Leases should never be overlooked when it comes to buying or selling a business. After all, where your business is located and how long you can stay at that location plays a key role in the overall health of your business. It is easy to get lost with “larger” issues when buying or selling a business. But in terms of stability, few factors rank as high as that of a lease. Let’s explore some of the key facts you’ll want to keep in mind where leases are concerned.
The Different Kinds of Leases
In general, there are three different kinds of leases: sub-lease, new lease and the assignment of the lease. These leases clearly differ from one another, and each will impact a business in different ways.
A sub-lease is a lease within a lease. If you have a sub-lease then another party holds the original lease. It is very important to remember that in this situation the seller is the landlord. In general, sub-leasing will require that permission is granted by the original landlord. With a new lease, a lease has expired and the buyer must obtain a new lease from the landlord. Buyers will want to be certain that they have a lease in place before buying a new business otherwise they may have to relocate the business if the landlord refuses to offer a new lease.
The third lease option is the assignment of lease. Assignment of lease is the most common type of lease when it comes to selling a business. Under the assignment of lease, the buyer is granted the use of the location where the business is currently operating. In short, the seller assigns to the buyer the rights of the lease. It is important to note that the seller does not act as the landlord in this situation.
Understand All Lease Issues to Avoid Surprises
Early on in the buying process, buyers should work to understand all aspects of a business’s lease. No one wants an unwelcomed surprise when buying a business, for example, discovering that a business must be relocated due to lease issues.
Summed up, don’t ignore the critical importance of a business’s leasing situation. Whether you are buying or selling a business, it is in your best interest to clearly understand your lease situation. Buyers want stable leases with clearly defined rules and so do sellers, as sellers can use a stable leasing agreement as a strong sales tool.
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By Peter Siegal, Founder & Senior Advisor at BizBen.com
What’s the difference between a business opportunity and a going business for sale? They are NOT the same thing.
A business opportunity refers to all opportunities for those in the market to buy and own their own small business. But it’s not the same thing as a going business for sale.
These are five characteristics that distinguish a business opportunity an existing retail, service, restaurant or other kind of business that is for sale.
1. Customer, Employees, Location: An ongoing business will come with existing customers, employees, a known name and usually a distinct location. A business opportunity is an idea for providing products or services, and some of the methods and resources needed to implement the idea. Some business opportunities are meant to be operated from the buyer’s home or other facility obtained by the buyer.
Examples of business opportunities are service businesses such as placing and servicing vending machines, billing and related services for professionals, assembling finished products from parts provided, and selling products in a direct marketing system.
2. Established Track Record: An ongoing business has an operational history –producing revenues and earnings for the owner, and establishing and building relationships with customers and suppliers. A business opportunity will be a new business so it has no track record. If the buyer wants to know if the sales, earnings and other projections made by the seller are likely to be realized once the business is started, they should understand this difference.
3. Risk. Many buyers believe a business opportunity is a riskier investment because there is no proof will be successful in the territory or region where it is being offered. By contrast, a going business has a known operating track record.
4. Cost: A business opportunity can usually be obtained for less money than buying an existing business. But a business opportunity may require additional cash to operate. You might have to purchase inventory, equipment, fixtures or other assets to operate the business. You might also have to pay for “soft” assets, such as training and trade name. By contrast, the business serving customers for awhile will usually cost more a buyer would be required to purchase goodwill–also called “going business value,” and often a covenant not to compete.
5. FTC Regulations: The Federal Government has little reason to get involved in the way an existing business is offered and sold, unless the business that requires Federal licensing. The Federal Trade Commission has established rules for the way a business opportunity can be sold. FTC requires sellers to provide interested buyers with a disclosure statement seven days before that buyer can sign a contract or hand any money over to the seller of the opportunity. Included in the disclosure are names and contact information for other investors who have purchased the opportunity being offered. The government got involved after buyers complained about business opportunities sold with false or misleading information.
