Considering All of Your Business Real Estate Options
Most business owners don’t know what real estate options are available to them when it comes time to sell the company.
Understanding the value of the real estate and the tax liabilities associated with it is important, according to a December 2018 article in Divestopedia describing options for business real estate when selling a company. Understanding one’s business real estate options will ultimately help in achieving “the goals desired in a transaction.”
There are two main options:
- Sell everything including the real estate.
- Hold onto the real estate for the rental income.
If you, as the business owner, personally own the real estate in a separate entity, then you are good to go, according to Divestopedia. You should have a “clear path to valuation.”
However, if your company owns the real estate, then things get a little more complicated. In this situation, you should have a third-party appraisal of the real estate so that its value is clear. If your business is a C-Corp and your business also owns the real estate, then it’s a good idea to talk to your accountant as there will be differences in taxation.
Every situation is different. Many buyers will prefer to acquire the real estate along with the business. On the other hand, many buyers may prefer a lease, as they don’t want everything that comes along with owning real estate. Communicating with the buyer regarding his or her preference is a savvy move.
If you do plan to retain the building, then you’ll want to be certain that a strong lease is in place. Ask any business broker about the importance of having a strong lease, and you’ll get some pretty clear-cut feedback. Namely, you always want to have a strong lease.
Issues such as who repairs what and why should all be spelled out in the lease. It should leave nothing to chance. One of the best points made by the Divestopedia article is that you will want a strong lease for another key reason. When the time comes to sell the property, you want to show you have a lease that is generating good income.
Real estate and the sale of your business are not one-dimensional topics. There are many variables that go into selling when real estate is involved. It is important to consider all of the variables and work with a business broker who can help guide you through this potentially complex topic.
Copyright: Business Brokerage Press, Inc.
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Read MoreFour Significant Issues You Need to Consider When Selling Your Business
The process of selling a business can be very complex. Whether you’ve sold a business in the past or are selling a business for the very first time, it is imperative that you work with an expert. A seasoned business broker can help you navigate through what can be some pretty rough waters. Let’s take a closer look at four issues any seller needs to keep in mind why selling a business.
Number One – Overreaching
If you are both simultaneously the founder, owner and operator of a business, then there is a good chance that you are involved in every single decision. But that can be a significant mistake if a business owner wants to be involved in every aspect of selling their business. Trying to sell your business while operating can lead to problems or even disaster.
The bottom line is that you can’t handle it all. You’ll need to delegate the day-to-day operation of your business to a sales manager. Additionally, you’ll want to consider bringing on an experienced business broker to assist with the sale of your business. Simultaneously running a business and trying to sell has gone awry for even the most seasoned multitaskers.
Number Two – Money Related Issues
Once a seller has decided on a price, he or she usually has trouble settling for anything less. The emotional ties that business owners have to their businesses are understandable, but they can also be irrational and serve as an impediment to a sale. A business broker is an essential intermediary who can keep deals on track and emotions at a minimum.
Number Three – Time
When you are selling a business, the last thing you want is to waste time. Working with a business broker ensures that you avoid “window shoppers” and instead only deal with real, vetted prospects who are serious about buying. Your time is precious, and most business owners are unaware of just how much time selling a business can entail.
Number Four – Don’t Forget the Stockholders
Stockholders simply must be included in the process whatever their shares may be. A business owner needs to obtain the approval of stock holders. Two of the best ways to achieve this is to get an attractive sales price and secondly, to achieve the best terms possible. Once again, a business broker serves as an invaluable ally in both regards.
Selling a business isn’t just complicated; it can also be stressful, confusing and overwhelming. This is especially true if you have never sold a business before. Business brokers “know the ropes” and they know what it takes to both get a deal on the table and then push that deal to the finish line.
Copyright: Business Brokerage Press, Inc.
