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Selling Off Part of Your Business or a Product Line

Selling part of a business produces a range of benefits, including reducing your risk as an owner, saving money, focusing your business more narrowly or giving you the option to diversify personal assets. If you’re approaching retirement age or thinking of heading into another business venture, transitioning your company to the next generation of leaders or transferring ownership to another party may prove to be the most viable option for your company. However, selling off part of your business or product line can be tricky without proper preparation or professional advice to guide you through the lengthy process.

When to Consider a Partial Sale

The end result of a complete sale of commercial assets is relatively straightforward. If you sell your entire company, you’re no longer involved with the enterprise. Exceptions include cases where there is an employment agreement or other contractual obligations that continue the relationship. So if you’re looking to completely shed your assets in an organization and move on financially, then a complete sale of your company likely makes the most sense.

However, a partial sale (sometimes referred to as a “cull-out sale”) allows the sole practitioner or professional firm to retain a portion of their company. The portion that the owner sells can be a group of clients, an office or team, a brand or a single product line. For example, Kraft could sell the rights to distribute Planters Peanuts and all affiliated nut products and mixes, or it could sell the right to leverage the trademarked Mr. Peanut brand.

If you’re looking to quickly raise funding, to narrow your company’s focus, are planning for a succession or want to broker a deal with an interested company, then a partial sale of your products or company can be a method for achieving these goals. Before you consider a partial sale, consult a professional who can steer you through the tricky process of cashing out and choosing a strategy that is the right fit for your organization.

How to Conduct a Partial Sale

Step 1: Determine if a Partial Sale Is Right for You

Before you decide to conduct a partial sale, carefully consider the reasons for selling a portion of your company. Ask the following questions before proceeding to the selling stage:

  • Consider your goals as a business owner and manager. For example, some owners choose to liquidate some of their investment in the business to help fund retirement. Others wish to stay on the management team to keep the business running.
  • What are your goals for the business itself? If your company needs funding, then new investments from additional sources could help your company expand.
  • Who will be affected by the partial sale of your company? Customers, employees, shareholders and/or suppliers? Does your shareholder agreement have provisions regarding what to do in the case of a sale? Depending on the agreement, the new company may need to purchase the equity off current owners or offer them comparable shares in the new company.

Step 2: Consult a Corporate Accountant and Lawyer

Selling a business (or part of a business) involves significant paperwork, as well as the ability to navigate through dense legal language and requirements. A licensed accountant should advise you on the tax implications of a partial sale, and a corporate attorney can help you draft a sales agreement. Make sure that the agreement very carefully states what is and isn’t included in the sale; especially in a partial sale, it’s important that you clarify what aspects of the business will remain under your control.

During the early stages of the selling cycle, find a broker or consultant who can help manage the sales process. For example, a business broker can assist you in finding potential buyers and negotiating contractual terms. Look for brokers with a stellar track record and specialized experience in your industry. Moreover, your lawyer or accountant may be able to refer you to brokers they’ve successfully worked with in past deals.

Step 3: Choose Your Sales Strategy

The sale of one company to another is generally referred to as a trade sale. When dealing with a partial sale, you also have the option of selling to a private-equity buyer, such as a venture capitalist. Venture capital is particularly useful for startup firms and small businesses that do not have access to large amounts of funding. These investors include wealthy individuals, investment banks and other financial institutions that pool money to purchase ownership in companies with growth potential.

Conclusion

To conduct a successful partial sale of your business, you’ll need to make sure your business is healthy enough to attract qualified buyers. Buyers also look for companies that have strong management practices in place, as well as a solid financial record that points to increasing profits. If you’re unable to find a potential buyer, an alternative option is the management team within your company. Your top executives may be interested in offering a fair price in exchange for partial ownership, so be sure to look out for potential buyers from any and all realistic sources.

Furthermore, plan ahead, and time your sale during periods where interest rates are low and funding is easy to obtain. Careful preparation sooner rather than later in the sales process ensures that you’ll have time to gather the necessary paperwork, take inventory of company equipment and comply with any mandatory government and industry regulations prior to marketing to potential sellers.

Starting a Business?
Join Docstoc's 100% Free Quick-Launch Guide to Starting a Business! Curated Exclusively by the Editors of Docstoc