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 at stake. Concealing a problem or defect that adversely affects the business can lead to litigation and years in court. It’s not worth it. Problems and defects don’t mean your business won’t command an attractive price. Your professional business broker is prepared to deal with these issues and give you competent advice.
Some sellers try to hide the problems of their business and hope the sleeping dog never wakes up. You’d be well-advised to get him on a good, strong leash instead of letting him “lie.”
The Lease – Buyer and Seller Beware!
The lease is an important issue in many cases, a major issue. Whether you are buying or selling a business, it’s important to understand that if the real estate is not included, the lease is a critical element of the sale process. Other than owning the real estate, there are only three ways the transfer of the business can be handled:
- A new lease – A new lease can be entered into by the lessor and the new tenant, the buyer.
- A sub-lease – This can be negotiated between the seller and the buyer. In a sub-lease, the seller of the business becomes the landlord
- The existing landlord, who most likely is also the owner of the property, must always approve a sub-lease. In a few cases, the existing lease provides that the tenant has the right to sub-lease.
- The assignment of lease – This is the most common method of transferring the lease. The seller simply assigns the existing lease to the buyer. The buyer assumes responsibility for the lease, and in most cases, the landlord must approve the assignment. Sellers should be aware, however, that in most cases, they are still responsible for the terms of the lease.
Sellers should take a look at the lease at their business and ask themselves the following questions:
- Is the lease long enough and the rent low enough to make the business attractive to a potential buyer?
- Is the rent consistent with similar businesses in the area?
- Are there any terms or conditions of the lease that might be unfavorable in the eyes of a possible buyer?
- Most importantly, are you on good terms with the landlord – and can the lease be transferred without any hitches?
- If there could be any problems with the lease, or the landlord, it’s best to resolve them prior to selling the business. Your business broker professional is a good source to review the lease and its terms from a business sale perspective.