By Analytix Editorial Team
Divestment or disinvestment, also known as divestiture, can prove to be indispensable to businesses for optimizing their operating capabilities and maximizing returns. A Deloitte survey revealed divestiture expectations in the year 2018 pegged at 70%. This figure shows an increase for the year 2019 with more than 80% of the combined corporate and private equity respondents surveyed willing to sell units or portfolio companies in 2019.
However, while divestitures provide an opportunity to focus business attention on core competencies, they can hold up a business if not planned and executed effectively and professionally. To prevent this, it is critical to plan or create a sound strategy beforehand to leverage the momentum generated by the divestiture.
What Can a Growing Business Gain from Disinvestment?
Divestment can fulfill several goals for a business:
Divestments may fulfill the dual option of streamlining a business through a well-charted process involving trimming non-necessary assets, shifting the focus to core competencies, and helping add to the business funds through a judicious sale.
When is a Good Time for Divestment?
Choosing divestment for profitability is not a decision that can be made overnight. A divestiture can be a good decision for a business in some circumstances, including the following:
Some of the reasons cited by the survey respondents for business divestiture, by percentage and year, are as follows:
|Year||Financial requirements, including raising capital for the business||Technical reasons, including ridding business of obsolete tech or technology no longer needed||Business strategy changes and modifications|
Choosing Divestment for Your Business
Before making the decision to divest, businesses must understand the implications for their business. This requires a thorough knowledge of the business’s existing resources, competencies, and bandwidth to keep pace with growth requirements. Identifying challenges is vital; whether it is non-performing assets, or increasing capital expenses, or the need to diversify.
Divestitures are complicated and involve surveys and strategy and a close and detailed study of transactions and figures before they can finally be executed. Consider the following:
Divestment for Business Profitability: How to Go About It
Tracing balance sheets, conducting due diligence on accounting and financial numbers and operations, and determining the financial health of the business, from scrutinizing tax records for obligations fulfilled to a careful study of performing and non-performing assets: choosing divestment includes all of these.
In reality, divestment is a complex process from planning to execution. Reaching out to professionals helps ensure a fair business analysis that can identify and outline outcomes of the divestment before choosing to undertake it.
The actual process of divestment, surveying and creating a strategy before successfully executing it, requires professional due diligence that can take hours of time and attention of business owners otherwise engaged in business building activities or keeping pace with business growth. Beginning with sound bookkeeping and accounting practices is a good way to ensure a smooth divestiture.
At Analytix, our team of professionals is committed to helping businesses grow while leveraging their existing strengths and/or augmenting with our proven capabilities, wherever required. Our business analysis reports can help provide you with an accurate snapshot of your current financial position, thus helping informed decision making and cutting down on risks.
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