4 Ways to Drive Business Growth and Profitability Through Real Estate
Real estate is a powerful lever to drive business growth and profitability. With the right partner, harness the value of real estate and put it to work for your business.
The building from which your business operates is more than a physical entity. It’s a valuable asset that can be optimized to drive business expansion and operational improvements, free up working capital, and add significant value when included in a business sale. With the right partner, a business owner can also save valuable time and energy previously spent managing the property.
Here are several strategies that harness the value of real estate and put it to work for your business:
A sale leaseback is a financial transaction wherein a business owner sells his or her commercial real estate for cash, and then leases it back long-term from the new property owner. This arrangement provides an influx of capital that can be reinvested into the business for growth initiatives, debt reduction, or operational improvements. Outsourcing property management to a partner also frees up time for leaders to focus on running the business. Other benefits of a sale-leaseback include:
Immediate Liquidity: Convert a non-liquid asset into cash without disrupting business operations.
Tax Benefits: Lease payments are often tax-deductible as a business expense.
Improved Balance Sheet: Enhances financial statements by replacing real estate with cash, potentially improving creditworthiness and borrowing capacity.
[For more on this topic read our article: What is a Sale-Leaseback and How Does it Benefit a Business Owner?]
Sale-Leaseback Transactions
If a greater footprint is crucial to your company’s growth, partnering with a real estate firm that can fund property expansions can be a game-changer. The right partner can provide the necessary capital to purchase and develop additional properties, enabling business growth without straining internal finances or necessitating a move of the entire business. Not all real estate firms have the appetite, resources, or experience to execute a successful expansion project, so selecting the right partner is key. Other advantages of business expansion include:
Access to Capital: Secure funding for new locations, larger facilities, or additional warehouses without depleting your working capital.
Strategic Growth: Expand into new markets or increase production capacity, driving revenue and market presence.
Shared Risk: Mitigate financial risk by leveraging the expertise and resources of a real estate partner.
Fund an Expansion with a Real Estate Partner
A real estate partner with operational expertise understands that investing in an interior buildout or interior construction project can transform a company’s space and bottom line. Improvements can lead to better workflow, increased employee productivity, and an overall more efficient business environment. Not all real estate firms have the appetite, resources, or expertise to execute a successful interior buildout, so selecting the right partner is key. Other key points include:
Tailored Spaces: Create workspaces that meet your specific needs and optimize the use of available space, from office layouts to manufacturing floors (e.g. conference room expansion)
Operational Efficiency: Design and implement changes that streamline processes, reduce downtime, and improve overall efficiency (e.g. wall removal to optimize processes or accommodate a new line)
Employee Satisfaction: Modern, well-designed work environments can boost employee morale and productivity, leading to better business outcomes. (e.g. restroom renovation)
Improve Productivity and Operations with an Interior Buildout
Selling a business to a private equity buyer can result in additional funding for the company and meaningful liquidity for a seller. For business owners who own their business’ real estate and are considering an exit, it is important to think about whether you want to be a landlord or not. Selling both the business and its real estate to one buyer can simplify the process, minimize the number of parties involved and maximize value. Remember that not all private equity groups have an appetite to buy the real estate as well. Selling your real estate and business together, to one buyer, offers several advantages:
Smooth Transaction: One comprehensive deal can be less complicated and faster than selling the business and real estate separately.
Increased Attractiveness: Buyers often prefer acquiring both the business and its property, ensuring continuity and stability.
Higher Valuation: Combining the sale can result in a higher overall valuation, as the real estate enhances the appeal and worth of the business.
Sell Your Real Estate and Business Together
The real estate from which your business operates presents numerous opportunities to drive growth and profitability but, in order to harness the value, it’s important to find the right partner. By considering your goals and exploring these strategies, business owners can unlock the full potential of their real estate assets and propel their business to new heights.
As an investor in both companies and real estate, Borgman Capital possesses operational expertise that standalone real estate firms lack. We can help you to see the big picture - that is, the full potential of both assets as individuals - and guide you in a direction that feels right to you. Learn more about Borgman Capital’s real estate capabilities here.