While we would love for every business owner to find success, the reality of this scenario simply isn’t possible. So what can you do if you have started a company and you’ve tried everything to scale it but you’re banging your head against the wall and not making any money. At this point your assets are worth more than your cash flow. There are three scenarios to exit your company, which we’ve outlined below.
If your company is not making any money, the value of your business is tied up in your assets. Typically, in this situation, a business will trade at 10% to 50% of its assets. These assets mainly include equipment, fixtures and so forth. In this scenario, the buyer will assume any leases associated with the company and the business owners debt can be paid off at closing.
An asset sale is a great opportunity for an owner who is interested in a standard business model or a first time owner. In Transworld’s experience we typically see this in specialty use spaces, restaurant sales and the salon industry.
The second scenario available to a distressed business owner is to shut down the company and liquidate any remaining assets. It is common to sell assets through sites like Craigslist, specialized industry auction websites, and even through a professional liquidator. In this case, the business owner will still be held liable for any leases whether for commercial space and even equipment. Any business debts will also stay with the business owner.
In Transworld’s experience, scenario 2 occurs because an owner has no working capital after a lengthy build-out, or the business is not meeting financial projections. Often we see this in retail product and service industries and restaurant businesses.
The final option for exit is subletting or assigning the lease for the business property to a new tenant. Though subleasing is the most common way to exit a lease, assignments are the best way to transition out of the space without continued liability to the prior tenant. A lease assignment is a contract to assign the entire lease to a new business entity. If the owner of the business owns the property then selling the building is a great way to clear their proceeds.
Given these three scenarios, the best chance for an owner to exit their company is to pursue scenario 1 and 3 at the same time using a transactional advisor as well as a commercial broker. This would allow for the most efficient option to getting out of a business.
If you still have questions about exiting a business or lease, we recommend speaking with a commercial broker or business intermediary to discuss the process. Visit transworldcre.com for more information or call
720-574-2953 to speak with a broker.
Rachael Holstein is the Marketing Manager for Transworld Commercial Real Estate, a full service commercial real estate firm in Denver, Colorado. Her work experience has been largely focused on business development and marketing in business brokerage, finance, architecture, property management, and information technology. A long time resident of Cleveland, Ohio, she attained her undergrad from John Carroll University and her Master’s Degree from Cleveland State University. In 2013, she relocated to Denver with her husband, Joe, and her furry companions to explore the mile high lifestyle! Visit transworldcre.com for more information.