Business Services

Exiting a business can be extremely emotional so it’s important to have the right partners in place guide you through the process. As your legal partner we will give you as much or as little advice as you need, but be assured we’ll be with you every step of the way. We can advise you on everything from selling your business premises to raise capital through to full liquidation.

Running a business can be extremely stressful so it’s important to have the right partners in place to ensure your business stays on track. As your legal partner we will give you as much or as little advice as you need, but be assured we’ll be with you every step of the way. We can advise you on everything from the renewal of staff contracts through to helping you claim for any unpaid debts.

A mistake business owners often make is selling too early, rather than taking the time to groom the business ready for a sale.

We find that business owners often panic and sell when the market is in decline, rather than waiting it out, but we can advise you of such implications. By taking your time (often months), you can present your business in a very different way and therefore maximise the sale value.

You need to be able to show prospective buyers that your business is under control with accurate management information. You should also look to improve planning, performance and profitability in all areas. In addition, you need to make sure you have suitable contracts for employees and suppliers, as well as resolving any outstanding disputes and tightening up your finances.

We would advise that you:

• Create a stable financial plan for the year.
• Sell any redundant equipment and property
• Tighten up stock control, making provision for old stock as appropriate
• Make sure the premises look well maintained and tidy

Once you feel that your business is ready for sale, your legal adviser will draft a ‘sales memorandum’ which effectively highlights the key features of the business, including basic performance indicators such as turnover and profit. At this stage confidential information will not be disclosed.

There are specialist commercial sales agencies that can help to market your business to prospective buyers and we can help you select one if necessary. Often the business name will be hidden until serious interest has been registered by a buyer.

Once a serious buyer comes forward then they will be asked to sign a non disclosure agreement before any information is shared with them. You may want to consider telling key employees of your intentions at this stage before any on-site meetings/tours begin taking place.

One of the first things any adviser will ask you is why you want to sell, as this can impact on the deal structure proposed. A trade sale to another business, typically in the same sector, is the most common exit route, although alternatives can include a management buy-out, passing the business to your family or floating your business. Some of the more common objectives include:

• Retiring/ill health, so looking for a cash payout at a target price, and/or by a set date
• To secure the future of the business and the employees
• To minimise your personal tax liabilities

You will need to have a commercial legal adviser on your side as well as a corporate finance adviser and an accountant to advise you on tax. If there are employees you will also need to have an employment law adviser. You may also want to think about a personal wealth manager to ensure that any proceeds are invested in the appropriate way.

Types of commercial properties
There are several types of commercial real estate properties available, including office buildings, retail spaces, warehouses, apartment buildings and industrial units.

Location
The location is important for several reasons, including accessibility, parking, visibility, and proximity to potential customers or clients. It’s important to consider the demographics of the local area and the potential for growth when choosing a location for your commercial property. It is also a good idea to review any plans that your local council may have for that area, just in case that may impact the property location further down the line.

Cost
Commercial properties can be expensive to purchase or rent, so it’s important to consider your budget before making a decision. Factors such as location, size, and quality of the property can all impact the cost.

Financing
Financing options for commercial properties typically involve a combination of equity and debt financing. Equity financing involves investing your own money or seeking out investors to help fund the purchase or expansion of the property. Debt financing involves obtaining a loan from a lender to help finance the purchase or development of the property. Typically a lender would expect a charge on the property as security for their loan.

Leasing
Many commercial properties are leased rather than purchased outright. Leasing can provide more flexibility and lower upfront costs, but also comes with its own set of challenges and obligations.

Maintenance and upkeep
Maintaining a commercial property can be costly and time-consuming, but it’s important for the long-term success and value of the property. Regular maintenance and repairs can help prevent larger issues down the line.

Potential investment opportunity

With any property purchase, buying a commercial property could be seen as an investment. The property may increase in value, and when you own your business premises, you can profit from this increase instead of your landlord. You can also offset the interest paid on the mortgage against your net profits.

