you become more financially stable? Property managers do better when real estate sales fall because more people are looking to rent. On the flipside, real estate agents do better when property values increase as more people want to sell their homes. Mutual investment between a property management firm and a real estate company could reduce the risk for the other during the low point of the business cycle.
If you answered ‘yes’ to one or more of those questions, selling part of your business might be a good idea. On the other hand, if you want the money from a partial sale for personal reasons it might be a good idea to look at winding down your business. Winding down a company doesn’t necessarily mean you have failed. Done properly, and with the proper IR433 form filed you can close down your business but keep hold of the company until you have the assets, IP or capital to launch again.
Allowing your company to go insolvent and declaring personal bankruptcy come with longer term consequences. The government can prevent you from travelling internationally (without authority), from working within some industries, from temporarily or sometimes permanently being a company director.
If you need a cash injection and partially selling your business won’t increase the value of the part you hold on to, it might be better to voluntarily wind down on your own terms instead of waiting for the statutory demands to arrive.
For more information on your options regarding selling your business or winding down, download our free guide, Options for Companies in Financial Difficulty.