Secure Your Tenure

AUTHOR

Bruce Coudrey

There are three basic things being offered when a business is sold:

1. Tangible Assets - such as plant & equipment, stock, fixtures, etc.

2. Intangible Assets – goodwill, intellectual Property

3. Future maintainable earnings – or a degree of certainty. The “maintainability” of those future earnings needs to be assured and proven to a business buyer and their financier.

One of the main things that underpins this “maintainability” is secure tenure.  Usually a secure lease, with an adequate amount of time left to run until the lease expires, is the thing needed to provide a degree of certainty about the future income stream. Maximum value can usually be achieved by having the longest, most secure lease in place when offering a business for sale.  So don’t be afraid to take up an option, or get a new lease. it is essential to get the maximum tenure in place before the business is offered for sale, as the uncertainty of having a buyer trying to secure a new lease or option will make the sale doubtful and complicated.

Many business owners are unsure about whether they should renew a lease or take up an option on a lease before selling a business, as they feel that the new owner may not want to remain at the same location. it is usually better to have the lease.  In fact, it is a good general rule that you should operate the business as you would if you were going to continue owning the business into the future. If you own a business and the freehold property there are many advantages, and benefits to be derived from arranging a lease between the business and the property owner. For example, you can sell the business, and continue to own the property and either enjoy the passive rental income or sell it to an investor.  There are also tremendous gst issues and possible benefits from having such a lease in place when selling a business. The most profitable business in the world won’t sell if there is no guarantee that it will be able to continue trading as it is into the future.  Certain tenure assists in providing “maintainability”.