A business broker is a specialist who helps owners sell their businesses, and buyers find the right one to buy. They make the process of selling a business a legally compliant, simple and profitable one while ensuring that those who take over the reins acquire something they can financially benefit from in the future. For this, they usually charge a small fee of the sale price.
Do I Need A Business Broker?
Even if you think you know all there is to know about winding up your involvement in a business, you could miss something. It’s in your best interest to get a business broker on board from the moment you start entertaining the idea of selling up. You’ll find that with one at your side, the process goes better than anticipated.
A business broker will start by valuing your business’s assets and liabilities, advertising it on your behalf and shortlisting applicants for you to interview. Depending on your size and turnover, they’ll help you to prepare mandatory statements, outline the minimum deposit and settlement period required, and create a process for training or staff management (if they’re keeping your staff on). They’ll make sure you are insurance, Capital Gains Tax and Goods & Services Tax compliant and once you’ve chosen a buyer, they’ll draft a contract including restrictions of trade that may apply.
Most people are surprised at the amount of work that goes into selling a business, and if you don’t do it correctly, it could become a complicated and expensive affair. Work with us from the outset to get the clean break you deserve and money in your pocket.For more information, get in touch with us here.
There comes a time when a business owner has to negotiate a lease, and there’s only one chance to get it right. We have all heard the horror stories, but most can be avoided with clear thinking and good legal and commercial advice.
Typically, in the course of your business activities you might have to:
– Negotiate a new lease
– Assign a lease to the buyer of the business
– Take on an assignment of a lease when purchasing a business
A lease gives you the right to carry on your business in a location, and a legal interest in the property for the term of the lease. It gives you the right to trade and, most importantly, security.
When buying, selling or renewing, the terms of your lease will determine your right and cost of access to these valuable customers. A secure lease, reasonable rent and outgoings will be generally regarded as a valuable business asset. A good lease creates a real value when selling a retail business, and conversely, a poor lease can devalue what is otherwise a sure thing.
Reading and Understanding the Lease
It is important that you read the lease documents carefully and ensure you understand what each clause meant to you and your businesses. Don’t leave it to someone else. Lease terms vary widely as they are regulated by state and local laws. Assume nothing, read everything.
Legal advice is crucial, but ensure your solicitor deals with retail and commercial leases on a regular basis. After all, you don’t ask your GP for advice on your toothache – you ask your dentist.
When reviewing leases, attention should be given to the areas that affect:
Profitability is a function of your skill as a business owner and marketer, and the accumulated customer base that drives your turnover. When it comes to buying or selling a business, continued access to these established customers is a critical factor in the valuation. It’s a large part of the difference between the cost of starting a business from scratch, and the buying price of an established business.
Security of Tenure is making sure that the business will remain profitable for many years. The objective is to have a long lease that will increase the net worth of the business from a resale perspective. Banks look favourably at longer leases. A short-term lease would only be considered if you weren’t sure that the business was going to survive, and you could exit the lease at the end of the first term and cut your losses.
Ongoing Liability is the continuing accountability of the previous business owner or tenant regarding the lease. It is common practice for leases to contain a covenant that maintains the original Lessee’s liability for performance after a business is sold for the duration of the initial lease term. Some state governments have enforced new legislation that helps a new tenant, so ask your solicitor to be sure. It is also prudent to establish (where possible) the history of the lessor’s performance as a landlord.
Clauses To Look Out For
Basis for Rent Adjustments
Rent is commonly increased in line with the CPI each year. Fixed percentage increases such as 5% to 7% are common in shopping centres. Increases compound each year, so keep that in mind.
Turnover Rent
In some leases there are percentage rental clauses. These clauses usually state the minimum weekly turnover. Above this value, the rent is calculated on a percentage of turnover rather than base rental. It is rare to see this enforced, as the threshold value is usually quite high.
Rent Reviews
It is common to have a rent review at the end of each term of the lease. For example, if you have a three-year lease with a three-year option, at the end of the first three years the rent can be adjusted to match the rate that is paid by the other retailers in the area. Make sure you know the market rates and are prepared to pay market rent if you have to.
