28 Feb Valuing legacy businesses with owned real estate
Ask Me Anything: The Nuts and Bolts of Selling a Business in 2025
Question:
What are you seeing in the marketplace for legacy or mature businesses?
Answer:
That is an interesting question. Generally, buyers still want these older companies, but many of them barely make money. Here is why: legacy businesses usually own their own buildings, so they don’t pay rent. At the end of the year, they show a decent profit and feel successful. But this can be misleading.
If the business actually had to pay market rent, its true profit would be tiny. The building itself is so valuable that the owners could simply act as landlords. They could make the exact same amount of money without the stress of running a full-time business. Macy’s is facing this exact issue right now.
As CPAs, you can help your clients see this clearly. You can advise them to either raise their prices to cover the true cost of their space, or improve their efficiency to build real value in the business itself.
Takeaway:
Older businesses often appear profitable simply because they own their building and don’t pay rent, masking the fact that the business operations alone might barely make any money. In many cases, owners could earn just as much by acting as landlords and renting out the property instead of working every day to run the company. To build genuine value in the actual business, owners must factor the true cost of their facility into their pricing or drastically improve their operational efficiency.
During the 2024 Managing and Accounting Practice (MAP) Conference hosted by the Massachusetts Society of CPAs (MassCPAs), Beacon Equity Advisors presented an AMA (Ask Me Anything) to the CPA firm partners attending. We thought we would share some of their questions and our answers.