So, a buyer of a business opportunity must complete the due diligence process takes place before there is any agreement for purchase. When you buy an ongoing business, you complete that process after buyer and seller have agreed on price and terms. That contract includes the provision allowing the buyer the right to analyze and learn more about the business–to make sure the company operates and performs as represented. Due diligence must be completed before the contingency is removed and the transaction can close.
When considering the purchase of a business opportunity, a buyer should call on other buyers of that opportunity and learn their experience. And conduct other common sense methods of investigation before signing on the dotted line.
About: Peter Siegel, MBA is the Founder & Senior Advisor (ProBuy & ProSell Programs) at BizBen.com, where this post originally appeared. he works with business buyers, owners/sellers, intermediaries, agents, investors, and advisors).Read More
The business sale process can be complex, which is why it’s best to have expert help from a business broker. Brokers can help you avoid costly legal mistakes which can bring the entire sale process to a sudden and complete halt. Let’s take a closer look at what you can do to avoid these kinds of issues when selling your business.
Major Mistake 1 – You Skipped the Non-Disclosure Agreement
Nothing quite invites trouble like skipping the non-disclosure agreement. If a deal falls through, then you have the NDA backing you up. This document ensures that the prospective buyer doesn’t tell the world that your business is up for sale. Never assume that a deal is going through until it actually is 100% complete. There is plenty of room for things to go wrong when buying or selling a business, and that is why you always need to have an NDA in place.
Major Mistake 2 – You Don’t Work with an Attorney
Let’s be very blunt here, if you are selling a business, then you need an attorney. Just as there is no replacement for an NDA, the same holds true for working with a lawyer. It is also vital that you properly prep your business for sale, which means getting paperwork organized and making sure that you have legally checked all your boxes. Working with an experienced and proven attorney will help you ensure that your business is ready for sale. If you’re not prepared for the deal, it can make buyers nervous. Business brokers can recommend attorneys who are familiar with the purchase and sale of businesses in your state.
Major Mistake 3 – You Failed to Get a Letter of Intent
A letter of intent is a vital legal document. Some sellers are reluctant to use it, fearing that it will slow down the momentum of the deal. However this letter works to protect your interest and outlines expectations, so this step should not be skipped. For example, a letter of intent details the termination fee for the buyer, meaning that the buyer can’t walk away without consequences simply because he or she is having a bad day. Importantly, a letter of intent ensures that you are only dealing with serious buyers instead of wasting your time with window shoppers.
Many things can go wrong while selling a business. The more prepared you are before you begin the process, the greater the chances that you will not only avoid headaches, but also be successful. Long before you put your business on the market, you should begin working with a capable business broker and attorney. Their input and advice will prove to be invaluable and help you avoid a range of costly and time-consuming issues.Read More
When it comes to buying a business, nothing is more important than the factor of due diligence. For most people, this investment is the single largest financial decision that they will ever make. And with this important fact in mind, you’ll want to leave absolutely no stone unturned.
Let’s examine the three most commonly overlooked areas when it comes to buying a business: retirement plans, 1099’s and W-2’s, and legal documents.
1. Examine All Legal Documents
While it may sound like a “pain” to investigate all the legal documents relating to a business that you are vetting for purchase, that is exactly what you have to do. The very last thing you want is to buy a business only to have the corporate veil pierced. “Piercing the corporate veil” refers to a situation in which courts put aside limited liability and hold a corporation’s shareholders or directors personally liable for the corporation’s actions or debts. Everything from trademarks and copyrights to other areas of intellectual property should be carefully examined. You should be quite sure that you receive copies of everything from consulting agreements to documentation on intellectual property. Your business broker can recommend attorneys who are familiar with legal issues involving the purchase of a business.
2. Retirement Plans
Forgetting about retirement plans when you’re buying a business is a mistake can quietly translate into disaster. Before signing on the dotted line and taking ownership, be sure that both the business’s qualified and non-qualified retirement plans are 100% up to date with the Department of Labor and ready to go.
3. W-2’s and 1099’s
If 1099 forms were given out instead of W-2’s, you’ll want to know about that and be certain that it was done within the bounds of IRS rules. Imagine for a moment that you fail to do your due diligence, buy a business and then discover that you have problems with the IRS. No one wants IRS problems, but a failure to perform due diligence can quickly result in just that. So do your homework!
There can be many skeletons hiding in a business, and you want to be sure that you protect yourself from any unwanted surprises. One exceptional way to protect yourself is to work with a business broker. A business broker knows what to look for when buying a business and what kinds of documents should be examined. There is no replacement for the expertise and experience that a business broker brings to the table.Read More
If you own or operate a Georgia business, you can get free confidential consulting services including helping with business plans, buying businesses and leasing space. Find out how on Sept. 25 when two experts with the University of Georgia’s Small Business Development Center speak to the Georgia Association of Business Brokers.
Area Director Jeff Patterson and Business Consultant Aysha Cooper will speak to the GABB at their Sept. 25 monthly meeting. The meeting is free and open to the public and will be held at the Atlanta Realtors Center at 5784 Lake Forrest Dr. NW, Atlanta, GA 30328. The meeting begins at 10:30 a.m., preceded at 9:45 a.m. by a free light breakfast and networking session sponsored by GABB affiliate and board member Kim Eells, Vice President and Business Development Officer of Government Guaranteed Lending for Renasant Bank.
The Small Business Development Center, a Public Service and Outreach Extension of The University of Georgia, is funded in part by the U.S. Small Business Administration (SBA). It provides tools, training and resources to help small businesses grow and succeed. Designated as one of Georgia’s top providers of small business assistance, the SBDC has 17 offices ranging from Rome to Valdosta to serve the needs of Georgia’s business community. Since 1977, the SBDC’s network of partners has helped construct a statewide ecosystem to foster the spirit, support, and success of hundreds of thousands of entrepreneurs and innovators. The University of Georgia Small Business Development Center is nationally accredited by the Association of SBDCs.
Mr. Patterson, an area director with the Small Business Development Center at Georgia State University, has extensive financial industry experience that includes leadership roles in credit administration, commercial lending, operations management, regulatory compliance, and audit administration. His expertise includes loan proposal and business plan preparation, cash flow management, budgeting, and customer satisfaction. He also has brokerage and financial planning training. He has an MBA from Brenau University, was President and Board member of the Bank of Hiawassee, Senior Vice President at Nantahala Bank & Trust and Executive Vice President of United Community Banks. He is the past Lt. Governor and Past President of the Rotary Club, past Local Board Chair of North Georgia Technical College and past Chairman of the Board of the Habersham County Chamber of Commerce.
Ms. Cooper has 20 years of experience either working with small business owners or being a small business owner herself. Prior to joining the SBDC, Ms. Cooper was an advertising representative in the yellow page and radio industry. In 2005, after moving to Georgia, she opened her first business in Duluth, Ga., with the guidance and expertise of the SBDC. She has attended GrowSMART and been a client of the SBDC throughout the start-up and expansion phase of her adult care facility. In 2011, she was recognized by Access to Capital for Entrepreneurs (ACE) Entrepreneur of the Year and in 2017, Outstanding Woman of the Year. Aysha has been an active member of her community as a graduate of Gwinnett Neighborhood Leadership Institute, a board member for Snellville Tourism and Trade and Friends of Gwinnett County Seniors. Her interests include marketing, operations and franchising.
The GABB is an organization of experienced professionals who work with Georgia business owners to help them in the process of evaluating, marketing, financing and selling their businesses. They also work with business buyers including many individuals who have decided not to re-enter corporate America, but want to become their own bosses by purchasing and operating a Georgia business.
For more information about the GABB, contact GABB President Mike Ramatowski at 770-634-0428 or email@example.com call Diane Loupe at 404-374-3990 or email firstname.lastname@example.org.
If you are NOT a GABB member, please fill out this form to let us know you’ll be attending the meeting.