A Lease Primer

The following is provided as a simple explanation of common leasing arrangements within a small business transaction. It is not intended to provide legal advice. The New Lease A new lease is created generally when the prior lease has expired or is about to and when there are going to be substantial changes to the existing lease. A new lease would be executed between the purchaser of the business and the landlord. It is a new document either drafted by an attorney or used in a standard form that is available at stationery stores and in many books. A new lease involves negotiations between the owner or purchaser of the business and the landlord. The Sub-Lease A sub-lease is nothing but a lease within a lease. For example, if the seller of a business is permitted to sub-lease the premises, he or she, as far as a new owner is concerned, is the landlord. In this case, the actual landlord is still dealing with the seller and has no relationship with the buyer. Obviously, the seller needs … [Read more...]

Don’t Take the Lease for Granted

The cliché is that the key to business success is: location - location - location. If you own a business in which the location is an important reason for the success of the business, and you are considering selling, then the lease is a very critical issue in the sale. The time to deal with this is not in the middle of a sale, but before you even place the business on the market. Business brokers can recite many a story where, on contacting the landlord in the midst of a pending sale, they are told that the landlord has other plans for the space when the lease is up next month. Fortunately this is not a common occurrence, but if the lease is an issue, the time to deal with it is now. The Steps In Dealing with the Lease The first step is finding the lease. The second step is to read it. The third step is to visit the landlord and work out any lease issues. Before placing your business on the market, you need to see where you stand on the all-important issue of the lease. After … [Read more...]

The Very Expensive Desk Lamp

This is a story based on a true incident - only some of the details have been changed. The buyer and seller were ready to close on a business when the buyer asked to look at the list of fixtures and equipment that were to be included in the sale. After a few minutes reviewing the list, the buyer said that the desk lamp on the owner's desk was not listed. The seller explained that the lamp was a gift from his parents many years ago and therefore it was not included. The buyer got very upset, stating that the lamp was just perfect for that desk and he wanted it. The seller tried to explain that the lamp had lots of sentimental value, but that he would replace it with another desk lamp. This did not satisfy the buyer, and in order to stop the sale from falling part, the seller agreed to subtract $1,000 from the purchase price to keep the lamp. That made the desk lamp a very expensive one. The point of this is that when buyers look at a business, they assume that everything they see is … [Read more...]

How Important is the Asking Price?

Depends on whom you are asking. If you're the seller, you might say that the asking price is too low. The buyer would say, obviously, that the asking price is too high. How can they both be right? Who decides? Most sellers have an idea of what they want for their business. It can be based on their knowledge of the industry and what similar businesses have sold for. It may be, however, based on just a wish. There is the old, but true, story of the two partners who decided to sell their business. When asked what the price would be, they both responded with the same answer - $2 million. When asked how they arrived at that price, they each said that they wanted to be a millionaire and two times $1 million was $2 million. Sellers often say that the asking price doesn't make any difference since it can always be reduced. What they don't realize is that if the price is not realistic, buyers won't even look at it. Buyers are aware that they can make an offer, but if the starting point is too … [Read more...]

Why Your Business Won’t Sell

What are the odds of your business actually selling once you have made the decision to sell? Well, if the annual sales of your business are $750,000 or less, research indicates that the odds of your business selling are only 18 percent. If your annual sales are $750,000 to $2 million, your odds increase to 25 percent. If your annual sales volume is above $2 million, the odds increase to 30 + percent. Keep in mind that approximately 75 percent of all businesses have annual sales of less than $750,000. What does this all mean? To put it bluntly: if you are thinking of selling your business, you have about a one in five chance of it actually selling. This obviously begs the question: why are the odds so poor? One would think that if you put your business on the market, it should sell in a reasonable length of time. Here are some reasons why some businesses didn't sell-as explained by various business brokers and intermediaries. They are excerpted from an article in INC magazine, April … [Read more...]

Selling Your Business — What’s the Reason?

