Should a business opportunity offering include the real estate?
There are no right or wrong answers to the question about whether the seller of a business should include the real property, or sell the company only and continue on as the landlord/lady.
This question was posed to our panel of industry resources and we got a diverse range of suggestions and ideas, demonstrating that the solution to this puzzle depends on circumstances and requirements of the parties.
Following is the question that a BizBen Blog reader posed to our panel of resources, and the responses, edited for clarity, are listed below:
"I am thinking of selling my business but I also own the real estate where my business is located. Is it a good idea to sell the real estate with the business? Are more buyers looking to buy a business with the real estate? How will having real estate (or not) affect potential buyers seeking financing to buy my business? Some feedback on this issue would be nice since I am about to put my business up for sale and debating whether to include the real estate portion."
Here are responses from our California industry resources on this issue:
"Depending upon how you structure your financials, the business could be worth more money with the real estate. S.B.A. looks favorably upon real estate tied to business acquisitions due to collateral. Will certainly make it more appealing to the S.B.A."
Randall J. Barondess, Director, Troop Business Services, Westlake Village
"The value of the business and the value of the real estate are obviously handled separately. It is important to note that the business will need to show payments of fair market rent in the expenses for the business to the owner. If not this will need to be adjusted. I advise my clients to offer the real estate both for sale or for lease. I would determine a fair market value for both. Some buyers are interested in only leasing and not buying the real estate. When a buyer purchases the real estate, a lender will be more inclined to provide financing for the transaction. The business will of course still need to generate positive cash flow to substantiate the payments. If the buyer of the business decides to lease the real estate, then the seller can look to sell the property to an investor with that lease in place. Giving the buyer the choice will increase your odds in selling the business."
Matt Coletta, Managing Partner, Business Team, Woodland Hills
"Yes, yes and yes. All things being equal, real estate attracts a far greater population of buyers. Financing is also easier with real estate as part of the package. When negotiating the ultimate deal, consider a short-term lease on the real estate to achieve the desired business price while giving the Seller some attractive tax advantages. The commercial real estate market is down right now so the net effect is that the appraised value of the real estate is down. You can use this lease term to bridge this down market."
Patrick Marsch, First Choice Business Brokers, San Diego
"Its all depends upon business financials too. If his business is showing great cash flow and buyer is experienced and strong financially and credibility-wise, then he can be qualified for a business loan. Otherwise to get a business loan without real estate is like finding water on the moon! Best idea is to sell with real estate and there are better chances of selling easily with 20-30% down. Even if the business is strong financial-wise, and showing good income, the buyer still has to come up with 50% down these days. No Bank is doing any loan with 35% down without secured real estate or property collateral !!"
I hope the seller knows his business's paper work well to make a decision now!
Taj Randhawa, RE/MAX, Fresno
"My recommendation would be to first discuss the matter with your CPA to determine the after-tax consequences and your investment options based on both selling and keeping the real estate. If the question remains after that consultation, you should consider making it an option for buyers to either purchase or lease the real estate. This should increase the number of potential buyers. Also, including the real estate will make it easier for potential buyers to obtain financing, as many SBA lenders are not interested in doing loans unless the real estate is included."
Joe Sandbank, Attorney, Roseville
About: Peter Siegel, MBA is the Founder & Senior Advisor (ProBuy & ProSell Programs) at BizBen.com (established 1994, 8000+ California businesses for sale, 500 new & refreshed postings/posts daily) working with business buyers, small business owners/sellers, business brokers, agents, investors, and 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.
|Helpful Resources To Assist In Selling And Buying California Businesses|
|Ranvir S. Sandhu, Esq. - Legal Services For Buyers And Sellers
I've worked at top Bay Area law firms and have extensive experience with business entity formation, mergers, dissolutions, conversions, employment matters, including experience in reviewing and negotiating transactional documents such as leases and purchase agreements.
|Janet Carrera - Escrow & Bulk Sale Services - SF Bay Area
Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.
|Joe Sandbank, Esq. - Legal Services
I have provided legal counsel to business buyers, sellers and brokers for over 17 years. With prior experience as a business broker and SBA loan officer, Joe brings both a practical and legal approach to all aspects of the business acquisition process.
|Helen Yoo: Escrow & Bulk Sale Services - Southern California
New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.
|Brad Steinberg, Broker - Laundromat Specialists
PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.
|Diane Boudreau-Tschetter: Escrow And Bulk Sale Services
California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.
|Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses
Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.
|Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services
Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063.
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