Leases: A Cautionary Tale

By Hoke - Last updated: Friday, August 6, 2010 - Save & Share - Leave a Comment

If you have decided to sell the business, why renew the lease? You have an “excellent” relationship with the Landlord. Here is a not so uncommon cautionary tale.

Ready to retire, the Seller put his excellent, very profitable, key location retail business on the market. The Business was valued at about $600,000. He reasoned that since he was selling it, why renew the lease which was soon to expire. The Buyer can negotiate a new lease and the Seller will not be a Guarantor on the Lease Assignment. Unfortunately he also had a less experienced Business Broker.

The Buyer, a larger competitor in the same industry was able to gauge the location Revenues from the Seller’s Financial Statements provided by the Business Broker and also knew the Lease was soon to expire from the Business Broker’s Business Profile. So instead of acquiring the business for $600K, the Buyer went directly to the Landlord and negotiated a new lease to begin upon expiration of the Seller’s lease for the same location.

The upshot. The Buyer got a $600K business for nothing. Unable to retire, the Seller moved his inventory and fixtures to a less desirable location that has been marginally profitable. When I last heard from him, he was trying to sell the Business’s new location for less than Inventory Value.

It is easy for a Seller to believe that expertise and success in operating a specific business will translate into success in selling that same business. As Business Brokers we believe that Selling a Business is an expertise and profession that takes many transactions to master.

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Posted in Beware Sellers!, Improving Business Desirablilty, Leases and Selling the Business, Preparing the Business for Sale • • Top Of Page