Whether you own a small hotel or a corporate accommodation business with multiple locations, keeping up with the needs of a company isn’t always easy. Cash flow needs and business-related debt rest squarely on your shoulders, even if the money doesn’t technically flow from your own pocket, and you might find it difficult to strike a true work/life balance if you can’t find support staff you trust. One answer to these struggles is to sell part of your business to a partner.
Creating a Shareholder or Partner Arrangement
It’s possible to sell a share of your business to someone else. You can sell half of the business, making someone an equal partner in the endeavour, but you can also sell smaller shares and create shareholder agreements with individuals who might like to invest in your company.
The type of agreement you enter depends heavily on what your goals and needs are. If you simply want to increase cash flow, you might offer small shares of your business to one or more individuals. In exchange, they might want some basic oversight or voting rights on big decisions, but they wouldn’t likely step in to handle day-to-day management or tasks. Selling a larger share, such as 30 to 50 percent, to a single person might gain you a true partner. You could then split the management responsibilities with that person.
Benefits of Selling Part of Your Business
The first reason business owners sell parts of their companies is to increase cash flow. Divesting yourself of ownership shares in a business can create cash balances on either your company or personal accounts, depending on how ownership is set up and how you conduct the sale. That cash influx can help with personal debts, let you fund needs for your family or help you invest capital in business infrastructure.
A second benefit of bringing on a partner is that you have someone else who is invested in the business. Unlike staff, who work for a paycheck, this person is interested in the growth and stability of the company. That makes it easier to trust them and leave business decisions to them when you can’t cover everything yourself or want to take some time off.
A third reason to take on shareholders or partners is to distribute the risk among other people. If the business has a difficult season or doesn’t perform as expected, the cash flow from selling shares helps keep it afloat without you investing any more of your own money into it.
Disadvantages of Selling Part of the Business
The biggest problem with selling part of your business is that you are no longer the only one at the helm. Even if shareholders aren’t involved in the day-to-day activities, you do have to answer to them in some way, and that means you aren’t able to make all the same decisions you might make alone. A full-fledged partner creates an even more complicated relationship, so it’s important to pick someone you know you can work well with if you decide to sell someone a large percentage of your company.
Another disadvantage in selling part of your business that’s specific to the accommodation industry is that motel/hotel ownership is often linked to residence. If you are staying in the manager’s or owner’s accommodations, you might have to negotiate with your partner regarding compensation. In a 50/50 partnership, if only one of you is benefiting from living at the hotel, the other person might want additional compensation in the form of profit shares or time off, for example. It’s also a good idea to clearly discuss where the business stops and your home begins, as you probably don’t want to feel like your partner’s tenant.
Selling part of your business can be a lucrative, positive experience. To mitigate any disadvantages, work closely with brokers and other professionals to ensure a clear, comprehensive agreement.
For Further Information about this article, contact your nearest LINK Business Broking office at:
