How is my lease handled when I sell my business?

The lease is an integral part of the sale process. The landlord or lease can be one of the two biggest deal killers when selling your business; the other being your financials. It certainly pays to properly handle the assignment or transfer of your lease.

When should I contact my landlord and let him know I am selling?

The earlier the better. Landlords respect owners/tenants who are up-front and give them advance notice that they are selling. I see many sellers spring the news on the landlord three days before closing, only to have the landlord refuse the transfer of the lease. Contacting the landlord up-front will reduce this concern and will also ensure buyers that the landlord is flexible and agrees with the game plan.

Doesn’t the landlord have to approve the transfer of the lease to the buyer?

No, not necessarily. Be sure to read your lease as your lease should address this issue. The law in most states address assignments. Most state law says that the landlord cannot “unreasonably withhold the assignment of the lease”. What does “unreasonably mean”? That’s the magic $25,000 question, or depending on how expensive your attorneys are. If landlords want to, they can put up a fight to keep you from transferring your lease. The reasons may vary. It certainly pays to make sure the landlord and you are one the same page before you invest a lot of time and effort in selling your business. It doesn’t pay to litigate this question. It is best to reach an agreement and move forward with you both on the same page.

What is an assignment of the lease?

With an assignment, the lease is

Selling a business is a complicated process. Even if you hire brokers like us to sell your business, it’s still imperative for you to understand the process before, during and after the sale. You can’t simply hire us or another broker and blindly let us handle everything.

As an owner, you have a tremendous amount of responsibility to participate in the process regardless of who you hire to help you out. With almost two decades of experience in helping entrepreneurs sell their businesses, I learned that most of them had been thinking about actually selling their business, but never thought about preparing for the sale.

Is this book written for you?

If your business has a revenue of less than $25 million, then this book is for you. Whether you’re selling your business now or you’ve been thinking about selling in the next five years, you will gain useful and actionable insights from this book.

What will you get from this book?

Sell your business without stress. The process of selling a business is complex and can be extremely stressful, especially if not handled correctly. On this book, I explain the entire sale process in simpler terms to help you understand what happened before, during and after the sale.

Anticipating what’s going to happen, e.g., how you should qualify buyers or how you should choose the right seller financing, etc., can definitely reduce, if not totally eliminate, stress in the process.

Be more confident in selling your business. The

Adjusting Financial Statements - Overview

Most business owners minimize taxable income by eliminating expenses that are not directly related to the business’s operations. These expenses might cover personal auto, insurance, cellphone, child care, medical care, travel, among others. For this reason, adjusting the financial statements by “adding back” these expenses is often necessary to show potential owners the actual cash flow available.

Adjusting the financials allows us to compare your business to other businesses using seller’s discretionary earnings (SDE), also referred to as seller’s discretionary cash flow (SDCF), adjusted cash flow, owner benefit, recast earnings or normalized earnings.

Among all these terms, SDE is the most common metric used by business brokers and many other professionals, including buyers.

Seller’s Discretionary Earnings or SDE is defined by the International Business Broker’s Association (IBBA) as:
  • Pre-tax net income (the bottom line profit that appears on profit and loss statements); plus

  • Owner’s compensation paid to all owners, less the cost needed to replace a second or third owner; plus

  • Interest expense; plus

  • Depreciation and amortization; plus

  • Discretionary expenses (auto, cellphone, meals, entertainment, travel, etc.); plus

  • Adjustments for extraordinary , non-operating revenue or expenses , non-recurring expenses or revenue (lawsuit, flood damage, etc.)

Example

Pre-Tax Net Income

$100,000

Owner's Compensation

$100,000

Interest

Due diligence is the process of investigating a business prior to purchasing it. When a buyer makes an offer on your business, there is a period of time that follows where he or she researches your business and further investigates the situation. This period of time typically lasts 2-8 weeks (approximately 30 days for smaller deals and 30-60 days for larger deals)and is called “due diligence.” However, it is also important that you, the seller, perform your own due diligence. By doing this, you will discover red flags and be able to fix problems in your business before a buyer can discover them. Here are four tips that you should read before listing your business for sale.

1. Perform your own due diligence properly.

As a seller, performing due diligence can mean the difference between attracting the right buyer and having your business sit on the market. The market is fickle and sellers who perform due diligence properly are the ones with the competitive edge.

2. Do not procrastinate.

Business owners looking to sell their businesses often ask “when do I start due diligence” and the easy answer is, the sooner the better. Inexperienced business owners do not understand how involved the process can be and unfortunately, many business owners postpone this process too long and then rely on the buyer’s due diligence. While you may still get your business sold by doing this, you can sell

It is never easy to emotionally detach yourself from matters that are very important to you, and your business is no exception. It is akin to evaluating your child as a neutral third party would; realistically, you cannot. And it makes sense why; you have likely invested numerous hours and many resources into your business. And, really, what is the harm in thinking well of your business or of bragging about it?

Generally, there is nothing wrong with playing favorites with your business. However, this favoritism can lead to one major downfall: over-valuing your business. Like the parent who thinks her kid can do no wrong, business owners often overlook the flaws in their own businesses. This becomes a problem at two major times:

1. When the business is not profitable

There are business owners out there who do not have a grasp on how their business is actually doing. We have heard from owners who are struggling to make a profit but do not know what they are doing wrong. This is when wearing rose colored glasses can hurt your business; you are not able to see the true problems. And you cannot fix problems you do not know exist. So, what can you do as a business owner do determine how your business is truly doing?

  • Consider hiring outside help; be it from a consultant, CPA, accountant or an attorney.
  • Set up a survey to get customers’ opinions on your business.
  • Ask your employees for honest feedback