Lease old profit-making business

In around us, there are some businesses which are earning high profit and growth. Fast hard work and position made them into this situation. But at a certain time, they become a burden to their owners. But because of their profit-making, they do not want to leave the business, which they had developed by very hard work and intelligence. Therefore they want to continue but not in the position to take ahead. Also, the great problem which occurs is that their business is not so big that professional management can be taken on hire.

This condition occurs because of many reasons. First there owner’s age and health are in the condition that they couldn’t go ahead or they want to live now more relaxed life. And their children are not interested or in a position to take over the business. The second reason for this condition may be that the owner’s interest is lacking in that business. It means business in profit situation but still, the owner doesn’t want to continue the same business for their satisfaction. The third situation may be that the owner wants to shift to another place because of their family or personal reasons. Forth, it also may happen that the owner went to take a short break for his personal

creative works which may give him more satisfaction. Fifth and last situation is that it may happen that there is no owner to take on that particular business. So in these situations, a profit-making business may die. But if one wants to take some royalty towards his or his family business, he still can take profit from that business without ending it.
He has two options in front of him. The first and most easy method is that sell the whole business with fixed assets and its inventory. This way can give to an owner a big amount of money. But generally, it only gives a complete value of fixed assets and 30-50% less on his inventory. Besides this, he didn’t get any royalty towards his previous profit-making business. Therefore for the best outcome, one should opt is the second option which is the leasing of his business. In this way, he can keep the fixed asset on his hand. He can take full or up to 90% amount of inventories and also he can take a royalty from his business in the long run. This is only good for who understands his business and can manage leasing complicacies.
Next one can take guidelines who want to give and take the business on lease.
1. First, they recognize another person well from his personal and previous records. It means they should gather all kind of information about lessor or lessee. If they satisfied than only they sit on the table to talk with.
2. In the settlement first, they should calculate credit and debit in the market and present inventories. All receivables should be part of the owner or lessor. All borrowing and market credit should be less in the inventories amount.
Actual inventory = All inventories – [borrowing + market payable]
Inventories in business should be calculated on the actual cost of a particular commodity. But this is good for running inventories. But there may be some unmanaged or unpopular inventory also. It that case their cost should be according to their salability price and less 10-20% on that inventory for actual cost.
Unpopular/unmanaged inventory cost = Salability price – 10-20%
3. After calculating actual inventory they should calculate actual profit and expenses. If their business is regular then they can see the sale of 3-7 days. But if the business is seasonal then they should see the sale of peak and off-season both for at least 3-7 days. On the basis of that experience, they should calculate the average sale of a month/years and its average profit in a month/years.
At last, they should deduct all kind of monthly expenses.
Average profit =average sale – the average cost
Actual profit for a month=Average profit for a month-All kind of monthly expenses
4. Real profit will come when we deduct rent of fixed asset according to market is deducted. This fixed asset if lessor is owner of that then its rent should be print to him separately.
Real profit = Actual profit – rent of all kind of fixed asset.
5. Security amount should be given to lessor from lessee. It should be at one-year real profit of a business. For example, if a business has a real profit of about 10 L per annum. Then min amount of 10 L should be given to lessor from lessee. But present actual inventory is more than annual real profit than security amount eighter should be up to total actual inventory or balance should be given as bank guarantee. But if annual real profit is more than actual inventory than this amounting is satisfied.
6. Share of the profit will depend on the type of business. But for thumb rule, if we assume that business will go down up to 20%. Then for in most cases 40% of real profit should be the amount of lessor. It can be divided into 12 emi’s or 4 quarterly payments as desired of both parties. Therefore calculate 40% of total profit and then divide into desired installments. The annual increase in this profit according to inflation of that year from the CPI index. So it will be beneficial to both parties. So the owner of the business will get.
Owner’s gain per month/quarter=40% real profit month/quarter +rent of all abstracts month/quarter
This also increases with inflation per annum also say 6-8%
Lessee gain = real profit – owner’s gain
So in this way besides rent owner will get a royalty for his previous business.
7. Lessor and lessee should both on the counter up to 3 months at the beginning of the lease period and at ending of a lease period and 3 months support more agreement. So that they both understand all characteristics of the business. By this, they also know all kind of payables and receivables.
8. This kind of lease period should be at least 3 years and maximum 15-20 years. This will be beneficial to both of them.
9. All kind of agreement should be done that fixed asset will be the property of owner, after operation. It has to be surrender to the owner in the present condition. If any changes required it should be possible through the owner’s written consent only.
10. The lease agreement should be registered and prepared by qualified advocates only. Payment of agreement should begin by lease only.
11. At in the case of end of lease period. It is handover to owner. This time actual inventory payment should be given to lessee by the lessor. And all receivables will be of lessee only. All payables should be deducted from inventory amount. And also discounted value should be taken to unmanaged and unpopular inventories.
12. At the ending of the lease, the lessee should not invest money high on inventories and also not very low in inventories. For thumb rule annual 8% increase in inventories is desirable in most of the conditions.
13. The lessor should not interrupt the business in the lease period.
14. All kind of problem & responsibility in the lease period will be of lessee only.
15. Lease period should be specified.
16. All suppliers, buyers, manufacturer’s details should be transferred from both parties at the beginning and ending of lease.
17. Owner cannot run a similar business in a particular area limit. After ending up to certain time lessee should not run a similar business in that area.
18. The lessee should leave the business when the owner gives full amount of actual money of inventories.
19. All kind of payables will be reduced from inventories.
20. In beginning, actual inventory payment is given to lessor and at ending actual inventory payment is given to the lessee. So chances of fraud become less.
So by these term condition, a man can take and give on lease. It all kind of pros and cons settled. It will be beneficial to both parties. By this method, one can get a decent amount towards his previous business and enjoyment of life.

Hiring a business is a better job for newcomers which family background is good and they want to run a good business. They can earn money with little investment. For hardworking people, it is good for their employment.