We have one minor division that generates minimal profit and distracts our leadership team, but we keep it around because it is a legacy business. Should we shut down or carve out this underperforming division on our exit runway, or let the buyer handle it?

Question

Tyler Smith · Accepted Answer

You should absolutely clean up or eliminate underperforming divisions before you go to market. Leaving an unprofitable or distracting division for a buyer to handle is a major mistake. Buyers do not pay for potential fixes. They will discount your entire business to account for the risk and hassle of shutting it down themselves.

An underperforming division drags down your overall profit margins. Because valuation multiples are applied to your total EBITDA, a low-margin division artificially depresses the ultimate purchase price of your core, highly profitable business.

Use your V/TO to refocus. Re-evaluate your core business focus and determine if this legacy division fits your long-term strategy. If it does not, you must take action during your exit runway.

You have two paths. First, you can shut the division down. This requires managing the operational wind-down, handling customer transitions, and reallocating resources or staff to your core business.

Second, you can carve out and sell the division separately to a smaller operator or competitor. This can bring in cash and clean up your books.

Whichever path you choose, complete it at least twelve to eighteen months before going to market. This gives you time to show a clean run of financial statements with higher, more focused operating margins. A buyer wants to acquire a streamlined, high-performing engine, not a collection of distractions.