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Posted on May 21, 2009

Contributed by Peter Siegel

Owner Asks: Good Time To Sell With Lease Coming Up?


I received this question from a potential pre-school seller who asks:

" I have a preschool and am thinking about selling it but my lease is ending soon. What would be the best thing to do? Do I renew the contract or do I act the landlord to sign a contract to the new buyer? and is it a good time to sell?"

The best way to handle this situation is to go to the landlord now and ask him about extending the lease in the future. Too many potential business owners thinking of selling don't approach the landlord to get a feel of where management of the building may be headed in the future. At least if they are not open to extending the lease you won't waste your time in selling your business. Make sure that the landlord understands that you may be thinking of selling your business, and that that potential buyers (new owner of your business) would have to qualify on their own beforehand.

The answer to your second question about whether it's a good time to sell or not depends on several factors.

First - is your business profitable (adjusted net income), and can you prove it with tax returns and financials?  If you can remove the lease hurdle mentioned above and you can can show you have a good business to sell with a steady clientele, and with a reasonable selling price - then yes there is a market for pre-schools that are for sale!

Do you have a question for our panel of experts? Call me (Peter Siegel) at 866-270-6278 with your question and we'll answer it in an upcoming BizBen blog!

See all contributions from Peter Siegel

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Comments:

I agree it's usually a good idea to talk to the landlord before you start selling. You can get bad surprises if you don't. But I must say there are exceptions. I know of a case where the seller and landlady didn't get along and we waited till we had a buyer before we asked for a new lease. Because the property owner liked the buyer, we were able to get cooperation. That might not have happened if the seller would have gone to the landlady at the beginning.

Posted by: Steve C.

Yes getting an idea of what your landlord is willing to do is important prior to marketing your business. Various factors may affect the landlords decision. Are you a good standing tenant, or are you behind on rents? He may not want to renew with you if your behind but will with a new tenant who is qualified. If your a great tenant, they hate to see you go. Almost works against you. MAJOR FACTOR TO REMEMBER: If you sign or renew your lease first you will remain fiancially liable for the terms and conditions of the renewal for at least the inital term. If your buyer signs a new lease, you're "off the hook". What a great place to be.

Thanks,

Lee Petsas at UBI Business Brokers

Posted by: Lee Petsas, UBI Business Brokers

Absolutely, talk to the landlord before marketing. It's a big mistake not to know where you stand with your lease when you talk to prospective buyers.

Posted by: Jeff K.

The landlord can be a deal breaker so it is really good to talk with the landlord prior to sale. I recently had a deal fall through because the landord would not give the prospective buyer a 10 year lease which is what was required for the SBA loan. Most buyers and lenders want at least 5 years left on the lease with a 5 year option. If the lease has a good rate and term, it can actually add value to the business. Getting your lease in order is just one of the items to do to "dress" up your business to sell. This is where a broker is a value resource for the seller. A broker will know what is necessary to bring the business to market to get the best price. Not only does it include the lease issue but also several other issues such as getting the books and records in a presentable fashion which is understood by the buyers.

Thanks - Ross Moss at Empire Business Solutions
Posted by: Roy Moss, Empire Business Solutions | Link

  Reply To Roy Moss:

You make some great points Roy, especially about the SBA loan - most buyers, sellers, and brokers don't take the 10 year lease term into consideration when the get the lease reviewed/condidered by the landlord.

Peter at BizBen

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