Maybe it's that customer who can't stop complaining, or the perpetually delayed shipment or the resignation of a key employee. Or maybe you just dream of a life not spent behind a cash register or in a stockroom. Whatever your reason, you've decided to sell your store. Although that seems like a momentous step, your work has just begun.
Selling your store is not only a big financial decision, "it's emotionally traumatic as well," says Denver attorney Ned Minor, author of Deciding to Sell Your Business: The Key to Wealth and Freedom (Business Enterprise Institute, 2003). "A store has been the owner's identity; it's been their platform. It's like their child." Yet experts say many small-business owners approach this financially and emotionally charged transaction in a haphazard fashion, without thoroughly educating themselves or taking advantage of the myriad professional resources available.
"For a variety of reasons, some business owners are tempted to fly solo on the sale of their businesses. I have rarely seen one of these solo flights reach its intended destination," Minor says, pointing out that just because you can sell product doesn't mean you can sell a business. And if you do sell your store without help from professionals, you may not get its true value?a key factor if you plan to use the proceeds for retirement.
Selling your business is an involved process that should begin three to five years before you even think about putting up a "for sale" sign, says Brent Baxter, a former food industry executive and founding partner of St. Louis-based Clayton Capital Partners, an investment banking firm. You need that time to get your store in top financial shape, he says. Store owners should talk to their accountants about preparing monthly financial statements that detail not only earnings, cash flow, profit and loss, but also the owner's salary, benefits and expenses.
This can seem like a major hassle for a store owner who only does quarterly or yearly financial statements, but there are several reasons why a monthly statement is important. "Buyers are ultimately buying your cash flow," and they need to see detailed, long-term accounting, Baxter says. "If you can show three or four years' consistent sales growth, that will make your store more valuable." Also, financiers, particularly the Small Business Administration, "want detailed financial statements and buttoned-up tax returns" before they make loans to prospective buyers, Baxter says.
According to the Business Owner's Toolkit, a research Web site, other records that buyers will want to see include listings of equipment, inventory and other assets; copies of leases and contracts with vendors; employee organization charts or job descriptions; and operations manuals that show your company can run smoothly without you.
Another reason to preplan is to avoid actually losing, rather than selling, your business. "The No. 1 exit plan for small-business owners is procrastination," Baxter says. "They're so busy running the store, they're not out networking to find buyers, they're not doing the finances, and then a third-party event happens." That event could be a health crisis or a financial problem that forces you to sell your store quickly and cheaply, or even abandon it because you're not able to operate it anymore. "Business owners need to always be thinking about what's the best way for them to be getting out of their business," Baxter says. "I can't emphasize enough that you have to think ahead three to five years. You don't want to sell because you have to, but because it's the right time in your life."
Set the price
Correctly valuing your store is another problem area. Basing an asking price on what other natural foods stores in your area sell for, or letting a Realtor set the price is not the best idea, Minor says. "Realtors are experts at selling real estate, but they may know nothing about selling a business." And pricing your store based on what that other store across town sold for is dicey because you don't know all the factors that determined that sales price. "A number of things affect whether a buyer will pay a higher or lower price for your store: a good location, consistent sales growth, a good lease rate, whether you own your building or rent it," Baxter says. Minor says other factors that prompt a buyer to pony up the extra cash include a stable, motivated management team; a solid, diversified customer base; good operating systems and financial controls; and a realistic growth strategy. And don't forget that appearances count: The nicer your store looks, the nicer your sales price.
"As a gross industry-wide generalization," says Minor, stores are worth 1.5 percent to 2 percent earnings before interest, depreciation, taxes and amortization. If you own your own building, Baxter advises selling it separately from the store. Or hold onto it and lease it back to the new owner of your store.
One way to figure out what your store is worth is to have it appraised. The Institute of Business Appraisers in Plantation, Fla., and the American Society of Appraisers in Herndon, Va., can provide names of independent appraisers. Certified public accountants also can do a fair-market valuation, Minor says.
Or you could hire a business broker or investment banker to not only value your store, but handle the entire sales process for you.
The main difference between brokers and investment bankers is the types of sales they handle. Investment bankers usually only oversee businesses priced at $5 million or higher, Baxter says, meaning most small, independent natural foods stores should opt for a broker. A broker can value your store, put together a list of buyers and market your store. "They'll discreetly throw out the broadest net they can to the most logical pool of buyers, often through advertising or Web sites, without giving out the identity of the owner," Minor says. A broker's commission is usually 7 percent to 10 percent of the sales price, Baxter says.
It's key to shop around for brokers. "Whatever time you think you should spend interviewing brokers, spend twice as much," Baxter says. "It's probably the most important financial decision you will make. A good business broker can make a difference of 25 [percent] to 30 percent in your sales price." You can find brokers though industry organizations or networking groups in your community. You also can ask your attorney or accountant for recommendations or check out the nonprofit International Business Brokers Association in Chicago for brokers in your area.
Before your broker hawks your store to prospective buyers, Minor recommends asking an attorney to draw up a confidentiality agreement. "Have anyone who you show your financial information to sign it. That way you're not giving away the secrets of the kingdom," he says.
Find a buyer
Minor says that according to a MassMutual Financial Group survey, 80 percent of business owners want to sell to employees or family members, but only 20 percent actually do so. Workers and family members may not have enough money to buy your store, or simply don't want to be entrepreneurs.
Still, that doesn't mean that Joe the produce guy hasn't always dreamed of owning your store. But if you sell to him, be prepared to help with the down payment or serve as a lender, with Joe paying you for the business in monthly installments. "It will take longer to get your money out, but you'll preserve things you care about by selling to an employee," Baxter says. Another plus: You can probably sell your store for the full asking price if you finance it; most cash buyers expect a price reduction, Baxter says.
If you want to sell to an employee or family member but don't want to be a lender, one option is to get to know your banker. "If you ask your bank to finance a buyer, the bankers who know your business are more likely to lend," Baxter says. Minor says another option is to set up an employee stock plan that allows workers to buy individual, nonvoting shares of your company over a period of five to seven years. Then you can sell the balance of your business to your employees at a fair market value. Because they'll need a smaller loan, your employees would be more likely to qualify with lenders, perhaps at a more favorable rate.
If employees or family members aren't an option, look for the next best thing: "Find your clone," Baxter says. Think about what you were doing when you bought your store and then "go out and see if you can find another you." If you were a fitness instructor, hang out at the gym. If you were a dietitian, talk up your store to other dietitians. If that doesn't work, "somebody who owns the store 10 miles away from you could be a wonderful buyer," Baxter says. "Your best buyer is probably someone who has a knowledge and passion for the industry."
Vicky Uhland is a Lafayette, Colo.-based freelance writer.
Natural Foods Merchandiser volume XXIX/number 2/p. 18,20