Why Selling Parts Of Your Company Must Be Done With Care

Last Updated: 

June 24, 2024

Whether you’re doing it to be able to enjoy some of the fruits of your labour and better manage your own financial position, or you’re hoping to get some money to put back into the business, selling it (at least in part) is one such option for doing just that. However, an asset once sold might not so easily be gotten back. Here, we’re going to look at why you should be careful when selling parts of the company, and threats to be mindful of.

Key Takeaways on Selling Parts of Your Company with Care

  1. Thorough company valuation: Ensuring a thorough and independent valuation is crucial to avoid underselling your company’s worth.
  2. Impact on company culture: Introducing new stakeholders can influence company culture, potentially leading to misalignment and conflicts if values and objectives differ.
  3. Loss of control: Selling part of your company means losing some control, which can lead to decision-making conflicts or even a hostile takeover.
  4. Legal and regulatory compliance: Engaging business lawyers helps navigate legal and regulatory requirements, ensuring a smooth and compliant sale process.
  5. Future financial limitations: Selling equity reduces your collateral for future funding, so ensure the sale aligns with your long-term financial goals.
  6. Stakeholder alignment: Prioritise finding stakeholders who share your vision and values to maintain company harmony and direction.
  7. Preparedness for risks: Be aware of the potential risks involved in selling parts of your company and have strategies in place to mitigate these threats.
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Not Getting As Much As You Should

You have to be thorough in ensuring that your company is valued properly when first making the sale. A valuation that isn’t thorough enough can result in you getting less money than you should. Work with your own independent valuator and make sure that you have as comprehensive a look at the company’s assets and worth as possible.

Changes To The Company Culture

A company’s culture, which can often be the driving point of its success, can very much be influenced by the arrival of new voices at the table. If you are misaligned with your new stakeholders and don’t share the same objectives and values as them, then the same schism can start to make itself known in the company, itself, which can be worrying. Finding the right stakeholders should be a priority.

Losing Control

When you sell a part of your company, you are also selling off a portion of control over it. This can lead to troubles with decision-making and, should differences continue to grow, it can even lead to a potential coup, such as Freshstream has recently been accused of after they acquired a stake in Big Motoring World. Aiming for alignment before you sell is a good way to prevent some strife from rising, but you can’t always stop new stakeholders from going on the offensive.

Legal and Regulatory Problems

When you do sell off a portion of the business, it’s wise to do it with the help and guidance of business lawyers like Gannons. You want to make sure that you’re not skipping any due diligence when it comes to staying within legal and regulatory guidelines. Otherwise, it can hold up the process and cost you money. You want to make sure that your own legal rights to your stake in the company are protected, as well.

Limiting Your Future Financial Options

Having more equity in a company means having more collateral when it comes to seeking funding options in the future. As such, you have to be certain to make that sale only when it’s essential to your goals, and to get enough so that you’re not likely to have to rely on your stake to get more funding in the future.

If you do intend to sell parts of your company, then you must be ready for the potential risks it poses, as well as what you can do should any of these threats come to pass.

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