What is Business Divestiture?
Sometimes we face such situations in our business that it becomes difficult to tackle. So in that situation, we take over our business to someone and not even business, so few business assets such as product departments, subsidiaries, property etc. This process is called Business divestiture.
Owners sell their assets with some hope that they will get some benefit in return and that benefit can be anything. Business divestiture also has many reasons that the business owner had lost his business and was unable to invest further for the growth of the business. Therefore, he gives the entire deposited business to someone and takes a better return.
Sometimes, what happens is that even after continuously investing in business, there is no profit. Even after investing money in the market for business improvement, the customer is not able to attract, so the business has to adopt the path of business divestiture.
It’s not that business divestiture is the sale of only business assets, we can sell the entire business for some motive. For example: Suppose you are running a business and you are facing losses continuously in business such as marketing, production, sales department after investing so much, now you want to wind up this business or take over someone. So then your expectations will also be some that you get some like money, shares, bonds, etc. So this is also known as business divestiture.
Type of Business divestiture
- Getting money: When business owner sells his business or some of his properties to solve some financial issues, manage or improve cash flow issues. For example you need money so you have to sell some equipment or property such as land.
- Bankrupt: Suppose you had taken a business loan and now you are unable to repay the instalments of business loan, you will be bankrupt, meaning whatever you have given to the bank in the form of security will be all theirs and the bank will take over the entire business. The business will be closed and the bank will sell it to anyone but the owner will not get anything such as money. This is called business bankruptcy.
- Take over an entire business to someone: Suppose you have a reputed business and now you don’t have enough money to run your business so now you want to take over your business to another one such as friends, other entrepreneur, firm, etc.
- Closing one branch: Suppose you are running your business in more than one location. In simple words, you have more than one branch of your business so now you want to close your one branch because more of your customers are at another branch location, they are not able to become more customers. This is also called business divestiture.
- Selling business assets: Suppose your production department is no longer doing well and you are not getting profit from it so you can focus on the new product or services, which means change your products for better production. This is also known as business divestiture.
Reasons of divestiture
- Lack of investment: Business divestiture happens only when the business owner doesn’t have money to invest so the business owner decides to sell some of his business assets to another firm or another one.
- Lack of talent: Business divestiture happens only when business owners are unable to put their mind on the right place, they need new ideas, technology to run the business.
- Drastic environment: Every business needs to be changed according to technologies, environment, strategies so sometimes the owner can’t adjust himself into these changes.