There was a study done, years ago, that showed that the reason businesses were for sale had a direct relationship to its probability of sale. Reason for Sale %Reason for Sale %Probability of Sale Retirement 10-15% 30-35% Health Problems/Death 15-20% 25-30% Partnership & Family Problems/ Divorce 5-10% 15-20% Burnout/Other Business Investments 15-20% 15-20% Under-capitalization 20-25% 10-15% Insufficient Profits 20-25% 5-10% Profit Motivated Only 5-10% 0-5% The above results point out the more serious or valid reason for sale, the higher likelihood that the business will sell. Despite its age the results today would probably be more dramatic. Most of those looking for a business to purchase in today's market would shy away from businesses that are under-capitalized, showing insufficient profits or any in which the seller was just attempting to sell for profit only. Today's buyer is better educated, has more knowledge about business and is more wary than his or her … [Read more...]

Finding a Buyer Is Just the Beginning

Many people who are selling their business think that once they find a buyer, the business is sold. Unfortunately, the real work is just beginning. Once a buyer is interested, there are the inevitable questions that must be answered. After the questions are answered and the buyer has satisfied himself or herself that the financial aspects of the business are satisfied, the buyer is probably ready to make an offer. An offer is prepared and it generally contains contingencies or conditions on which the offer is subject to, in addition to offering the price and terms under which the buyer is prepared to pay. Assuming the price and terms are acceptable to the seller, the next step is for the seller to do what is necessary to satisfy the contingencies. These can be as varied to the buyer's reviewing all of the seller's financial books and records, a serious look at the lease and its terms to a requirement that the seller pave the parking lot or redo the rest rooms. Definitions Offer - an … [Read more...]

Selling a Business?

Prepare for new management. As soon as you make the decision to sell, begin doing what you can to help the business run "on its own." The business should not, especially now, be just you! Accept the financing facts. You'll likely be financing the sale of your business, since banks are traditionally unenthusiastic about loans for the purchase of most businesses. Make sure your own financials are accurate, detailed, and up-to-date. Get professional help, if necessary, to present yourself well "on paper." Remember - this means seeing yourself in the same light as a prospective buyer, so rethink all those "perks" and hidden assets. Spruce up and pare down. Sell unused equipment and inventory. Nobody will want to pay for it - but they might worry it will get tacked on if they see it lying around. This is a good time to see what else needs a bit of spit and polish to make the best possible impression. Establish a realistic price for your business. Keep your selling plans to yourself, at … [Read more...]

Selling Your Business — Some Key Questions and Answers

Selling your business is a major decision! You have devoted your time, money and energy to building, running and operating your business. It may well represent your life's work. You have decided that now is the right time to sell, and you want the very best professional guidance available. This is when working in tandem with a professional business broker can make the difference between just getting rid of the business and selling it for the very best price and terms. Below are some of the most common questions asked by sellers. The responses are based on both experience and knowledge. If you have questions of your own, ask your business broker professional. What can business brokers do -- and what can't they do? Business brokers are the professionals who can facilitate the successful sale of your business. It is important that you understand just what a professional business broker can do -- as well as what they can't. Business brokers can help sellers decide how to price a … [Read more...]

Don’t Let Sleeping Dogs Lie

If you're considering selling your business, and you are employing a professional business broker or intermediary, it's imperative to be absolutely open with him or her. This is not the time for secrecy -- or even for subtlety, especially when it comes to problems. If you've been having trouble with your lease, one of your best customers or your fixtures and equipment, spell it out! Any one of these "sleeping dogs" is bound to wake up sometime during the process. After the first growl comes the bite. The sale will get buried deeper than last year's bone. And the buyer, scared off by the ruckus, will have long since disappeared. Tell your broker all there is to know prior to the beginning of the marketing effort. Your broker and the buyer are aware that there is no such thing as a perfect business, and buyers are much more likely to deal with the problems of your business during the decision-making process rather than after they have decided to buy. And it's not just the sale that's … [Read more...]