Did you know that you can endanger the sale of your business with just one real estate misstep? Unfortunately, it’s true—but if you make the right decisions, things won’t just go smoothly, you’ll actually increase the value of your business.
Want to learn more? We thought so.
That’s why we gathered our top commercial real estate advisors and asked some hard-hitting questions about what business owners should know in order to get the best possible deal.
They had so much to say that this is the second post in a two-part series. (Don’t miss our first write-up!)
1. What are the advantages and disadvantages of short- and long-term leases?
Both short- and long-term lease can have positive or negative impacts on the sale of the business depending on your business type, growth goals, and strategy.
Generally, long-term leases are great for more established companies with stable and steady growth. Some advantages of the long-term leases include cheaper rent, more tenant incentives like buildout and tenant improvement allowance, less moving disruption and costs, fixed cost and location, and amortizing improvements which helps to reduce expenses. But, on the downside you risk outgrowing the space and layout before the term is up and possibly being stuck in an outdated space or building if improvements aren’t made.
On the other hand, short-term leases are generally good for fast growing startups and entrepreneurs. Advantages to short-term leases include flexibility to move as the company grows, modern space and building to attract talent. However, rent is typically higher, you can’t establish your company in one location, and there are costs and productivity losses associated with regularly moving.
2. What is the most valuable real estate advice you give business owners?
Take it from Verity, when comes to commercial real estate be sure you:
- Match your commercial real estate with your business goals, strategy, and culture. Start by updating your business plan.
- Plan for the future (even the worst case).
- Consider total cost of occupancy not just direct costs. Total costs of occupancy takes direct costs like annual rent/mortgage payments, improvements, utilities, and maintenance and adds underlying costs not usually factored by business owners such as furniture, internet, employee commuting time/gas, and landlord pass-through.
- Find a broker with a proven track record in commercial real estate and in your business industry.
- Invest in your company and talent and use commercial real estate for better business outcomes.
3. When it comes to real estate, what should first-time business owners consider?
Many starter companies are often overwhelmed with running a new company that they’ll overlook commercial real estate. Often, they’ll take a transactional approach rather than a strategic approach to real estate. Unfortunately, this approach costs them in ways they don’t even realize. Unnecessary expense, higher costs, less flexibility, and a drag on business growth and wealth creation are consequences to this approach.
Taking a strategic approach starts with developing a solid business plan. You can’t raise capital, obtain a bank loan, or understand your real estate needs without one. Before you enter any agreement, set up the business structure. Limited liability companies (LLC), incorporated (INC), sole proprietorships, and partnerships all have different legal and tax implications which will help investors understand risk and how real estate deals should be structured. Never co-mingle personal assets with business assets and run a thorough risk analysis to limit risk exposure.
Negotiate flexibility into your agreement. For example, subleases are great for new business. Subleased spaces generally come fully furnished and offer shorter lease terms so you can move as you grow. Establish good relationships with landlord. Keep open line of communication with landlord so when business isn’t performing, they will be willing to work with you on payments.
Often, commercial real estate is the last factor considered by business owners because they view it as an expense to be minimized rather than a strategic advantage. This way of approaching real estate could jeopardize the successful sale of a business—even if the sale won’t happen for years.
The best way to approach the sale of your business is to consult a CPA or valuation firm and find a commercial real estate advisor that approaches real estate from a strategic advantage rather than transactional. The most successful outcomes occur when two experienced experts work together for you.
While we at Verity aren’t in the business of selling businesses, we are experts in commercial real estate; we can help align your real estate strategy with the sale of your business.
Want to learn more? Fill it out The Strategic Real Estate Diagnostic worksheet to assess how you’re managing your real estate. Send it to us and we’ll give you a free assessment with recommendations.