How many convenience store retailers have failed to grow or expand their businesses because of a fear of “over-extending” themselves? All too often this fear exists simply because the convenience store operation’s executives and managers are not aware of the tremendous number of financing options that are available to expanding and growing businesses.
Interest rates remain close to their historical lows, but financing for many c-store businesses continues to be elusive. One problem: lower interest rates have translated into lenders and investors being more selective about whom they provide backing. How then, can c-store retailers hope to fund the expansion of their operations?
An increasingly popular tax-saving strategy involves transferring ownership of the building or other property owned by the c-store business to an operator, franchisee, key employee or shareholder. For many c-store businesses a sale-leaseback means liberating badly-needed cash in exchange for executing a lease and paying rent.
For others it is a method of protecting the assets of the business, such as when a lawsuit is filed or other issues arise. After a sale-leaseback transaction, the building would be at least partially protected in any legal actions.
For the building’s new owner, there are benefits that may result in a lower personal tax bill, income legitimately removed from the c-store operation and, in many cases, more financing options.
Before rushing to take advantage of this strategy, however, retailers should consider if this is a good, viable strategy for their business. Questions, such as under what type of entity should the new ownership operate, who is going to pay the mortgage and who will reap the tax deductions, require answers. As do often overlooked questions, such as what will happen if the c-store business changes hands or an operator exits.
For more on financial strategy and how sale-lease back options work, stay tuned to CSD’s September issue, coming soon.