Outgoing/Charges
Ensure you know what and how much you have to pay and what they cover. They may cover body corporate fees or building insurance, for example.
Electricity Charges
Ask whether your electricity consumption will be charged by the landlord or if you will have your own account directly with the supplier.
Repairs and Maintenance Contributions
Establish your obligations as a tenant, including a breakdown of the landlord’s equipment. For example, if the landlord owns the compressor that runs your cold room, it is reasonable that you are required to service it? Do you have to put a service agreement in place with a service company to maintain the landlord’s equipment? If something breaks – who pays?
Cleaning Contributions
Are there any required? Who pays for what?
Re-fit Clauses
Is there a refit clause in the lease? If so, when will it need to be done, who can complete such works and who will approve the works? Ask how much the average is spent in the centre on re-fit – you may be surprised.
Demolition Clauses
Ask whether the lease contains a demolition clause. If a lease provides for demolition, the landlord generally must give a written notice to the tenant advising that the landlord has elected to terminate the lease. The period of the notice will differ between jurisdictions and according to the lease terms. If a lease contains a demolition clause, then you need to carefully consider the impact such a clause would have on you and your business if that right was exercised. Consider whether or not you are entitled to claim compensation from the landlord.
Relocation Clauses
A relocation clause allows the landlord to relocate a tenant to different premises. Relocation clauses are sometimes common in retail shopping centre leases. If the landlord wishes to relocate the tenant, then the lease will provide for the landlord to give the tenant notice about the relocations. The minimum period of the notice will differ between jurisdictions. The lease will specify the actual period and compensation, if any. Relocation costs can be significant and include removal of fixtures and fittings, replacing fixtures and fittings, legal costs, etc.
Lessors Right to Terminate
The landlord rights to terminate are usually set out in some detail in your lease agreement. Common reasons are a breach by the tenant such as not paying rent, outgoings or trading unlawfully.
Lessees Right to Terminate
The tenant’s right to terminate is largely dependent on the terms of each individual lease but, generally speaking, the right of a tenant to terminate will be very limited. It may be limited to where the property can no longer be occupied because of fire or flood.
Council Approval
Enquiries with a town planner, local council or Safe Foods Authority should be made to ensure that your intended use of the property is and will be lawful.
Reviewing your lease is an unavoidable step that can make or break the future of a business. If you’re looking for more advice and information, get in touch with us here.
A dream becomes a business only through many years of hard work, sleepless nights and an endless supply of passion. Selling that business can be an agonising choice, which is why choosing a business broker you can rely on for knowledge, guidance and experience (not to mention support) is so important.
The world of Business Brokerage is filled with many different types of specialties, with varying levels of skill and expertise. Your broker could specialise in a particular industry, such as hospitality or retail, while others are well versed in advice pertaining to several areas as an all-rounder. Above all, it’s paramount that you ask the right questions to establish the credibility and expertise of a broker prior to engaging service.
Here are a few examples of essential questions you can ask to find your perfect fit:
How many businesses have you sold?
It can take years of experience to become a successful negotiator. Only through performing many transactions can a broker build up the skill set required to give you a key advantage in negotiations. Every transaction is different, and in a market that changes constantly it is important to be up to speed with the latest legal and accounting policies.
Have you sold a business like mine before?
It is important to use a broker who has had experience in your industry previously and who understands specific situations which may arise in your sale. A business broker who has specific knowledge about an industry will also have a much better grasp on valuations and past sale data. You will receive a far better appraisal from a broker who has sold similar businesses to yours before.
Will I know who has looked at my business?
A good business broker should always run potential purchasers past you before sending them any information. After all, your private information could be the key to your success. You need to ensure it is kept away from competitors and potential tyre kickers. With Nikki Katz, business sellers have free and open access to every buyer inquiry on their business and must approve the buyer before any information is sent.
If you’re looking for a modern, personally handled service with the market knowledge and specialist skills to assist you in one of your most important transactions, contact Nikki Katz!
