You can be on Entrepreneur’s cover!

3 Situations Where It Makes Sense to Sell a Part of Your Business Bringing in a partner or investors could lead to significant growth.

By Doug and Polly White

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

Pixabay

If you have determined that selling a portion of your business is the best way to get the money you need, the sale may well be prudent.

If you do not need the money for personal reasons, then the question to ask is would the sale of a portion of your business make the smaller piece of the business that you retain worth more than the larger portion of the business that you would own if you didn't sell? The answer to this question might be "yes" in three situations:

1. The proceeds from the sale enable expansion.

In some cases, the cash infusion will allow a business to purchase equipment and/or facilities that will enable geographic expansion or the addition of a new offering. Such an expansion could make a smaller portion of the expanded business worth more than a larger piece of the existing business.

Related: The 2 Major Drivers of Company Valuation

2. The sale allows you access to resources that would create value.

Synergies that would grow revenue: If the entity wishing to make the investment were in a position to pass your company business, the investment might make sense. Suppose you run a tire service. If the person who is willing to invest in your business owns a large fleet of taxis and is willing to have you service the fleet, the investment might be mutually beneficial. Alternatively, if the potential investor is willing and able to open the right doors for your company, sales could grow exponentially.

Synergies that would allow cost reductions: If the potential investor could significantly reduce one of your major costs, the sale might be a good idea. A larger company might already purchase large quantities of raw materials that your business uses. Because of the volume the larger company buys, it might be able to give your business access to the raw materials at lower costs.

Related: Looking to Sell Your Business? Think About it Like This.

Access to intellectual capital: Sometimes, the potential investor brings unique knowledge or a special skill set. If the partial sale gives you access to such expertise, the benefit may be significant. The result may be that the person who invests in your firm serves on the board or is willing to act as an advisor. After all, he or she now has some skin in the game. Your interests are linked.

3. The sale would reduce the risk faced by your business.

Property management companies do well when real estate sales are down because more people rent. Real estate sales agencies do well when homes are selling quickly. These two businesses are counter cyclical -- when one is up the other is down and vice versa. A mutual investment might provide both businesses with needed protection against bankruptcy during the adverse portion of the business cycle.

If one or more of the scenarios above are applicable, selling a portion of your business may make sense. However, unless there are compelling reasons, we caution entrepreneurs against giving up control of their business. Once that happens, your fate is in the hands of another.

Related: 4 Ways to Build the Mental Fortitude Needed to Transition From Your Business

Doug and Polly White

Entrepreneurs, Small Business Experts, Consultants, Speakers

Doug and Polly White are small business experts, speakers and consultants who work with entrepreneurs through Whitestone Partners. They are also co-authors of the book Let Go to GROW, which focuses on growing your business.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.

Business News

This Highly-Debated Piece of Cinematic History Just Sold For Over $700,000 at Auction

The wood panel from "Titanic" is often mistaken as a door. Either way, he couldn't have fit. (Sorry.)

Business News

From Tom Brady to Kevin O'Leary – See Who Lost Big in the Wake of the FTX Crypto Collapse

The crash exposed an $8 billion hole in FTX's accounts, leaving investors and customers scrambling to recoup their funds.

Starting a Business

How to Find the Right Programmers: A Brief Guideline for Startup Founders

For startup founders under a plethora of challenges like timing, investors and changing market demand, it is extremely hard to hire programmers who can deliver.