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Read MoreWhy You Should Hire a Business Broker to Sell your Business
When the owner of a convenience store, bakery, restaurant, janitorial service company or other small Georgia business is ready to retire, it usually is a good idea to hire a business broker to sell business assets. Thats because the sale will be part of a package that includes goodwill also called going business value, according to Peter Siegel, MBA, the Founder & Senior Advisor at BizBen.com, a major website for the sale of California businesses.
Sure, the seller MAY be able to find a buyer and sell without professional help, but because there are so many challenging problems associated with business transfers, it usually is smart to engage a business sales intermediary to launch the campaign and then manage a transaction, Siegel advises.
Even though a hefty fee has to be paid for that service, it’s almost always better to have the intermediary do the work.
The fee can total more than ten percent of the selling price. That seems very costly for many sellers. And they often fear they’ll lose control of a deal if a third party is involved. But for at least seven reasons, most sellers should not trust themselves to handle the sale. Instead, they’re smart to sign a listing with a competent business sales expert. Those seven benefits are:
1. Larger Market of Potential Buyers: Because professional business brokers are in touch with many motivated buyers who are financially qualified, brokers will have a bigger market of potential purchasers to draw from than will most business owners.
2. Handling Unqualified Buyers: Not having to deal with people who are curious about the business, but may not be financially able to buy it, or qualified to run it. Business brokers specialize in making sure the people introduced to your company have some interest and the financial ability to follow up with that interest.
3. Confidentiality. When a seller hires a broker to sell business assets, the professional will know how to keep the intended sale a secret. It usually is important that employees and customers of a business don’t know that it is for sale. The DIY (do it yourself) seller may struggle to maintain confidentiality when responding to buyer inquiries and scheduling showings.
4. Emotional Detachment. The business sales intermediary, as a third party, is usually in a better position to negotiate a deal between a seller and the buyer, than is one of the principals in the deal. Most business owners have an emotional attachment to their business and selling the business can often be a traumatic experience. The business broker can bring an objective perspective to the process and help the seller see the business from the viewpoint of a buyer, resulting in a more realistic understanding of the financial and economic factors being considered by the buyer. Furthermore, it is critical that the business owner not “slack off;” the business must continue to thrive until the sale transaction is complete – because nothing is final until the final closing of escrow. Therefore, the seller should spend as little time as possible on selling the business and as much as possible on running the business to maximize the selling price.
5. Problem-Solving Experience. Professional business brokers know how to overcome problems in selling a Georgia business. The seller, having little experience in deal making, will be less prepared and equipped to recognize and solve deal-killing problems than someone who has been doing this for a while, and earning a living at it.
6. Access to Financing. Finding small business purchase financing has become more difficult in the past few years following the mortgage meltdown and the banking crisis. Unless a business owner knows lenders who cater to that market, such as financial institutions offering SBA loan programs, it’s likely to be very difficult to know how to help a buyer who wants to borrow some of the cash for a down payment and/or working capital. GABB includes lenders who specialize in business acquisition loans and are often able to save a transactions that won’t work unless the buyer can arrange for funding assistance.
7. Higher Selling Price. A good business broker can present the business in an appealing way in order to get a buyer to pay the price desired by the seller. Or at least, close to that price. Not knowing how to manage competitive bidding to increase offering prices, the seller won’t be able to accomplish that objective. Owners who’ve hired agents to sell business offerings often get a higher price than if they’d negotiated for themselves. The difference often is enough to cover the sales commission.
Business owners sometimes think they should take on the campaign of selling their businesses as a do-it-yourself project. But because they usually don’t have the skill, objectivity or experience of a capable business sales intermediary, they usually improve the chances of successfully closing a deal at a desirable price when they hire a professional to manage the process.
About This Contributor: Peter Siegel, MBA is the Founder & Senior Advisor (ProBuy & ProSell Programs) at BizBen.com (established 1994, 8000+ CA businesses for sale, 500 new & refreshed postings/posts daily) works with business buyers, owners/sellers, brokers, agents, investors, & advisors). Reach him direct at 866-270-6278 or 888-212-4747 to discuss strategies regarding buying, selling, (or financing a puchase of) California businesses.
