Selling part of a business is somewhat different from selling your entire business. You need to be able to separate ⏤ legally and financially ⏤ the asset you want to sell so that it can be sold as its own business.
In this article, we look at what’s involved when selling part of your business so you can generate a lump sum cash windfall from that while running your core business.
TL;DR:
- Selling part of your business means being clear on what you’re selling;
- The part you’re selling should be able to operate as a separate business, without you and without cashflow from your main business;
- It needs to be a separate legal and financial entity, with growth potential, so that it can sell successfully to a new owner.
The other way to sell part of your business is to sell shares. A way to raise capital while only giving a percentage at an agreed valuation.
In other words, you’ll have an investor and they might expect decision-making options. We aren’t talking about that in this article.
In this case, we’re only looking at how you’d go about selling part of your business as a separate entity to a new owner.
Let’s dive in . . .
Why Sell Part of Your Business?
There can be many reasons someone wants to sell part of their business. In many ways, these are similar to the reasons people sell businesses.
Every year, “roughly 500,000 businesses change hands each year”, based on BizBuySell.com and U.S. governmental data. Some of those businesses being bought and sold will be companies spun out of another company.
However, what’s different when an owner is selling part of their business is that they usually re-invest the cash in the core business.
It could be a case that they’ve spotted a quick-win opportunity to generate a decent amount of cash to re-invest in operational growth.
In most cases, they aren’t ready to sell their main business. But, there’s an opportunity to sell a product or service as a stand-alone venture, and these funds could be used for:
- Accelerating growth in the business they’re keeping;
- Putting money into property, investments, savings, and retirement accounts;
- Using the money for a big life change, such as buying a house, traveling, or having a baby, while continuing to grow their main business.
In any scenario, the business they founded that created this company they’re selling is still running and growing. Selling part of the business separately could also be a great way to re-focus efforts on that business.
Can You Sell Part of Your Business?
Yes, it is, providing the part of your business you’re selling:
- Stands alone as a viable entity
- Generates its own revenue, has operating costs or services that aren’t dependent on your other business
- Has or is an asset of some kind, such as a niche website or a software product (SaaS)
- One business could still help the other, as in generating revenue for the other, provided the new owner is happy with a reciprocal agreement to be decided before a sale is complete
- Has growth potential after the sale, so that a new owner can grow it even further and sell it down to the road to generate an ROI.
Now, let’s take a closer look at how you can sell part of your business with our 8-step process.
8 Ways to Sell Part of Your Business
Follow these 8 steps to sell part of your business successfully.
1. Decide on and Isolate the Asset/Part of the Business to be Sold
The first step is to decide what you’re selling and then make that into a separate entity from your core business.
There are so many ways entrepreneurs can create a separate business entity:
- Portfolio owners of niche websites could sell one or more separately
- Solopreneurs working on several products or businesses could sell one or more of them
- SaaS (Software as a Service) could spin-off a sub-product or even bundle a set of features into a separate product (providing it doesn’t harm the main product)
- eCommerce brand owners could spin-off a sub-brand with its own website or app
- If you’ve got a successful newsletter or podcast that could be sold as its own entity (provided the brand doesn’t rely on you as one of the assets).
2. Divest that Asset From the Core Business While Retaining Ownership of Both
Whatever you can and decide to do, once you’ve made that decision it needs to be turned into a separate business asset.
The aim is for someone else to own this asset. However, at the point of turning it into another business you need to have 100% ownership of both.
It’s worth consulting your lawyer and accountant to ensure everything is setup correctly to make a sale easy.
This business needs to be an asset that can be transferred quickly, to avoid any legal complications during due diligence and the sale itself.
3. Have the Separate Business Asset/Unit Valued for a Purchase Price
Getting a valuation is crucial for getting a fair price for the business you want to sell.
There are two ways you could do this:
- Attempt a DIY valuation, using a valuation calculator. These may not give you the most accurate figure but could be useful for a ballpark estimate.
- Get a professional valuation done. You might also need this if you’re aiming for a price of 2 – 3X annual recurring revenue (ARR) for this divested business, and if you need to secure a seller-financed SBA-guaranteed loan.
Whichever route you go, make sure you can support the price you want with data and figures. A profitable business unit that’s generated most if not all of its own revenue and profits is always going to be easier to sell.
Make this business as attractive as possible for a potential buyer.
4. Make Sure the Separate Business Asset/Unit is a Viable, Sale-ready Business
Treat this separate business asset/unit as its own business.
