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Selling a Business: What if a New Fit Out Is Due?

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Selling a Business: What if a New Fit Out Is Due?


Steve Finn, Co-Founder of Finn Business Sales, discusses what a vendor should do when looking to sell, and a new fit-out is required.

 

Let’s say, you are in a business. Maybe you are in a shopping centre, a restaurant or a gym for example, and it is time for that upgrade, a new fit-out is now required. While this new fit-out is required, the vendor may also be looking at selling.

A lot of people ask – “What do I do in this situation? It’s coming up that I’m due for this fit-out before the transfer goes over to a new owner.”

My advice is, don’t do it. Don’t do the new fit-out.

Hold off and leave that with the new owner. It’s better than you going and spending those several hundred thousands of dollars. I know sometimes a vendor may think, that if you spend that, it will be perfect for the new owner and when they take over.

The problem is, the potential buyer is buying your business based on profit. They are buying your business based on the money that it makes. They aren’t going to buy the business based on the money that it makes, plus the $200,000 you just spent on a new fit-out upgrade. They aren’t going to give you back that $200,000. That’s why it is best not to spend that.

What I advise is ideally, you just let it go. When it comes time for negotiations, you can just let the potential buyer know what the business is worth, and that it is due for a fit-out upgrade that will cost $200,000. Allow that to be a part of the negotiations.

The challenge also is that it can have an impact on your profit or the price that you sell the business at. So the potential buyer may lower the offer to compensate for the money needing to be spent on the business.

So really, either way, you are paying for part of it. During negotiations, a broker will work so that in the end, you will end up covering half the cost of the upgrades, which is better than you spending the whole amount and then getting nothing back. This way you can get it sold and move on.

By Steve Finn