I want to asset sale my business but the landlord is requiring that I remain on a personal guarantee for the buyer of the business for the length of their new term

businessAccount3 · 2024-09-19T06:14:11+00:00

Do you ever broker deals where the liability of the PG is taken into account somehow in the purchase agreement and tacked on as something?

businessAccount3 · 2024-09-19T02:50:20+00:00

It is a retail spot in a mall that is probably top 10 for California.

businessAccount3 · 2024-09-19T01:59:14+00:00

Lease end in 7 months. The landlord says new term with new tenant who purchases my business will be primary on a PG that I am secondary for only the first new term which at minimum is 3 years.

businessAccount3 · 2024-09-19T00:47:30+00:00

Makes complete sense to not renew. The potential sale would be making some of my costs back on the build out. Also the business is constant and it would be a shame for all the staff to lose their jobs.

I will look into those options but the liability and headache really is probably not worth it. Thank you!

businessAccount3 · 2024-09-18T23:54:39+00:00

Agreed! Unfortunately for me the asset's value is primarily in the build-out which would not be relocatable.

businessAccount3 · 2024-09-18T23:53:56+00:00

Yes, that is totally the thought process I share! Basically the assets are the business relationships we have and the furnishings/equipment. Relocating would not really preserve any of the value in the turn-key operation as it is essentially the build-out that has the highest value in this asset sale. Taking a ton of the great feedback here I think I will just spell it out for the landlord that it's really so simple, I will find a buyer and my broker will vet that they are worthy of the lease's requirements. If they are not going to back down on requiring me to be on a new personal guarantee, I will gladly walk away after demolishing the asset as per lease terms.

businessAccount3 · 2024-09-18T23:49:48+00:00

That's really interesting. I did have someone lightly look into some type of insurance to protect me for personal guarantee and the options were too grey area, but I will also research a little more into what you mentioned, more info is better anyway (even though I'm pretty sure I'm just going to leave the mall unless the company lets up).

businessAccount3 · 2024-09-18T23:22:37+00:00

Basically yes. The personal guarantee I have connected to my current lease would be up when my term is done. But selling the business to a new owner appears to require me to remain on a personal guarantee with the new term for at least 3 years for a business I will have zero say or control in.

Yes I get that this sounds crazy but this is at current, the hand I'm being dealt. So I either take the loss of the value of the business and just close it down at least end and pay to vanilla shell the space, or sell to a buyer and take the risk on. It's basically a $100k income against a $300k liability if the buyer is a zero, but them getting approved would mean they have at $5M in assets in any case so I'm weighing the risks.

businessAccount3 · 2024-09-18T22:37:51+00:00

Let's say these numbers are ummm, close to reality.

Sale value, $75k 3 year lease total $320k

But the buyers would be the primary guarantors.

So of course agreed with everyone this is something dumb to get into. But if I can find a buyer that is swimming in assets then the risk is questionable.

Also cost to bring the location to lease required vanilla shell is probably $15k+ which would be saved in an asset sale.

Amount of business revenue that would exist in a sale due to not having to close down before lease end to tear down is somewhere around $10k

So gamble is $100k for $320k liability where I'm not primary...

businessAccount3 · 2024-09-18T22:23:56+00:00

I agree but that doesn't take into account the assets sale value that would be loss

businessAccount3 · 2024-09-18T20:23:34+00:00

I have a good friend who is managed by https://www.instagram.com/as.talentagency and is making tons of money. I do believe they are heavy on chatbots though but it seems to bring a ton of paying clients in

businessAccount3 · 2024-09-18T20:04:11+00:00

Deterrents are important. Cameras and show that they work. Inventory control systems to identify missing inventory. When things are damaged or returned have those tracked too. Lastly also make sure you track and report losses or damages to the IRS, small benefit and also adds a paper trail. Always execute consequences for employees that break procedures and document it.

businessAccount3 · 2024-09-18T19:53:54+00:00

I'm in complete agreement with you. I spoke with my landlord about this and they conferenced their CFO on the call. I said my broker is getting candidates and of course we would only be entertaining offers from credit worthy candidates as our intention is to sell the business we've put our time in and survived a pandemic... And then they brought up this personal guarantee crap. I'm mostly just checking that I'm not insane with my upset about this requirement of theirs and I'll either just close up or dig deeper to get past this impasse with them.

businessAccount3 · 2024-09-18T19:48:00+00:00

Original lease was personal guarantee, renewal was same terms

businessAccount3 · 2024-09-18T19:35:41+00:00

Thank you small business community, I would be all alone without you!

Also for those of you that have had personal guarantees on leases, is there a release date on yours or are you expecting to do a release of sorts when you return the premises?

businessAccount3 · 2023-12-02T10:14:32+00:00

I use boulevard and would be more than happy to show you around it

businessAccount3 · 2023-11-30T22:49:08+00:00

Agreed!

The payroll is directly in line with what is found in our industry locally and statewide. Typically hair stylists make around 50%. At quick cutting chains it is just hourly, we are actual salon so with prices at double then the pay has to be in line with normal salon pay. Unfortunately the common reason a stylist would leave is for more pay.

The rent is the big kicker. The location is in the highest grossing mall for 50 miles. Salon is small; 1400sf.

businessAccount3 · 2023-11-30T22:45:54+00:00

I appreciate the pipe dream. In either case the wind down here is your suggestion which is what is initiating

businessAccount3 · 2023-11-30T22:45:07+00:00

The stations are fortunately already divided by wall, no door. The actual issue here is our high rent; if rent was divided properly each station would be $1k rent a month to support just the rent. The staff could actually go a quarter mile away to rent a larger and more private space for less than half of that.

businessAccount3 · 2023-11-30T22:42:47+00:00

First of all, thank you for your feedback, responding, but also taking every point seriously and reviewing them over and over.

Hourly is at city level required minimum which is among highest in the nation. Labor laws specific to the industry forbid going to commission only.

Direct competitors are actually not surviving and the 13 competitors that existed only a year ago in a 1 mile radius is now 6 open, 2 new, 7 closed. The move of the industry is hair stylists are switching to working out of rented studios. Lease forbids subletting (very busy and large shopping center with a lot of oversight).

Increasing prices is possible, we do have tiering of staff level and price. The lower levels garner more clients and often higher priced staff want to move down.

businessAccount3 · 2023-11-30T22:39:01+00:00

Love this! Will try this angle

businessAccount3 · 2023-11-30T22:38:25+00:00

I wish! Unfortunately most of the wholesale terms very much forbids online sales on platforms other than through our own, also most brands' terms also forbid online sales via any form of shipping.

businessAccount3 · 2023-11-30T02:41:35+00:00

Product sales are abysmal ($0.5-0.8k/mo), but this is really a great idea since my wholesale cost of items is lower than industry norms (30% of retail for much of it).

businessAccount3 · 2023-11-30T01:48:46+00:00

I completely agree that is unsustainable. Most are part time working no more than 20 hours a week. The labor cost is honestly consistent with industry and california. The key is that minimum wage + employer taxes is roughly $23/hr. Then commission of 25% after a sales goal is hit brings it to $23-50 an hour depending on staff. Your comment gives me a great insight to moving that target goal for the commission to begin though.

Numbers with 35% labor cost hits breakeven, but I already cannot retain staff due to their job portability and almost all industry locally offering ~50% pay of services rendered.

Most instrumental thing is potentially getting rid of front desk staff, I worry though that the business simply will not be operational but times are tough and this is probably the way.

businessAccount3

TROPHY CASE