It’s time. You’ve put everything you have into it, but now you’re ready to move on—retire, start another business, maybe even go to work for somebody else.
But just how do you sell the store you’ve owned and operated—not to mention poured the proverbial blood, sweat and tears into—for all these years? How do you prepare it for sale? How do you put it on the market? What price do you place on your business? How do you let it go?
“You have to be ready both emotionally and financially,” says Domenic Rinaldi, managing partner of Chicagoland Sunbelt business brokers. “Ask yourself, ‘Why am I selling the store? Am I truly motivated? What do I need to get out of this to do the next thing?’ On average, it takes six to 12 months to sell a business from the moment you put it on the market. You have to plan.”
Preparing for sale
Ensuring your business is in good shape before you put your store up for sale is key to making a smooth transition from business owner to business seller. This includes:
- Inventory. Jan Fowler, owner of Tampa Bay, Fla.-based Acquisitions Unlimited, says small, independent stores sometimes don’t keep updated inventory lists, but “inventory control is very important.”
- Your store’s physical appearance
- Well-stocked shelves. Fowler advises store owners to remove any out-of-date product from their shelves. “Expired merchandise says maybe the owner hasn’t been on top of things,” she says.
- A list of all your equipment
- Well-trained employees
- Good vendor relationships
- An up-to-date website
- An understandable lease
- Clear, clean financial records. These include profit/loss statements, sales, cash flow, taxes and debt.
In addition, Rinaldi advises, know what your “value drivers" are—things you can’t put a hard price on—including:
- Store location
- How long you’ve been in business
- What niche you serve
- Customer lists
- Key personnel
Finally, get your advisers in place: an attorney and an accountant with experience in selling businesses, a broker if you decide to use one.
Rena Joy Shamie is capitalizing on these principles to help sell her Soothe Your Soul wellness, health and spiritual store in Redondo Beach, Calif., after 15 years in business. The 2,500-square-foot store features about 40,000 items ranging from jewelry, books and greeting cards to essential oils and supplements. She has six employees and 1,000 vendors. The store is in a popular shopping center anchored by a Whole Foods Market.
“I have a huge customer database, a high-traffic website and custom computer software, which tracks vendor information and detailed purchasing records,” Shamie says. “I made it so somebody else could run it with just a small amount of training.”
Setting a price for your store
Shamie took those factors as well as hard numbers into account when pricing her business. A former accountant who’s selling her store herself, Shamie is asking $750,000. She lists revenues of $850,000 and adjusted net income of $200,000.
“You have to have good records. You have to prove your sales, prove your expenses,” she says. “You have to show the buyer why your business is worth the price you are asking. I made a written list of everything about my business that makes it worth more than the balance sheet.” She also advises talking to several brokers and consultants before deciding on a price.
Rinaldi says the value of a store can be calculated a couple of ways: a multiple of your cash flow plus inventory or percentage of sales plus inventory. He favors the first because “sales don’t necessarily tell you if you have a profitable business.”
Shamie’s price is based on two times her cash flow plus inventory.
It’s also important to determine what you actually need from the sale. For example, says lawyer Mary Hanson, publisher of bizadvisor.com, “Do you want a premium? Do you have to sell quickly and so are willing to settle for a lower price?”
Once you have an idea of a valuation, it’s time to do an analysis with an accountant to figure your net proceeds. Rinaldi says questions to keep in mind include: “What are the tax ramifications? Do you have to pay off debt before the sale is final? What are the broker fees? What are the closing costs?”
Marketing to buyers
Whether you go with a broker or sell your store yourself, make sure the listing provides summary descriptions, inventory and pricing but doesn’t reveal the owner, store name or location. The reason? “Confidentiality,” says Fowler. “That’s number one.”
“Don’t let anybody know your business is for sale,” adds Rinaldi. “When employees find out, they start looking for other jobs. Vendors might tighten credit. Clients or customers might try to find new providers.” Fowler points out that most buyers of small businesses want to keep the store employees. “They need them for continuity. That’s important to the customers.”
You or a broker should also market your store online, because most retail business searches are now done via the Internet, Rinaldi says. Shamie listed her business on bizben.com. Thousands of listings can be found on such sites as chicagolandsunbelt.com and sunbeltnetwork.com (Rinaldi’s company), businessnation.com and mergernetwork.com.
No matter what type of business you own, there are common hazards all sellers face. Here’s how to bypass them.
- Time it right. Put your store on the market when things are going well. “There’s a natural tendency to not want to sell your business then. But that’s the time,” Rinaldi says.
- Don’t take your eye off your store when it’s for sale. “Make sure you’re working harder than you ever have. That’s a great way to show a buyer your business,” Rinaldi says.
- Be honest. “Owners should convey the good and bad about a business. And these days, there’s going to be some bad,” Fowler says. “You should show the buyer you aren’t afraid to talk about that.”
- Negotiate other terms of a sale before discussing price. “Don’t set the price first. Don’t tip your hand,” Hanson says.
- Don’t overvalue your business just to see if you get a bite. “The longer a business stays on the market, the more likely someone will find that out,” Rinaldi says.