OnwardLearn · Selling · Step 4. Know what buyers value most
The building: owned, leased, or owned by you personally
The short version
- Where your business operates affects the price, the structure of the sale and what a lender will require.
- If you lease from a landlord, the lease has to transfer, and it needs enough time left on it.
- If you own the building personally, you can sell it with the business or keep it and become the buyer's landlord.
- Real estate is valued separately from the business. Keep the two numbers apart.
If you lease from someone else
The lease is one of the first documents a buyer asks for. They want to know:
- Time left. How many years remain, including any renewal options.
- Transfer. Whether the landlord must consent to a new owner. Most commercial leases require it.
- Rent. Whether it is in line with the market, and how it increases.
- Personal guarantee. Whether you signed one, and whether it ends at closing.
Lenders often want the lease, with renewals, to run at least as long as the buyer's loan. A short lease can hold up financing.
Start the conversation with your landlord only when the time is right. Lesson 5.7 covers keeping the sale quiet.
If the business owns the building
The building can be part of the sale or kept out of it. If it is included, it is usually valued separately by a real estate appraiser. A buyer using an SBA loan can often finance real estate over a longer term than the business itself.
If you own the building personally
This is common. You have two choices.
Sell it with the business. The buyer purchases both, often with one loan. You exit completely.
Keep it and lease it to the buyer. You become the landlord and collect rent. You keep an asset and an income, and you stay tied to the business's success.
If you keep it, the rent matters. Rent below market makes the business look more profitable than it will be under a fair lease. Rent above market does the reverse. Buyers adjust the earnings for either.
Keep the numbers apart
A business earning $300,000 is worth the same whether or not it owns its building. The building has its own value. When you compare offers, make sure you know what each price includes.
When you are ready to talk to someone
Nobody needs to know you read this. When you are ready, these are the questions to bring.
- For your M&A attorney: "Can my lease transfer to a buyer, and does my personal guarantee end at closing?" Listen for: the specific clause, and what the landlord would need to approve.
- For your accountant: "Is the rent I charge myself at market, and how would a buyer adjust my earnings for it?" Listen for: a comparison to local market rent, and the effect on your earnings.
- For your accountant: "How would selling the building compare to keeping it and leasing it, after tax?" Listen for: both options side by side, in dollars.
This names the question. Your CPA, your M&A attorney and your lender answer it for your situation.
When you’re ready
How a sale actually happens, in plain language — before you decide anything. Make a free account — nothing is shared