Businesses for sale that include real estate owned by the business or owners of the business should carefully consider the impact of  the real estate in the sale of the business.

Consider these implications of the real estate in the business transaction:

1)  If the business is put on the market ONLY with a sale of the real estate, the number of qualified buyers for the business is reduced because, likely, more cash is required of the buyer.

2)  If the business is put on the market as a lease at a rate that is higher than market, the prospective buyer may

  • elect not to inquire deeply into the business because the cash flow the business puts off is not appropriate for the asking price or they recognize in a brief review that the owner is inflating the rent over market.  What else is being inflated?
  • only be willing to buy the business with a lower lease rate, putting more pressure on negotiation points.
  • only be willing to buy the business with no long-term lease agreement, looking for other lease options.

3)  Real Estate professionals are not (usually) business broker professionals and business broker professionals are not (usually) real estate professionals.  How can a business-for-sale owner ensure good advice?

4)  The owner of the real estate and business (whether direct to the business or underlying business owner) often has costs and cash outlays associated with the real estate.

5)  The underlying business owner has been enjoying generous rental income from the business.

6)  From time to time real estate markets are strong, benefiting either buyers or sellers.

What strategies can be implemented to resolve these issues?