Read MoreThe Importance of Understanding Leases
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.
Copyright: Business Brokerage Press, Inc.
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Read MoreWhat Makes the Sale of a Business Fall Through?
There are a myriad of reasons why the sale of a business doesn’t close successfully; these multiple causes can, however, be broken down into four categories: those caused by the seller, those caused by the buyer, those that just happen (“acts of fate”), and those caused by third parties. The following examines the part each of these components can play in contributing to the wrecked deal:
The Seller
1. In some instances, the seller doesn’t have a valid reason for entering into the sale process. Without a strong reason for selling, he or she has neither the willingness to negotiate nor the flexibility to see the sale to a conclusion. Without such a commitment, the desire to sell is not powerful enough to overcome the many complexities necessary to finalize the sales process.
2. Some sellers are merely testing the waters. As detailed above, they are not at that “hungry” stage that provides the push toward a successful transaction. These sellers merely want to see if anyone wants to buy their business at the price they would like to receive.
3. Many sellers are unrealistic about the price they want for their business. They may be sincere about wanting to sell, but they are unable to be realistic about how the marketplace will value the business. The demand for their business may not be there.
4. Some sellers fail to be honest about their business or its situation. They may be hiding the fact that new competition is entering the market, that the business has serious problems or some other reason the business is not salable under existing circumstances. Even worse, some sellers do not disclose that there is more than one owner and that they are not all in agreement about selling the business.
5. A seller may decide to wait until a buyer is found and then check with their outside advisors about the tax and/or legal consequences. At this point, the terms of the deal have to be altered, and the buyer won’t agree. Sellers should deal with these complications ahead of time. Nobody likes changes–especially buyers!
The Buyer
1. The buyer may not have an urgent need or a strong desire to go into business. In many cases the buyer may begin with positive intentions, but then doesn’t have the courage to make “the leap of faith” necessary to go through with the sale.
2 Some buyers, like sellers, have very unrealistic expectations regarding the price of businesses. They are also uneducated about the nature of small business in general.
3. Many buyers are not willing to put in the hours or do the type of work necessary to operate a business successfully.
4. Buyers can be influenced by others who are opposed to the purchase of a business. Many people don’t or can’t understand the need to be “your own boss.”
Acts of Fate
These are the situations that “just happen,” causing deals to fall through. Even considering the strong hand of fate, many of these situations could have been prevented.
1. A buyer’s investigation reveals some unmentioned or unknown problem, such as an environmental situation. Or, perhaps there are financial deficiencies discovered by the buyer. Unfortunately, these should have been on the table from the beginning of the selling process.
2. The seller may not be able to substantiate, at least to the buyer’s satisfaction, the earnings of the business.
3. Problems may arise, unknown to both the seller and the buyer, with federal, state, or local governmental agencies.
Third Parties
1. Landlords may become difficult about transferring the lease or granting a new one.
2. Buyers and/or sellers may receive overly-aggressive advice from outside advisors, usually attorneys. Attorneys, in their zeal to represent their clients, forget that the goal is to put the deal together. In some cases, they erect so many roadblocks that the deal can only fall apart.
Most of the problems outlined here could have been resolved before the selling process was too far advanced. There are also some problems that could not have been avoided–people do sometimes enter situations with the best of intentions only to find out that this is not the right answer for them after all. These are the exceptions, however. Most business sales can have happy endings if potential difficulties are handled at the appropriate time.
Business brokers are aware of the various ways a deal may fall through. They are experienced in resolving issues before the business goes onto the market or before a buyer is introduced to the business. To buy or sell a business successfully, sellers should resolve any potential deal-wreckers, following the advice of a professional business broker.
Although business brokers cannot provide legal advice, they are familiar with the intricacies of the business sale. They are also familiar with local attorneys who specialize in the details of these transactions. These attorneys will usually be more efficient, and therefore more cost-effective, than the attorney who handles a general practice.
Copyright: Business Brokerage Press, Inc.
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