Business

Common Problems when Selling an Existing Business

The landlord will object (or) The landlord has objected.

If your lease gives the landlord the right to approve assignments or sublets, this is an actual problem . . . whether it’s expectant or extant. This is also entirely rational. The landlord looks at transitions in tenants as opportunities to increase rent. If you assign your lease he’s missing out on that increase. In addition, he may have developed confidence in your business’s ability to pay the rent. The new owner is an unknown quantity.

If you are planning on selling and you didn’t successfully negotiate a flexible enough assign ability clause when you the first signed the lease, you need to go back and renegotiate one now. Bring in your attorney as your hired gun and do whatever you can to change the lease so it smoothes the way for you to sell.

Theoretically the landlord already trusts you. Your mission now should be to get him to trust your buyer as well. Do everything you can to demonstrate to the landlord that he’ll actually be in a better position with this new tenant than with you. For instance, if she’s younger than you, that would guarantee him more years of continued occupancy; or if she has “deep pockets” that could make it easier for him to increase the rent when the lease expires.

The only further (act you can add if you need to ask for a reconsideration is that you will serve as personal guarantor of the lease for part of the remaining term, or the new owner can offer an increase in the security deposit.

My employees will bolt.

This is also entirely rational. Seasoned employees know that wholesale staff changes almost always come close on the heels of changes in ownership and management. The minute that word leaks that you’re thinking of selling, your best people will become flight risks.

The key information you need to gather is actually from the buyer, not your employees. If the buyer plans on making wholesale immediate staff changes she may not want you to stop your employees from bolting. On the other hand, if she wants to hold on to people, at least for a little while, she’ll be helpful in solving the problem.

Your employees, understandably, aren’t going to trust any verbal promises from either you or the future owner. Even though they trust you, they also know that you won’t be around much longer, and that your primary concern is closing the deal, not saving their skins. The solution is to sign your key employees to contracts. The difficulty is that this will be a three-way negotiation among you, the future owner, and the employee. That’s why I suggest clients in this situation focus on crafting simpler termination agreements instead. These should provide sufficient security to the employees without binding the future owner’s hands.

If an employee refuses to sign an agreement, you can make a personal plea for him to reconsider. Meet him privately, as a friend rather than an employer, and explain that the termination agreement won’t prevent him from looking for another job. All it will do is memorializing his severance package. And since he suspects he’ll be terminated shortly anyway, this is a chance for him to get more than he would have otherwise.

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