Good advice — why people don't use it

By Paul Wigham

- Last updated on GMT

Related tags Cost Costs

Wigham: good advice
Wigham: good advice
I sat this week on the inaugural meeting of the BII Panel of Professional Advisors and it sparked debate on a number of issues, says Paul Wigham.

I sat this week on the inaugural meeting of the BII Panel of Professional Advisors and it sparked debate on a number of issues.

Property, law and accountancy were all duly represented in different spectrums but one thing came out loud and clear — people need advice to avoid disasters, not just to get them out of them. The reason why they don't seek advice before they commit? Always cost. It is not cheap by comparison with other business costs, but it is so expensive if the business goes wrong.

The ideal?

• Appoint a surveyor/valuer to look at the lease and visit the property, pointing out the pitfalls that may arise in future at rent review, review local comparables on rent, condition issues in the building, and give a view on the assignability and value of the lease against the backdrop of location and plan. Liaison with the lawyer and accountant is important.

• Appoint an accountant to produce a business plan that sets out comprehensive revenue and cost estimates based on the lessee's thinking, presenting the case of what happens if things are not achieved, especially at the sales line. From this will be a solid estimate of the rent or wet rent that the business can withstand allowing for sales fluctuation and re-investment. This will also clarify exactly how much physical cash is required to support the business and form a basis of rent negotiation. Liaison with the surveyor is essential.

• Appoint a lawyer to review and report the lease terms and any residual personal exposure from the document. Ask that lawyer to negotiate ways out of guarantees in the future.

Sounds logical? It is. Sounds expensive? It definitely is. To do that job properly will

require man-hours of professionally qualified people with sector-specialist knowledge. It's not just writing a report — it is liaison, discussion and negotiation that will cost time. I can speak for chartered accountants (I am one) and lawyers (I pay lots of them) and rates for experienced, small and medium firm people will likely vary from £150-£300 an hour.

I cannot comment on surveyors but they are going to be in that area plus they need to make site visits. If each discipline spent one day of quality time on the matter, then the lessee will face costs of around £5,000 on top of inventory, stock, deposits, landlord legal and training fees, capex, etc.

Cheap if the potential lessee averts disaster as a result and recognises it, irrelevant if it all goes swimmingly. But how many new lessees have so much money and sense that they will accept this? And how many fancy aborting a transaction where they have spent so much in fees? Very few, which is why they don't do it. Their education is the primary target the industry should push for. It could save lots of heartache all over the industry in the long term.

Paul Wigham, BSc ACC FBII, is CEO of Orange Sun Bars and a partner in The Administration Management Partnership LLP

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