If there is a certain aspect of a business that isn’t performing as well as others, many business owners choose to invest more time and money into it to improve its performance. This isn’t always the best strategy, however, as the increased concentration may put other, more successful aspects in jeopardy. In this case, a business divestiture is a group of strategies that allows you to rid yourself of underwhelming assets in an attempt to make the rest of your business stronger. The Balance explains different types of business divestitures and how they work.
Filing for bankruptcy is a common type of business divestiture. Certain types of bankruptcy entail the liquidation of assets to settle outstanding debt to creditors. While not all types of bankruptcy involve liquidation, Chapter 7 proceedings would require you sell off things like property or equipment. Although Chapter 11 aims to reorganize debt, in some cases it also involves liquidation.
Of course, some owners choose to sell off assets on their own without the accompanying bankruptcy filing. A person might sell business equipment, intellectual property, or even lines of goods or services. This is a good option if you provide multiple products and services to consumers, with some performing better than others. That way you can focus on the aspects of your business that have proven lucrative while also increasing your revenue.
Some businesses are spread too thin by managing multiple locations. In this case, strategically closing locations that have proven to be a financial liability will free up money for other necessary expenses. If you’re the owner of many subsidiaries, you may also consider selling a portion of them to increase your bottom line. Business divestiture is most effective as a strategy when it’s part of long-term financial planning, which should be reviewed on a regular basis.