Sell your business and retain the business premises – pros and cons

Sell your business and retain the business premises – pros and cons

For many business owners looking to sell their business, the next decision is whether to sell the business premises too. Of course, there are substantial pros and cons to weigh up.

Should you simultaneously sell your business and your business premises, or is it smarter to hold onto the property? There are arguments for selling your business premises along with your company and arguments against it, too. Let’s examine some of these arguments and weigh your options.

Here are some of the possible advantages and benefits of simultaneously selling your business along with your business premises:

  • Improved investment portfolio liquidity
  • Opportunities for investment diversification
  • Less property management responsibilities and/or obligations
  • Capital gains tax (CGT) may not be payable on the sale of your property

Improved investment portfolio liquidity

There are many cases where investment portfolios get dominated by a single property that is often too costly: for example, your business property. When you decide to sell your company, among the many fund difficulties this setup can lead to is poor liquidity.

It is understandable that some business premises may be difficult to sell along with your company, especially if the premises were designed and built for very specific uses or purposes – for example, the manufacturing of a particular product or line of products. However, if you have financial obligations, say for example to your business partners or creditors, you may want to sell your business property along with your company within a reasonable time, for a price that is satisfactory to help you attend to your financial obligations.

The liquidity of an investment portfolio has always been an important thing to consider, especially if you have business partners, investors and/or creditors.

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Opportunities for investment diversification

As a business owner deciding to sell your company, you need to understand that you are expected to always consider portfolio diversification and look for ways for more opportunities to further diversification.

When you sell your business but not your business premises, you are more likely than not limiting the diversification of your portfolio. On the other hand, when you decide to sell both your business and business premises, you are allowing yourself more portfolio diversification by freeing the money you invested in your property and even making a profit out of the sale of not only your business but also of your business premises.

Less property management responsibilities and/or obligations

Besides liquidity and investment portfolio diversification, another advantage of selling your business premises along with your company is being freed from property management responsibilities and obligations.

Simply, when you sell your business premises, you are freeing yourself from the burden of having to look after the said property, as well as the necessary financial requirements you will have to attend to by being the business property owner.

Capital gains tax (CGT) may not be payable on the sale of your property

Many business owners are reluctant to sell their business property along with the sale of their company because of the huge CGT liability they will have to face should they decide to do so, especially if, through the years, the value of the said property has risen.  

However, this is not always the case, or at least, may not always be the case. This is because of the small business capital gains tax concessions that can, besides the general 50 per cent CGT discount, eliminate your CGT liability altogether on the sale of your business premises—included and identified as one of “active” small business assets.

What about business premises that are held in self-managed super funds (SMSF) at the time of sale? Again, capital gains tax is not payable on the sale of any asset backing the payment of a Super pension.

While there are indeed obvious advantages and benefits to selling your business property along with your company, there are also arguments against it that you may want to consider before finally making a decision – the cons:

  • Losing more potential buyers for your business premises
  • Overlooking continued revenue or additional profits after the sale
  • Property knowledge may open more financial opportunities
  • Missing out on tax concessions or tax-free capital gains and rental

Losing more potential buyers for your business premises

Because the only asset you decide to sell is your business but not your business property, the sale would be more affordable for more buyers, which makes for a speedy deal and successful sale transaction.

Instead of selling your business property, you could opt to offer a long lease term to your business’s buyer, or any buyer for that matter, really. This decision to lease your business premises instead of selling it with your company should provide you with a reliable income for a long period of time. If this setup is more convenient for you, then you definitely should hold on to your property instead of selling it with your business.

Overlooking continued revenue or additional profits after the sale

Retaining ownership of the business premises even after the sale of your company enables you to look for more redevelopment opportunities, which means more financial opportunities and profit. This is because you can use your knowledge of not only the property, but also of its location to open or even create more opportunities for profitability.

Warehouses can be converted into manufacturing facilities or any other business properties, and of course, from and through this conversion comes higher property value, which simply means more financial opportunities and profits. Alternatively, there may be scope to sell the physical property to developers for residential zoning, potentially netting a substantially higher return.

You may hold on to your business property after the sale of your company, and wait for just the right developer to come along to pay you much more than the current worth of your business premises. So don’t be in a hurry to sell your business property, as you may be losing much more than you actually think you are gaining from the sale once you decide to let it go along with your business.

Property knowledge may open more financial opportunities

Similar with creating more opportunities for profit by holding on to your business premises after the sale of your company, you allow yourself more avenues for gains when you employ your knowledge of your business premises the right way.

Your business property may just be in the right location for a whole new kind of industry to develop or redevelop, say for example, if your property is currently a warehouse or a manufacturing facility but is now in a location developed for luxury shopping or recreation, then a developer, who will offer you a much higher price, may just come along and buy your property for double or even triple its current amount.

Thus, never underestimate your knowledge of your business premises and where it is located, because clearly the old business adage “location, location, location” still remains, or has even become more relevant to this day.

Missing out on tax concessions or tax-free capital gains and rental

Besides the aforementioned advantages and benefits of not selling your business property along with your company, you may be able to maximise on self-managed super fund benefits through tax concessions if your business property is held in these SMSFs.

Remember that fund income and capital gains are automatically tax-free once an asset, your business premises, back the payment of your or any other Super pension set up on it. Simply, this is an opportunity for you to maximise on your SMSF by eventually selling your business property, in a later time, of course, without having to pay any amount for capital gains tax, regardless the rise in the value of your business property over the years.

Sell your business and retain the business premises – pros and cons
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