Would you sell your favourite business unit?

A CEO allocates capital across business units. An owner gives up a part of their life.

Five business units.

Five different markets.

Five different returns.

And one of them is special.

Your baby.

Perhaps it was the first business unit you built up yourself.

Perhaps that’s where your story as an entrepreneur began.

Perhaps you still know your very first customers personally.

Perhaps you remember the first machine, the first order, the first million in turnover.

Perhaps this business unit plays a bigger part in your own story than any other part of the company.

There’s just one thing it may no longer do today:

It generates the best return on investment.

On paper

,

the decision is simple

Division A is growing.

Division B generates high cash flows.

Division C has great future potential.

Division D requires substantial investment.

Division E has been part of the company for decades.

When capital is scarce, the task seems clear:

Invest where the capital can generate the highest future value contribution.

But businesses aren’t run on paper.

And entrepreneurs don’t have an emotional Excel spreadsheet.

A business unit can be more than just a business unit

For an external investor, a division is first and foremost an economic asset.

Turnover.

EBITDA.

Cash

flow.

Growth.

Capital

requirements.

Risk.

Enterprise

value.

For an owner, the same division can mean something completely different.

It may be the place where it all began.

It may have shaped the family name.

It may employ staff who have been with the company for decades.

It may represent a business decision that, at the time, nobody but the founder thought was the right one.

It may have weathered crises.

It may have created prosperity.

And at some point, that same entrepreneur finds himself faced with figures that suggest his capital might be better invested elsewhere.

Would you sell your favourite business unit?

This is not a classic portfolio question.

It is a question for the owner.

Because selling here does not just mean:

out with the asset, in with the purchase price.

It can mean:

parting with

a piece of one’s own history.

To relinquish control.

To hand over employees to others.

To see a name disappear from the company sign.

Or to accept that something which has been right for decades may not necessarily be the best use of capital for the next ten years.

Capital has no favourite division

Capital is scarce.

And every euro can only be invested once.

If €50 million is channelled into an established business area, that same €50 million cannot simultaneously finance a new technology, a growth market or an acquisition.

This raises a question that goes far beyond traditional CAPEX:

Which part of the company should actually receive how much future capital?

Not because one business unit has to be poor.

But because another might be able to generate more future value with the same capital.

The internal capital market

A diversified company has its own capital market.

Except that the companies competing for capital are already part of the company itself.

The business units compete for investment budgets.

For management capacity.

For staff.

For technology.

For financial leeway.

And for attention.

The CEO therefore does not merely allocate budgets.

He decides which parts of the company are permitted to finance the future.

Invest. Harvest. Reduce. Sell.

Suddenly, four fundamentally different perspectives emerge.

INVEST

This business unit offers attractive future opportunities.

Additional capital can boost growth, productivity or value creation.

Invest

capital.

HARVEST

The business unit is profitable and generates cash flow, but may no longer require aggressive expansion.

The remit is changing.

Rather than investing to the maximum, the aim is to realise value and free up capital for other areas.

REDUCE

The business unit remains strategically relevant but receives less capital.

Investment is concentrated on necessary or particularly attractive projects.

Capital

discipline rather than growth at any cost.

SELL

And then there is the most difficult option.

Perhaps the business unit has greater strategic value for another owner.

Perhaps the tied-up capital can be put to more productive use within one’s own company.

Perhaps a sale will finance the next phase of growth.

Economically, a sale may make sense.

Emotionally, however, it can still be the most difficult decision in the entire portfolio.

The problem is not emotion

An owner does not have to deny their emotional connection to a company.

On the contrary.

Anyone who has built up a company over decades is entitled to view a business division differently from an anonymous financial investor.

The crucial question is therefore not:

‘How do we eliminate emotion from the decision?’

But

rather:

‘What will it cost us to retain this business division, regardless of its economic position?’

Perhaps this cost is minimal.

Perhaps it is substantial.

Perhaps the family is prepared to pay it knowingly.

But only when it becomes visible is it a conscious decision by the owners.

The favourite business gains an invisible advantage

This is precisely where an interesting distortion arises.

A new business division must prove its future viability.

A new product must present a business case.

An acquisition must justify itself.

A new market is scrutinised critically.

The historic core business, on the other hand, may possess something that does not feature in any valuation model:

A

vote

of

confidence.

It receives capital because it has always received capital.

It remains part of the strategy because it has always been part of the strategy.

And it is protected because its history is intertwined with that of the owner.

That may well be true.

But it should be transparent.

The toughest question is not: ‘Sell or keep?’

The tougher question is:

If this business unit didn’t belong to me today – would I buy it again with the capital I have now?

If the answer is a clear ‘yes’, that’s a strong statement.

If the answer is ‘no’, that opens up a different discussion.

