What do you know about owning a business and the Law of Two Feet?
We have all heard of the Law of Attraction and Einstein’s Law of Gravity, but have you heard of the Law of Two Feet?
According to Wikipedia, the Law of Two Feet is attributed to Harrison Owen. I’m not sure who he is, but what I love about the Law of Two Feet is that it’s practical and makes perfect sense, especially to business owners. So I hear you ask – what is the Law of Two Feet?
The Law of Two Feet simply states that if at any time you find yourself in any situation where you are neither learning nor changing, use your two feet and go someplace else.
This is an excellent law for business owners or those who aspire to be business owners to follow and live by. Too many business owners start or buy a business, establish a routine, and create a steady cash flow. What they then fail to do is watch where that cash flow comes from and, using a sailing term, do not trim the sails or adjust the mast, but just keep sailing as if the wind will always be at their back.
The Importance of Globalization
Two significant areas of change affect all businesses. The first area is globalization. Globalization requires businesses to continually source the best products at the lowest cost to remain competitive. As emerging markets and economies throughout the world want to raise their standard of living, they do this by importing the “latest and greatest.” If the “latest and greatest” keeps changing quickly, then those who repurchased several years ago are now at a disadvantage.
The second area is technology. Technology touches a business in two ways. First, it touches a business with the tools, including hardware and software, that they use to connect with their customer. This not only means the telephone, fax, and email, but also social media and the myriad of other ways to stay in front of their customer.
Second, it affects a business through the equipment and machinery it uses in its operations. New technologies enable the development and introduction of new tools to the market much more quickly than previously. To see this, look no further than the iPhone and iPad, and how quickly they release new and upgraded models. Once a customer enjoys a new product or service they get from a competitor, there is little chance of you winning them back to your old way of doing business.
What I frequently observe in the market is that some businesses are not adapting to market changes, thereby failing to protect their market share and the products they offer. Some notable examples include the printing industry, which utilizes cutting-edge ink and equipment technologies. A business in the medical field is constantly seeing innovations. The automotive industry is constantly evolving, with new parts and technologies being developed. Many products and services are shifting online, moving away from brick-and-mortar stores.
The critical thing is for a small business owner to understand and recognize the changes and be part of them. Not sitting and watching and refusing to move their two feet, as they are no longer learning or contributing.
Avoid Business Risk With Real Estate in California
You’ll have many questions to ask when you’re buying or selling a business. Working with a qualified business broker in California will pay dividends. Your business valuation consultant will help you review the documents, the business climate, and the industry, enabling you to make an informed decision that will build your business for the future.
There is simply no “one size fits all” approach, whether selling or acquiring a business with real estate. Here are some other factors to consider.
Some California business owners who also own real estate simply prefer to keep the Real Estate and offer a lease to the Buyer of the business. Suppose a decision has not yet been made to sell the business, before a final decision is made about whether to offer the commercial property for sale. In that case, the following are essential items to consider.
Is Real Estate critical to the Operation of the Business?
If the business is a gas station or a car wash built on the Real Estate the business operates from, it may be hard to sell just the business and offer a lease to a Buyer. This is because the business cannot be easily moved.
Is the Real Estate just land, or does it include buildings or structures on the Real Estate? If it includes buildings or structures, are they in good condition, or do they need repairs and maintenance? If repairs and maintenance are required, is the Seller willing to pay those costs so that the buildings and structures are brought up to date and in compliance with the latest building code?
The Buyer will probably want a lease for the Real Estate. If the Buyer wanted a three- or five-year lease with options but only stayed for the initial lease and then left, would the Real Estate owner easily find a replacement tenant? If the Buyer is obtaining an SBA loan, they will require a lease that matches the loan’s typical 10-year term.
Is The Rent on The P&L at Fair Market Value?
Has the business owner been allocating an amount for rent, and is this amount a market rate or the amount the owner of the Real Estate is willing to accept as rent? If there is no rent allocation or the rent is below the market rate, and the Buyer has to pay a higher rent, it will lower the value of the business as expenses are higher.
This also applies if the business owner has not been paying property taxes, building insurance, or maintaining the Real Estate and now expects the Buyer of the business and Real Estate to cover these costs.
Are there any environmental issues on or near the real estate? If so, this may lower the value of the Real Estate and the business.
When was the last time local zoning ordinances were reviewed, so that if the Real Estate is put on the market, it is ‘smooth sailing’ to close the sale?
Related to local zoning ordinances are local Use requirements typically defined at the municipality level.
Is the Real Estate part of a flood zone?
Additional information
- Sample report of California Commercial Real Estate with basic property overview, environment, building, value, and more.
- Sample report of California Commercial Real Estate with climate check including flood, fire, storm, heat, and more.
- California Commercial Real Estate property sample report, including environmental information, regulatory summary, and neighborhood details.
- Sample report of California Commercial Real Estate flood certificate.
- California Commercial Real Estate sample report with property condition report, site summary, building summary, hazard risks, and more.
- Sample report of California Commercial Real Estate estimate of value.
How to Sell a Commercial Property Fast with a Business in California?
Are you looking to sell your commercial property and business in California? A crucial first step is to get an accurate business valuation.
This is not only important for you as the Seller, but also for potential buyers and lenders if the Buyer needs financing.
Further reading
Sell a California Small Business: How Much Tax I Need to Pay?
The Uncertainty Principle when Selling or Buying a California Business