5 Reasons to Split Your Company Into Separate Parts

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One of the telltale signs that a company is doing well is how it consistently makes a profit and is expanding so much that it’s always hiring new talent. If that describes your business, congratulations are in order!

When companies continue to grow, one question that some business leaders have at the forefront of their minds is this: does the company need to get split into separate parts? If any of the following is true, you’ll likely need to put some serious consideration into doing that:

1. You Want to Create New Brands

Some company owners find that offering a one-stop-shop solution under a single brand is perfect for their clients. However, others may find the reverse is a better idea. You may decide that you want to create new brands to serve different markets.

For example, you may create a holding company with two subsidiary brands: one that serves your retail customers and another specifically for commercial and industrial clients. Such demergers can help accelerate a company’s growth.

2. You Want to Sell Part of Your Company

Imagine that you run a company that serves retail, commercial, and industrial customers with your products and services. You’ve decided that the retail side of your company offers the best profit, so you want to grow that side of the business.

But, you don’t want to continue with the commercial and industrial sides. A viable alternative to selling your entire company and starting from scratch or simply killing off the non-retail business is separating your company and selling off the subsidiaries you don’t want.

3. You Want to Buy Another Firm and Merge With It

Sometimes it doesn’t make sense to “reinvent the wheel.” You may decide that it’s better to buy an established business that operates in a sector you wish to access instead of starting a new business from scratch (or diversifying yours in that new sector).

It could make sense for you to create a holding company, have your existing business as one subsidiary of that holding company, and bring in the other business you want to buy as a second subsidiary but keep the other brand name in use.

4. You Want to Raise Capital for a New Venture

Borrowing money is not something most entrepreneurs want to do unless they have no other choice. Some business leaders finance new ventures but sacrifice much of their profits from it until they’ve repaid their loans. In some cases, that can take decades to achieve.

One way of raising the capital you need to start a new venture is by splitting your company and selling off the parts you don’t want. You can then use the sale proceeds to fund your new venture and enjoy all the profits from it.

5. You Want to Pay Off All Your Company’s Debts

On a similar note, you may also want to sell off unwanted parts of your business to create a healthier balance sheet. Paying off all your business debts means you’ll enjoy better cash flow, and your business will undoubtedly have a healthier credit score for future financing.

 

Jeremy

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