And if the answer is:

‘Perhaps not from a financial point of view. But I’d still like to keep it.”

then that, too, is a legitimate decision by the owner.

However, it is now clear that decisions are not made solely on the basis of return.

What does keeping it cost?

Let’s assume that a business unit requires an additional 80 million euros in capital over the next five years.

This capital could alternatively be invested in other divisions.

So the relevant question is not just:

What return will the EUR 80 million generate in this business unit?

But rather:

What return or strategic value could be achieved with the same EUR 80 million elsewhere in the company?

The difference is the economic trade-off.

And suddenly, the emotional decision takes on a quantitative dimension.

What does selling cost?

But the reverse must also be considered.

A sale can free up capital.

It can free up management capacity.

It can reduce complexity.

It can enable new investments.

But at the same time, it can remove skills, customer relationships, synergies or strategic options from the company.

A sale therefore also entails opportunity costs.

The right question is not automatically: ‘What do we get in return?

’

But rather:

‘What future are we giving up – and what new future can we finance with the capital freed up?

’

From project portfolio to corporate portfolio

Capital allocation therefore does not end with individual CAPEX projects.

The same logic can be applied at a higher level.

Plant A.

Division B.

Product

group C.

Market D.

Technology E.

Each area requires capital.

Each generates different cash flows.

Each carries different risks.

Each opens up different strategic options.

The company itself becomes a portfolio.

The CEO sees five divisions. The owner sees five stories.

This is precisely what makes an owner-managed company so special.

Five business units can appear side by side on a presentation slide.

For the owner, they may have completely different meanings.

One was acquired.

One was founded by his father.

One was built up by the owner himself.

One represents the future.

One has been financing the rest for years.

The figures may be comparable.

The stories are not.

A CEO allocates capital to businesses.

That is part of his role.

He decides where to invest.

Where growth is financed.

Where capital is reduced.

Where restructuring takes place.

And possibly also where a part of the business is sold.

An owner allocates part of his life.

For the owner, the same decision has a second dimension.

He may be deciding on something he himself has created.

On people with whom he has worked for decades.

On products that have shaped his name.

About locations that have become part of his life story.

That is

why the same decision can be difficult for a CEO from a rational perspective and difficult for an owner on a personal level.

Mathematics has no favourite business

And that is precisely where its value may lie.

It has no memory of the first order.

No loyalty to a

particular

location.

No nostalgia for a product line.

No personal preference for a division.

Nor, however, does it recognise their emotional significance.

That is

why mathematics should not make this decision.

It can merely provide a neutral economic perspective alongside it.

What would the capital itself decide?

Let us set history aside for a moment.

Five business divisions.

A defined capital budget.

Different expected value contributions.

Different risks.

Different resource requirements.

Different strategic criteria.

Which combination would best support the defined corporate objective under these conditions?

And then we ask the second question:

Where, as owners, do we wish to deliberately deviate from this?

It is precisely this difference that can be decisive.

This deviation is not a weakness

Perhaps the economic analysis:

shows that

Division A should receive more capital.

Division B should be retained, but not expanded further in an aggressive manner.

Division C has the highest growth potential.

Division D ties up capital with a comparatively low expected value contribution.

Division E might be a candidate for strategic alternatives.

The owner can nevertheless decide:

that

Division D remains.

In that case, it is not a mathematical error.

It is a conscious decision by the owner.

The crucial

point is that the economic trade-off is known.

The Owner’s Decision

Perhaps this is why an entrepreneur should, once a year, not only ask:

Which projects are we funding?

But

also:

Which business areas should receive our future capital?

Where are we investing?

Where are we reaping the rewards?

Where are we cutting back?

Where are we deliberately holding on to assets?

And where must we at least discuss the possibility of a sale?

These questions are uncomfortable.

That is precisely why they are among the decisions that owners can hardly delegate.

Would you sell your favourite business unit?

Perhaps the answer is ‘No’.

Perhaps it is ‘Yes’.

Perhaps it is ‘:

’

‘Not at any price.’

But before this decision is made, another question needs to be answered:

What do each of these alternatives mean for the company as a whole?

A CEO allocates capital to businesses.
An owner allocates part of his life.

OWNER’S DECISIONS
The decisions you cannot delegate.

KNOW THE VALUE. THEN MAKE THE DECISION.

It is only at this point that StratePlan comes into play.

When business units, investment programmes or strategic initiatives are competing for the same capital, their capital allocation can be assessed within a shared decision-making model.

Budgets, expected value contributions, resources, dependencies and strategic constraints can be taken into account, and different scenarios can be compared.

StratePlan does not decide whether an entrepreneur should sell their favourite business.

It can highlight the financial consequences of retaining, reducing or reallocating capital within the defined model.

The figures are calculated by the maths.

It is up to the owner to decide what their own story is worth.