The Role of Location in the Sale of a Business

Apr 4, 2016

In the autumn of 2015, IBA was engaged by a client to sell a business in Point Roberts, Washington. For people unfamiliar with Washington state geography, Point Roberts is a peninsula of land that is located outside of the continuous United States that requires a visitor from America to travel across the Canadian border and enter Point Roberts through a United States Customs & Border Protection Point of Entry. Point Roberts is one of the most unique municipalities in the United States given its size, population, and location and can serve as the answer to an excellent geography trivia question.

The business representation project sparked discussion among brokers at IBA around the water cooler, as the location created a significant unknown in terms of how long it would take to find a buyer that would be interested in purchasing a business at that location. The consensus in the office was that a similar marine niche business would likely take three to six months to sell in the metropolitan areas of Seattle, Tacoma, or Portland. Estimates of how long the business would take to sell in Point Roberts ranged from six months to two years.

This representation project highlights the role location plays in the sale of a business. Location is an interesting variable in the sale of a business. It can both enhance & diminish the attractiveness of a business. In the Pacific Northwest, retail & food service businesses in Kirkland, Queen Anne, and the Pearl District frequently sell at a premium because entrepreneurs find the locations attractive to own & operate a business. Conversely, geographic locations can diminish the value of a business despite all other traditional fundamentals (e.g., industry, profitability, & potential) of attractiveness in a business being high. This was the case for a veterinary practice sold by IBA in the White Center suburb of Seattle that ranks among the highest cash flow to sale price ratios for a professional practice ever successfully facilitated by IBA.

Another consideration, especially in the Seattle metropolitan area, where location impacts the attractiveness of a business relates to the anticipated commute time between their residence and the business for a potential owner. We have witnessed situations where a buyer will complete an acquisition and commute an extended distance daily to own a business that has all of the characteristics they desire for entrepreneurship. We have also experienced buyers passing on a business that matches their experience & acquisition goals because they do not wish to travel across a bridge on a daily basis

The decision by an entrepreneur to relocate their household to the location of a business is a solution to mitigating commute time. This decision is easier made when one of the objectives motivating the business acquisition is to relocate to the Pacific Northwest. IBA will complete a transaction of this nature in April, when a former resident of Mercer Island returns to purchase a business on the island from Washington DC. It is a tougher decision when the relocation impacts children in school and/or a spouse’s job or commute time.

IBA traditionally elects not to engage actively in selling the geographic location to a potential buyer, as we prefer to focus our sales efforts on the business & industry believing they are a much stronger motivating force for acquisition than a geographic location. There is little we can do to sell a person on ten hours a week of commute time or relocating children from schools where they are happy & socially connected. However, as skilled, professional sales people the brokers of IBA are happy to highlight or provide information on wonderful Pacific Northwest communities as diverse as Chelan, Port Townsend, Walla Walla, Hood River, or Cannon Beach, if an entrepreneur takes a step in that direction.

If you have an established, profitable business in Washington, Oregon, or Alaska our experienced, knowledgeable team of professionals would welcome the opportunity to represent you in the sale of your business. We have a track record of successfully selling businesses from Spokane to Aberdeen and from Ashland to Point Roberts. The sale of the business in Point Roberts was completed in under six months to an entrepreneur from Illinois who is excited to live & work in a community that is easily accessible by boat to the San Juan & Gulf Islands, a place that many consider paradise for multiple months a year.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media and the mergers & acquisitions community on confidentiality and any other subjects relevant to the purchase & sale of a business.