Having a solid exit strategy is necessary for every business owner. Entrepreneurs should start planning their ideal departure from their business the day they start it. However, life does not always follow the plan you have for it. Insufficient cash flow, legal issues, health problems and other personal reasons could cause a business to close permanently. Shutting down does not necessarily mean that all hope is lost. Even a closed business can have value in its material assets. Many business owners do not realize this and choose to close up shop without capitalizing on leasehold improvements, equipment, inventory, real estate, licenses or intellectual property that buyers could be willing to pay for. Small business owners who were forced into closure due to COVID-19 can still capitalize on the opportunity to sell, while buyers can discover great new opportunities.
Benefits Available to the Seller of a Closed Business
If you find yourself facing the decision of whether or not to close your business, because of the pandemic or other unforeseen circumstances, the choice may come down to cash flow. If you do not have enough to stay open and weather the storm, you can either walk away, or attempt to find a buyer for your company’s assets.
Physical assets, such as fixtures, furniture, specialized equipment, inventory, licenses or intellectual property can sometimes carry enough value on their own to justify a sale. For some industries, these material physical assets could carry tremendous value and asset sales can be quite common. In the restaurant industry, for instance, cooking equipment or a liquor license are high value items that a new restauranteur would covet. Someone looking to start a manufacturing company would be interested in a business that had specialized factory equipment or intellectual property that can be repurposed. Similarly, leasehold improvements, such as enhancements to the building the business operates out of, could hold value to a new operator. In some cases, a buyer may be more willing to pay the seller for these improvements than go through the trouble of getting the work done themselves.
Location is another valuable asset that is in demand with business buyers. Real estate attached to the business will undoubtedly carry some value, regardless of the location, but a more sought after area will obviously get you more. If your business is located in a prime spot, but the location is leased, you may still have some selling leverage if the lease can be transferred to a new owner. Many landlords are amenable to negotiating favorable terms if you bring them a tenant. It can save them the trouble of having to find a tenant on their own and having to pay a commission. This can also free you from your own lease obligation from having to move out early.
Benefits Available to Buyers of Closed Businesses
Many buyers look for closed businesses because they offer good value. Opportunities are out there to purchase a closed business in the right location, or with valuable assets that can be leveraged towards starting a new business, or expanding an existing one. Since many businesses closed permanently due to the pandemic, you could also find a very good business for sale that is capable of becoming profitable again normalcy returns. There are a few other instances where purchasing a closed business could be very beneficial.
Many aspiring business owners look to purchase existing, proven businesses to speed up their time to profit. Buying a profitable business allows them to start earning money on day one, while starting a new business from scratch can take a long time, and may fail before it ever launches. A closed business can offer a middle ground, where you can use existing assets to speed up your time to open. Leasehold improvements, equipment purchasing, permits and licenses are all examples of things that can slow down your timeline to launch a business and cost a lot of money. By purchasing a business that already has some of these items in place, you save yourself time, frustration and possibly money.
A business’s location can make or break it. There are great opportunities in closed businesses with prime locations. They carry more risk than established businesses, but a high traffic area can help get your business of to a great start. Be sure to investigate to see why the business failed, despite being in a great area. Maybe it was the wrong business for that area, or perhaps it was just poorly run. Knowing what went wrong could help you avoid the same mistakes.
Economic downturns will always force businesses owners to shut down, but it does not have to be for nothing. Owners of these businesses should look for ways to salvage their investment and get something for its valuable assets. While this might be very different from their original exit strategy, it is much better than walking away empty handed. Buyers should recognize that while these times are difficult for many, they also present incredible opportunities. Overall, both sides can make the best of an otherwise bad situation.
If you are looking to buy or sell a business in Southwest Florida, contact Corporate Investment Business Brokers (CIBB). Headquartered in Fort Myers, our brokerage has over 30 years of experience valuing businesses of all industries from Tampa through Naples. We can help you to reach your goal successfully, whether that means getting into a new business opportunity, or get the most out the sale of your existing business. If you are looking to sell, start with our free business valuation estimate. If you are looking for a new venture, check out our latest business for sale listings.
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