GLENDALE, Ariz. — The most important thing I learned from buying and selling my laundromats was to start early. By that, I mean develop an exit strategy before you even buy your mat.
How you sell your store will depend on some factors. If you own the building, you can choose to sell only the mat. You can offer a tempting lease that can greatly enhance the selling price of your mat. You receive the sales proceeds from the mat as well as the ability to collect rent as landlord for years of future income.
As the owner of the building, you’ll understand the needs of the buyer, so you can attract more buyers.
If you decide to buy a mat that offers a lease only, make the agreement is “sales-friendly” when it’s your time to sell. Canvass the stores in your target shopping area to find out how the landlord operates. You probably won’t get much out of the seller but you may get some useful nuggets from other tenants.
In Part 1, I went over the importance of curb appeal and store condition. Let me conclude today by discussing how to find buyers, the need for legal support, seller financing, and dealing with taxes.
FINDING BUYERS
In New York City, where my stores were located, Asians frequently bought mats. I advertised in the World Journal, which is the most-read newspaper by Chinese people living in NYC. Doing that brought more serious buyers and not many “tire-kickers.” Advertise your stores for sale in the media that makes the most sense for you and your area.
If your attendants know you are selling, ask them to take notes on anyone who inquires about your store. Most store owners don’t want staff to know they are selling because they’re afraid the crew will quit.
If you have a regular detergent supplier, ask them if they know of anyone looking to buy. Same goes for your distributor. I’m not a fan of online brokerage sites but what about Craigslist? Maybe other retailers in your shopping center have been eyeing your space for years.
Note: A buyer should first prove that they can afford your mat, so they don’t waste your time.
LAWYER UP
You want a good commercial lawyer when you buy to advise and protect you so that you’ll have better conditions when you sell. This attorney would assist you with contract language regarding lease length, craft fair options for extensions, and assign the lease to your buyer.
You can frame extension options with parameters, such as an increase of not less than 2% but not more than 5%.
The lease assignment allows you to transfer your lease to a buyer. If not worded well, it may give the landlord a couple of loopholes to pressure you at selling time. For instance, how long does the landlord have to decide on a buyer for you?
When you decide to sell your mat, have every person who requests information about your mat sign a non-disclosure agreement so they can’t share your mat’s private info with others. There are boilerplate versions online but your lawyer should draft one specifically for you.
SELLER FINANCING AND DEALING WITH TAXES
You should already have a good, qualified tax accountant who knows your business. He/she is your best guide. There are too many tax strategies, depreciation strategies and loss strategies. For instance, by issuing promissory notes—a signed document promising payment to the note bearer at a specified date or on demand—you may save on taxes.
If you found a good, qualified buyer who you think can do well with your business but is shy on how much money they can put down, you both can benefit from seller financing. The buyer gets the mat when he may not have been able to swing the costs and you get a sale to someone who you have enough confidence in to pay your notes with negotiated interest.
The length of the agreement is also open to negotiation; for your part, the longer the term, the higher the interest rate. Of course, if the buyer fails to make the payments, you can repossess the mat. All of this can be spelled out with the help of an attorney experienced in commercial real estate.
Taxes are another issue that you should deal with before you even decide to sell. For example, promissory notes can save you taxes because your income from the sale will be spread over the term of the loan, rather than getting all the income in the same year.
Not everyone knows that an S corporation, sole proprietorship or a limited liability corporation will lower your taxes at sale time compared to a C corporation. They are called pass-through entities, meaning your mat’s taxes (and losses) will pass through directly to you, so you’re only taxed once.
You will have to pay a capital gains tax on the difference between the sale price of your mat minus the amount you originally paid. So, if you paid $300,000 five years ago and now you’re selling it for $400,000, you’ll have to pay capital gains tax on the $100,000 difference.
If you have a C corporation, you’ll be taxed twice. First, the business will pay capital gains taxes on that $100,000, then whatever is left after that, you’ll be taxed personally.
Remember, getting an early start strategizing your exit strategy will help things go smoothly when you decide it’s time to sell.
Miss Part 1? You can read it HERE.
Have a question or comment? E-mail our editor Bruce Beggs at [email protected].