Navigating the Complexities of Selling Equity
Owning your own business presents new challenges every day. Some challenges may require unique reactions, including selling off part of your business to a partner or partners. If you’ve considered selling a stake in your business, weighing the potential positives and negatives will help you make an informed choice.
A sudden spark to ignite the fire
One of the most common reasons to sell part of a business is a sudden infusion of cash. Entrepreneur contributors and business experts Doug and Polly White note that selling a portion of your business is a great way to expand your business, giving you the funds you need to grow with new products and services or additional locations, or even to expand into new industries.
Sharing ownership of your business can foster game-changing collaboration and innovation. The Whites suggest that you could create a synergistic relationship with an individual or entity that could further grow the business. Because you’ll ultimately be able to say yes or no before finalizing a sale, you can ensure that the person or persons involved are passionate about your business and have a vision that aligns with yours. You can also choose to work with individuals who complement your weaknesses, strengthening your business even more.
If your business has a high valuation and a lot of interest, selling part of it may create more value than it would if you maintain full ownership. But to help push your business to that next level, you’ll want to be confident that you’re working alongside the right people.
Have as much (or as little) control as you wish
When you sell off part of a business, you are giving up the full control that comes with total ownership. In order for this decision to work, you have to be comfortable yielding some control and being accountable to stakeholders.
Because you’re in control of your business, you can ultimately decide how much of that control to concede. The Hartford’s Business Owner’s Playbook notes that you could choose to remove yourself almost entirely from day-to-day business, opting instead to stay on in an advisory role of some kind. This choice comes down to you — if you have a hard time envisioning anyone else steering the ship, a partial sale may not be right for you.
Selling a business takes time
Whether you’re selling part ownership in your business or selling it off entirely, the process can be a daunting, protracted one. As The Hartford notes, you can expect rounds of negotiations and lots of paperwork, so it’s not an avenue you should pursue unless you have the bandwidth and are 100% on board.
According to Investopedia contributor Brigitte Yuille, the sale of a business can take anywhere between six months and two years from finding possible buyers to finalizing the agreement. If you’re considering a partial sale to cover debts or stabilize your business’ finances, it may be better to consider alternatives like small-business loans or a business line of credit.
Selling part of your business can yield positive results, but it’s not a decision you can take back once you’ve signed the paperwork. Before you investigate, seek out an expert who is knowledgeable in business sales and consult with your family and financial advisors.
