How to Sell a Business with Real Estate
What You Need to Know If You Are Selling
Your Business and the Real Estate
We sell many businesses with real estate. When we meet with the owners for the first time, they usually have these questions about the process.
- What should I sell first -- the business or the real estate? You need to wait to sell the real estate until the business is sold. This is true when the business success is dependent on the location, such as with a retail business. Another example is if there is special licensing that is location dependent. One such example is an auto body shop. In heavily residential areas, it might be very difficult to get a permit for an auto body shop in a new location. You want to offer the business buyer the opportunity to buy the real estate; it may increase the value of the business.
- Should I hire a real estate broker or a business broker with a real estate license? The answer is hire a business broker with a real estate license to sell a business with real estate. The reason is two-fold. The first buying decision is based on the business and then a buyer decides if they want to buy the real estate with it. Business brokers have the expertise to sell the business and the real estate. Most commercial real estate brokers do not have that expertise, nor do they have buyers looking for a business to buy, or do marketing to reach business buyers. We frequently sell businesses with real estate and all of our brokers have real estate licenses to sell commercial real estate.
- How do you value, or price, a business with real estate? The answer is that you value the business and real estate separately. In many cases, the owner bought the property many years ago and the value, and what the property will sell for, is much higher than what the business owner paid. For business valuation purposes, appraisers use the rent or mortgage expense, and updated additional expenses (possibly higher property taxes based on an updated sale price) and recast the property related expenses on the business’ income statement. Using the recast income statement, a valuation is determined.
- What income and selling price do you advertise? When we market a business with real estate, we usually advertise the business income and business selling price. In our advertisement, we add that the real estate is also for sale. The reason for this is that the multiple that real estate sells for as a multiple of net income is much higher than the multiple the typical business sells for. Business buyers first see the income and asking price and will regard the business as very over-priced if the real estate income and price are included in the income and asking price advertised.
- Do I need an appraisal for the real estate? When selling a business with real estate, it is wise to get an appraisal and have an asking price that is based on it. If the real estate is priced too high, it could reduce buyer interest. In addition, a buyer will need to get a mortgage and the lender will require an appraisal. If the price for the real estate is too high, it will have to be re-negotiated, or the deal with fall through. Another reason to get an appraisal is to be sure the real estate is not priced too low – leaving money on the table for the seller.
We sell many businesses with, or without, the real estate. All of our brokers are knowledgeable about selling businesses and real estate. All have real estate licenses. Contact us to discuss your situation. There is no cost or obligation.
BayState Business Brokers
60 Kendrick Street, Suite 206, Needham, MA 02494