Do everything to sell that business in the same way you would your main business. Steps we recommend include:
- Getting your financials for that business in order and documented (especially ones that show revenue, profits, discounted cash flow, and that it’s separate from your core business).
- Getting all of the legal documents you need ready (especially and including those showing that it’s legally separate from your core business);
- Getting a seller-financed SBA-guaranteed loan if you want a quicker sale and to show you’re willing to back the deal financially;
- Putting together something ⏤ such as a sale pitch deck (see point 6) ⏤ that shows it’s sale-worthy and has growth potential.
💡Pro Tip: For more information, we recommend reading two of our recent articles:
How to find a buyer for your business.
5. Analyze the Long-Term Growth Potential of that Asset
When selling any business, there are two figures that matter:
- How much it’s worth? The price you hope to get for it.
- How much it could be worth? The value a new owner wants this business to reach so they can sell, make their money back and make a profit. In most cases, buyers want a multiple of 5 ⏤ 10X over an 18-month to 3, 5-year period, at most.
Make the sale more attractive by showing you’ve put some thought into the second figure.
Give them a marketing and sales roadmap.
Show them what similar businesses have achieved, whether that’s funding raised, public revenue figures (the #BuildInPublic movement is helpful for that), or exits achieved.
Give a potential buyer a simple reason why you don’t have the time or energy to invest in doing this yourself, making them the perfect person to take this vision forward.
Include all of that in a sale pitch deck (see below).
6. Create a Sale Pitch Deck
A sale pitch deck is a summary document of everything that makes a business an attractive asset for a potential buyer.
Imagine you sell a B2B product or service (or you already do!), this is like that except for your whole business. Or in this case, the business unit you want to spin-off and sell.
It’s a shiny catalog for your separate business asset.
Include in this anything that will make it seem more attractive to a buyer:
- Current revenues (MRR, ARR)
- Specifics as to how/why it’s a standalone business
- Operating processes and people needed so it can function and grow (ideally, without the new owner needing to be hands-on) as a standalone business
- Current profits: Discounted cash flow (DCF) and EBITDA
- Cash-on-hand and current receivables
- P&L and the balance sheet
- The assets of this separate business unit
- Future growth potential as a standalone business
7. Decide the Sale Approach: Private and Off-Market or Public and Online?
When selling a business, do you go private and off-market or public and online?
There are pros and cons for both options, as we cover in this article.
Private/off-market:
- You usually receive a higher-quality, more serious set of potential buyers;
- But you won’t receive as many offers as going online and being public about your sale;
- But … the quality of those inbound inquiries usually isn’t very high. You could have 300+ via social networks and M&A platforms, and yet not one of them could be purchase-ready;
- Hence the value of off-market sales.
Online:
- There are lots of M&A platforms to choose from with a range of features;
- You can promote your sale when you pay extra or work with brokers;
- Brokers often advertise sales online too, although they want 10% ⏤ 20% of the sale price.
- Social networks can help you amplify a sale, and on Twitter/X the #BuildInPublic movement is a known channel for selling businesses.
Another option is to work with a dedicated deal-sourcing partner, such as Falcon River. We aren’t a broker, we only sell off-market businesses, and we don’t charge fees or take a percentage of the sale price.
We only match you with potential buyers who are a good fit for your business, are ready to buy, and do have cash on hand.
Work with Falcon River to sell your business: Quick, organized, fair, and zero broker fees.
8. Follow the Exit Process to Find a Buyer for Your Separate Business Unit
Once you’ve found a potential buyer, it’s time for the due diligence process.
Make sure they’re serious by getting them to sign a letter of intent (LOI) and an NDA, of course.
We always recommend having all of your documentation ready before a potential buyer asks to see financials and other information.
All of this will help the sale go through a lot faster. And remember, a deal isn’t done until there’s money in the bank!
Key Takeaways: How To Sell Part of Your Business
As we’ve covered in this article, there are numerous reasons for selling part of your business, and a clear roadmap for those who’ve got part of a business they can sell as a separate asset.
💡Bonus Tip: Is your separate business already generating revenue and profits?
Do you use marketing for your core business?
But . . . do you have social channels, a newsletter, and a marketing campaign setup for the business you want to sell?
If not, re-invest some revenues into marketing so that a new owner isn’t starting from scratch. Not only will that show you’ve got faith in this as a separate entity, but it will also make it easier for them to keep driving growth forward to achieve an exit with this business in time.
Work with Falcon River to sell your business: Quick, organized, fair, and zero broker fees.