However, you may need a large deposit to secure the property - often around 20-30% of the purchase price - which may not be viable for smaller businesses. It is possible that the property could decrease in value too, which could mean that you owe your lender more than the property is worth. Investing in property is always a risk, so you should consider carefully before deciding to buy.

Planning your business’s financial future

Another key benefit is that you can plan better for your costs. With a commercial property, you may be able to fix your mortgage payments for a set number of years.

However, when you rent, you may be subject to rent increases making it harder to create business projections. It can also make doing business more difficult where you are operating on tight margins. A large rent increase could even make your operation no longer viable. On the other hand, if you have a variable rate mortgage on the property, payments can rise by a significant amount, so this may not be as much of an advantage as you might think.

Option to sell

Although you can fix your mortgage payments for a long period, you may find that your business premises need to change or are no longer fit for purpose. If you own your commercial premises, you can sell whenever you want.

However, if you are renting, you may be tied into a lease that can be tricky. Some commercial premises have lease terms of up to 15 years, and unless you have negotiated a break clause, your only way ‘out’ of the lease would be to find an assignee to step into your shoes, and even then it is likely that you would need to give a guarantee.

Making necessary changes to the premises

When you own your business premises, it allows you to make any changes to the property that you see fit subject to planning contracts. Making such changes can be crucial to business operations, and this freedom should be a key consideration when you are thinking about buying or renting a commercial property. You can also sub-let all or part of the building, which is often not possible when you are renting. You may, of course, be able to make changes if you rent a property, but this will be subject to obtaining the landlord’s permission (which may include a caveat to reverse the alteration at the end of the lease).

Faster and more straightforward

Typically, the process of getting into a rented commercial property is much quicker and more straightforward. You can cut out the process of securing a mortgage and conveyancing, allowing you to relocate quickly.

No large deposit required

Similarly, you won’t need to save up a large deposit to rent a property, making getting new premises easier for smaller businesses. If your business has good cash flow, you could end up renting a great space you could never afford to buy, boosting the image of your business. Note however, that the landlord may require you to pay a rent deposit (a payment made to the Landlord at the start of a lease, usually of 3-6 months rent, which would be the Landlords security in case rent is unpaid or late at any point during the lease).

Subject to lease conditions

There are of course disadvantages to renting, mainly that you will be subject to the conditions of your landlord. You may need to pay for repairs where you are on a ‘full repairing’ lease, and any changes you make could add value to your landlord’s property at the expense of your business.

Rent increases

Above we talk about rent increasing during the term of a lease, however, it is important to remember that a properly drafted commercial lease sets out the basis of any reviewed rent. It is usually by reference to open market rent or the retail prices index, and rent reviews would only be allowed on set dates agreed at the outset.

Stamp Duty Land Tax (SDLT)

In England and Northern Ireland the current threshold is £150,000 for a commercial or mixed area property. For property up to £250,000, the SDLT rate is 2%, while over £250,000 has a 5% rate.

Other costs to consider could include:

• Advice from professionals such as commercial property advisors, accountants, consultants, lenders and solicitors
• Decorating, building adjustments, repair costs and upgrades
• VAT
• Commercial mortgage arrangement fees
• Surveyor and legal fees
• Environmental compliance costs
• Waste management
• Office furniture and equipment
• Moving costs
• Business rates for commercial properties
• Buildings insurance
• Operational and maintenance costs

Commercial Mortgage
Commercial mortgages are usually the most suitable option for businesses wishing to buy a property. It works the same as a residential mortgage; you pay a deposit, and then make monthly repayments either made up of capital and interest or interest-only. With many lenders offering varying interest rates, it’s important to identify the most suitable for your business.

Business Loan
If you’re looking for a short-term or more flexible way to finance your commercial property purchase, you could consider a different type of loan for commercial property. You could use a business loan to either fund part, or all of the transaction.

Asset Based Lending
If your business already has other substantial assets, asset based lending can be a good way to release the cash tied up in them, to be re-invested into buying commercial property. This may be a solution to raising the necessary deposit and could be used alongside a mortgage or other funding solution.