Books & Records and Your Lease Two Factors That Impact the Attractiveness of Your Business to Potential Buyers

Two Tips to Sell Your Business Easier for a a Higher Price

In most cases, there will come a time when the timing will be right to sell the business.  To maximize the value of your business, you will want attract as many qualified buyers as possible.

What are the things you can do to make your business as attractive as possible to maximize your buyer pool?  Here are two topics that we’ll address in this post:

#1.  Good Books & Records

Financial records are the scoreboard of a business.  If you have messy, inaccurate or incomplete books & records the consequences will be a reduced selling price, or possibly not even being able to sell your business.  Before even getting to the point of selling, the consequences from poorly organized books and records will impact the business earlier by impeding the success of the business.

Having a bookkeeper handling the day to day figures is a good way to keep the numbers organized and available for quick on the spot assessment of where the business is inefficiently utilizing capital.  Also, another benefit of having a bookkeeper is to simplify the books for a quality tax professional who can help set tax strategy for the business.

Another benefit to having good books & records is to help qualify the business for bank financing.  Any sort of Bank Financing is going to be helpful to the business, whether it is in the form of a Line of Credit, Equipment financing, receivable factoring, etc.  Also, if the books and records show a healthy and profitable business, it will help a buyer receive acquisition financing.  If your books are too messy to get acquisition financing, then you will have to accept a lower price, a seller note or both.

#2. Lease Terms & Assignability

A second key to maximizing a buyer pool is to have a good lease in place.

Key factors in making a lease attractive to a buyer:

• The number of years remaining on the term
• The assignment fee
• The number of option terms, only if assignable
• The Lease Rate Indexing
• Tenant Maintenance Responsibilities

Time in Years of the Remaining Lease

A buyer is going to want to take over your business only if they are guaranteed that they are going to be able to stay at the real estate that the business occupies.  If you only have a couple of years left, it drastically reduces the time frame upon which a buyer has to recoup their investment into the purchase price of the business.  Also, buyers want to make a firm commitment to the business, and a short lease precludes them from doing that.

Lease Assignment Clause

The assignment fee usually isn’t a deal breaker, but if it is a high fee, be aware that you as the seller may  have to chip in to cover the expense, and that is money out of your pocket.  Also make sure to follow the procedures specified in the assignment clause of your lease.

Lease Option Terms

Lease Option terms are usually personal to you as the original lessee, so make sure to assist your buyer to secure new option terms if your option terms are not assignable.

Lease Rate Indexing

A big key is the Lease Rate Indexing.  This is a topic worthy of a few posts that detail how to determine a fair lease rate, and how to determine a fair indexing rate.  The important thing to note, is to make the periodic (usually year over year) increases are not to high.  This is usually expressed percentage minimum annual increase, such as 3%, 4%, 5% etc.  Just make sure the that the indexing isn’t too high, Because, if it is too high, then your affordable lease will turn into an unaffordable lease very quickly.

Tenant Maintenance Responsibilities

Tenant Maintenance Responsibilities is another topic that is multiple post worthy.  The key here is to be clear on what your responsibilities for the maintenance of the property and holding your landlord accountable to things they have committed to maintaining.  Often times deferred maintenance on either sides part causes problems when transferring a business, so make a point to address these issues in advance of looking for suitable buyers.

All in all, it is clear that a lease plays a HUGE part in the attractiveness of a business to qualified buyers.  It is best to negotiate the above lease items before signing your lease, but there is always an opportunity to negotiate these points pror to searching for buyers.  Here are more tips that wrote about in the past to make a business easier to sell.

For assistance with negotiating or modifying your lease, contact our Client Care Manager, Sonia Chhabra, at (888) 926-9193 or by email cs@justelementary.com