When you’ve spent a lot of time and effort building a business, it’s natural to be uncertain about selling it. On the one hand, you may want to realise the value you’ve built. On the other hand, you may feel that there’s “more left in the tank”, and that by selling you could miss out on an exciting few years.
If you’ve spoken to some prospective investors or advisors – and if you’re running a successful business it’s very likely that several will have approached you – they may well have reinforced the idea that you have only two choices: sell or hold.
In fact, you have a third option. That is to sell a stake in your business, preferably to someone who will help you improve it and accelerate growth. You retain involvement in the business, and typically after three to five years you and your investor jointly head towards the next stage.
Financial advantages of selling a stake
This option gives you two bites of the cherry. The first bite is when you free up a fair amount of capital now in return for the stake in the business. With that money you could, for example, pay off the mortgage or fund your children’s education. (This is often the time when entrepreneurs and their families first start to realise that all the hard slog really has been worth it).
The second bite comes in a few years’ time, when you and your investor agree to the next capital or exit event. What you can get then is often a lot more than you’d have had if you’d soldiered on alone, as long as you choose the right partner. That’s because you should have a much better invested business platform, with profits that have accelerated beyond levels you might have achieved alone.
Another advantage: reduce personal and business risk
The other benefit of selling off a stake is that you reduce your risk, partly by sharing it with your partner, and partly by working with that partner to strengthen the business and make it flexible enough to deal with different scenarios. We’re talking here about personal as well as business risk: many entrepreneurs have all their wealth tied up in their business. By selling a stake you can make sure you and your family are financially secure while continuing to benefit from the growth in the business – a pretty compelling proposition for many people.
The risk reduction aspect can be particularly appealing at times of economic instability, when you can’t be so confident that the business will thrive in the future the way it has in the past. If you take some money out now, you haven’t got all your eggs in one basket any longer.
How to make it work
The secret is to pick a partner with experience of professionalising fast-growing businesses and helping them accelerate growth and increase profitability. Partners like this can increase “lifetime value extraction” for both you and themselves. In other words, you could realise substantially more money from the business than you could on your own.
What would a partner do to make this happen? It’s a matter of working closely with you and your team and suggesting ways to improve the running of the business based on past experience. Often it will involve introducing ‘missing’ talent into the business, whether by helping you find the best person for a senior vacancy or by introducing you to people with functional expertise in key areas such as technology or sales & marketing.
As well as bringing in the right people, your partner can help you clarify your growth strategy – for example, you might decide to reduce the number of product lines so you can focus on the most profitable, or to move into international markets. They can also help you put in place scalable approaches for IT, operations, finance, infrastructure or whatever your business needs most.
Find out more
At Livingbridge, we find that this third option of selling a stake in your business is often the best choice for successful entrepreneurs, and we have lots of experience in how to make it work. We have invested in and worked with more than 100 companies, helping them to find the people, develop the strategy and build the platform for profitable growth. To find out more, please get in touch.
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