Accounting & Finance
Why Selling Shares In Your Business Can Be A Good Move
Seasoned entrepreneurs and business owners create or buy businesses knowing how and when they will exit with a profit.
Therefore starting out with the end in sight not only dictates when the timing will be ideal to sell and exit once for all but also where the business is going, how it’s going to get there.
Selling shares along the way can return funds, repay debt, secure resources and create a win-win for the existing and eventual owners. In this article, we look a little deeper into reasons for partial sell-off with stock shares.
Why Sell Shares In Your Business?
Business owners take all the risk upfront when they get involved with a new company. Purchasing or growing an enterprise from the ground up requires a lot of capital, and this is a loan that needs to be paid back. The initial injection of cash and any further contributions required are recorded as debts, and there is usually a plan for returning the funds to the owner.
Selling shares in the business can be the best way forward for sole ownership entities. This is a way for owners to gradually relinquish full ownership and if the share offering is gradual in time the business is transitioned over to the majority shareholders.
Many trigger points prompt the sale of an ownership interest in a business, including:
- Debt repayment
- Increase cash flow
- Bring in a partner
- Employee commitment
Not only will the company owners have some ‘skin in the game’ investing their own money, but the company will have other loans too.
Companies borrow funds to invest in their growth, research and development, new products or services, staff hire, real estate and marketing and so on. Successful businesses need a lot of capital to take advantage of the improved purchasing power, secure resources, keep staff, compete, and remain relevant to their customers.
Types of Business Loans
The loans can be a mix of secured and unsecured finance, including:
- Term loans
- Credit cards
- Lines of credit
- Invoice factoring and finance
- Hire purchase
- Purchase order funding
There are many more ways to borrow money, and it’s not only struggling enterprises that ask for investment. Most businesses use external providers for loans and secure funding, even when the business is doing well.
In fact, this is the time for a business to borrow when they can make healthy sales, revenue, profit and have cash in the bank.
All loans need to be repaid so with growth comes increased value, and a strategy to sell company stock is an option to cash in on the success of the business.
Selling a percentage of the business is a good move for owners who are not ready to exit. As mentioned earlier, it can also be a transition to new ownership and help the company grow or move in a new direction.
Employees that have a vested interest in the company they work for are also less likely to leave or be tempted by a better offer of employment from a competitor.
An injection of cash flow can be directed to marketing and sales to broaden customer reach in markets the business is unproven.
Selling shares in your business can be orchestrated more than once too.
Keen business owners and entrepreneurs may start with full ownership of a small pie, but their goal from the outset is to have a much bigger pie to sell-off with partially or as a whole.
Selling shares in the business can be a profitable strategy for securing and growing the business until it’s time to exit it for good.