In a December 2018 article in Divestopedia entitled, “Options for Business Real Estate When Selling a Company,” the topic of business real estate was explored at length. One of the article’s key points was that understanding one’s business real estate options ultimately helps in achieving “the goals desired in a transaction.”
The article is correct to point out that many business owners don’t know what real estate options are available to them when it comes time to sell their company. There are two main options:
- Sell everything including the real estate.
- Hold onto the real estate for the rental income.
Who Owns the Real Estate?
In the Divestopedia article, the authors correctly point out that if you, as the business owner, personally own the real estate in a separate entity, then you are good to go. You should have a “clear path to valuation.”
However, if your company owns the real estate, things get a little more complicated. If this is the situation, you’ll benefit from a third-party appraisal of the real estate, so its value is clear. The article also points out that if your business is a C-Corp and your business also owns the real estate, then it’s a good idea to talk to your accountant, as there will be differences in taxation.
Is your business exit ready?
If you’re planning to exit your company in the near future, you may find EastWind’s Exit Strategy Playbook helpful in developing your own exit strategy, making your company more sellable.
What Do Buyers Want?
When it comes to considering your real estate with regards to a sale of your business, every situation is different. Many buyers will prefer to acquire the real estate along with the business. Other buyers may prefer a lease, as they don’t want everything that comes along with owning real estate. Communicating with the buyer regarding his or her preference is a savvy move.
If your buyer is not interested in acquiring the real estate along with the business, that is not necessarily bad for you. There are advantages to you keeping that asset.
If You Plan to Retain the Real Estate
Now, as Divestopedia points out, if you do plan to retain the building that houses your business, you’ll want to be certain a strong lease is in place. Ask any merger and acquisition advisor about the importance of having a strong lease, and you’ll get clear-cut feedback: You always want to have a strong lease.
Issues such as who repairs what and why should all be spelled out in the lease. It should leave nothing to chance. One of the best points made in the Divestopedia article is that there is another key benefit to having a strong lease: When the time comes to sell the property, you will be able to show you have a lease that is generating good income.
Real estate and the sale of your business are not one-dimensional topics. There are many variables that go into selling when real estate is involved. It is important to consider all the variables and work with an M&A advisor who can help guide you through this potentially complex topic.