Understanding the Difference Between Business Value and Real Estate Value

When venue owners say 'I'm thinking about selling my venue,' they're usually talking about two separate things: the real estate (building and land) and the operating business (the brand, the bookings, the staff, the cash flow, the equipment).

**These are usually valued separately, sold separately, and financed separately.**

How the Operating Business Is Valued

The business is valued based on its earnings, specifically SDE or EBITDA, multiplied by a market multiple. We've discussed this in detail in a prior post if helpful to reference it.

The SBA 7(a) loan, which most small business buyers use, is designed for business acquisition, not real estate. The loan amount is based on what the business can service from its cash flow.

How Real Estate Is Valued

Real estate is valued based on comparable sales, cap rate analysis if there's an established lease, or a formal appraisal.

If a buyer wants to purchase both, they typically use two separate financing structures --- an SBA loan for the business and a commercial mortgage (or seller financing) for the property. These are usually two different lenders with two different approval processes.

Why This Matters to Sellers

A lot of venue owners who own their building assume they're selling one thing at one price. **They're often selling two things, and buyers will evaluate them independently.**

The buyer who can finance the business may not be able to acquire the real estate simultaneously. [Some will want to lease first with an option to purchase.]{.underline} Some will bring in a separate partner for the property piece.

Understanding this early prevents a lot of confusion and misaligned expectations during negotiation.

How We Think About It

At Stonecrest, we typically structure acquisitions around the operating business, with a long-term lease on the real estate. It's the model that works with our financing approach and keeps the transaction clean.

That said, every deal is different. The key is having this conversation explicitly and early --- before you're 60 days into a process with different assumptions.

Stonecrest Weddings \| Charlotte, NC \| www.stonecrestweddings.com