“Entrepreneurship is the pursuit of opportunity without regard to resources currently controlled” Howard Stevenson, Harvard Business School.My wife thought I had finally gone round the bend.Late last year, I wrote an article discussing a bit of a controversial opinion. I felt that the challenges of the current business environment actually present a significant opportunity. Let's just say that the initial response was not 100 percent supportive of my perspective. Fair enough.Today's article will present an illustrative case study. In this scenario, we assist a client by using a somewhat uncommon approach to solve a challenge faced by many local business owners.The problemAn advisory client approached us with frustrations. He was having difficulties with getting needed cash. The client's business interests included real estate holdings of land and a building, but not much in the way of liquid assets. The client explained that his existing business operations were generating sufficient cash to be sustainable. The challenge was that he had an attractive opportunity to develop a new business entity, but a limited window of time in which to get started. He had approached the banks about obtaining financing but it looked like timing and their appetite for the perceived risk of the new venture would make things difficult.Our approachWe recognised that the client was ‘land rich' but temporarily ‘cash poor'. Although the new business opportunity was attractive, the client's real estate was tied to his existing business operations and he definitely did not want to be forced to dispose of his real estate and existing business at ‘fire sale' prices. He did not want to have to sacrifice the ‘bird in his hand'.After examining his situation, we suggested recapitalising his balance sheet by executing a sale-leaseback arrangement. In a sale-leaseback arrangement, the owner of an asset sells it to someone else (transferring ownership), but retains control or use of the asset through a lease (rental) arrangement. Our client the business owner, held his real estate holdings in a separate company. He would obtain the needed cash in exchange for shares in ownership of the real estate holding company. An appropriately structured long-term lease would allow him to keep using the land and building as a tenant. Now he just needed a counterparty and the appropriate deal structure.We recognised that the key to getting this deal done was that it would have to be a win-win opportunity, with benefit not just to the business owner but also to the investor(s).Business owner perspectivel Liquidity could be extracted without the restrictions and ‘red tape' of institutional lending.l Control of the real estate (a key business asset) would be retained through the use of a long-term lease.l Expenses for rental of the facility would be fixed, enabling the business owner to budget effectively for the future.l The quantity of financing could be controlled. It would not be necessary to sell all the shares the business owner could retain some shares for himself.l The business owner could retain an option to repurchase the property at a predetermined price as part of the agreement. This would allow him to effectively stop the shares from being sold on to somebody he didn't approve of. It would also allow him the option to repurchase the land at a later date, when he had more cash available.l Separation of the operating elements of the business from the real estate would allow each asset to be assessed independently on its own merit whether for management, banking or other needs.l If seeking to sell the business or real estate, the assets would be more saleable as they would be more attractive to investors with particular preferences for either type of investment.Investor perspectivel Annuity-like attributes of the investment opportunity could make it appropriate for portfolios seeking diversification in this area.l The investor would be able to take a ‘smaller bite' than would be necessary if they bought the real estate assets outright.l Predictable elements including the return on investment and holding period allow the investment to be effectively modelled. Liquidity needs and risk reduction could also be effectively managed.l Reinvestment risk could be managed by requiring that the business owner pay a financial penalty if repurchasing the shares prior to the end of the agreed upon holding period.l Default risk/loss of tenancy could be managed with an option that the investor would be able to sell the shares free of any encumbrance if the business owner failed to pay the required rent on time.l Devaluation risk (risk of the underlying real estate asset suffering a reduction in value) could be managed with the investor having an option to sell the shares at a significant discount to the original transaction value. To ensure fairness, the business owner would have first option to purchase these discounted shares.SummaryAs for my wife's perspective on my alleged folly … Sometimes I might be up the road a bit but it's not necessarily a bad thing to be able to see around the corner. Howard Stevenson would be proud!Kumi Bradshaw CBA, BVAL the president of Firm Advisory Ltd, provides business valuation, business brokerage and advisory services to the local business community. Firm Advisory Ltd “Helping you make better business value decisions”.