How Does Selling a Privately Held Business Compare to Selling a Real Property Investment?

Photo of real property investment

Many business owners ask us if selling a business is similar to selling a real property investment. Selling real property is something that many business owners have been involved in during their career, and it is natural to draw comparisons. Surely selling something tangible, like real property, has similar steps to selling a company. You get a valuation, pull the trigger on marketing, negotiate a price, cooperate with buyer diligence, and then close. Well, while there are some similarities, the differences are substantial, and can be costly to a business owner who attempts to follow those same steps to sell their business without professional help.

 Over the next few articles, we will explore how the two workflows converge and diverge. At the end of the series, business owners will have learned more about each step in the business sales process, and can use this knowledge to prepare for their own exit strategy and consider the team they will need on their side of the table to successfully complete the sale.

Steps to selling a privately held business vs. a real property investment

We’ll explore all of the steps along the way in the business sales process in upcoming posts, and compare them to selling real property. Here’s a “sneak peek” at the topic of each upcoming article. Questions? Please reach out if you have a topic or nuance you’d like to see covered in future articles. 

Asset Characteristics

How are privately held businesses and a real property investment alike and different? How are income / return / revenue derived? How are operations and management duties effectively handled to increase all important revenue?  

Valuation

We’ll explore how valuation of a real property investment differs from a privately held business. Real property is tied to the attributes of a location, and is prized for its income stream or appreciation and/or development potential. Privately held businesses are valued on cash flow, growth and market share, among other factors we’ll discuss. 

Determining Value

As business sales experts, we bring our years of experience to bear in determining value for our business owner clients. In this post we’ll consider the Asset approach, the Income approach, and the Market approach. We’ll compare these to the ways that a real property investment is typically valued, so you can understand the differences.

Ease / Complexity to Sell

Surely selling a business is as easy as selling real property? Well, in this post we will explore how the market and other factors affect both sales processes, and discuss steps to take to achieve the maximum value for your business.

Marketing

Of all the steps in the business sales process, marketing is one that diverges the most. Listing a real property investment in the commercial MLS and marketing to a non-confidential buyers list are fairly simple steps. On the other hand, an M&A advisor has to protect confidentiality and craft a comprehensive marketing plan that identifies and targets the best buyers for each business.

Negotiations

How are negotiations handled when selling a business vs. selling a real property investment? Who will handle these negotiations when you are selling your business and ensure a smooth transaction? We’ll explore the strategies we’ve used to successfully sell over 400 businesses.

Buyer Diligence

In this post we’ll highlight the differences between feasibility studies when selling a real property investment, and the more comprehensive steps a buyer will take during due diligence in a business sale transaction. These includes a review of contracts, financial statements, management and personnel, growth possibilities and much more.

Financing

How does a buyer finance the purchase of a real property investment? Is this similar to how financing is secured for purchasing a privately held business? We’ll compare the multiple sources of capital available for each type of sale and how it affects the sales process. 

Documentation / Closing

Surely contracts are similar between the two types of sales? In this post we’ll discuss how contracts are expertly tailored to each business sale vs. more standardized contracts for selling real property. We will also discuss who handles closing for each type of sale.

Conclusions

In this post we’ll summarize what we’ve learned throughout the series of articles and recommend next steps in planning the sale of a privately held business. We’ll also answer questions we are often asked to help business owners understand the process.