For Margo King, selling her natural foods store was a piece of agave-sweetened, gluten-free cake. King sold her 1,800-square-foot supplements store, Nature?s Garden in Orange City, Fla., in April for $320,000 to some of her customers. Although she originally hired a real estate agent from a national brokerage chain, he was ineffective, and she let the contract lapse, eventually relying on her personal attorney to close the sale.
?The whole sale would have only taken three months if we hadn?t had the Realtor,? she said. King?s selling style isn?t atypical in the natural foods retailing world, where many stores sell for less than $1 million and consequently don?t attract the business sales heavyweights like investment bankers and financial consultants. But King was lucky, too, according to experts in selling businesses.
?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,? Denver attorney Ned Minor wrote in his book Deciding to Sell Your Business: The Key to Wealth and Freedom (Business Enterprise Institute, 2003).
Minor pointed out that just because you know how to sell product doesn?t mean you can sell a business. For those selling stores worth more than $1 million, he recommended assembling a sales team, including a transaction attorney, business broker, financial adviser and certified public accountant.
For those selling smaller businesses, a broker and a CPA may be all that?s needed, Minor said. A broker is not necessarily a real estate agent: ?Realtors are experts at selling real estate, but they may know nothing about selling a business,? he said.
Business brokers can filter buyers and not waste your time with ?looky-loos,? Minor pointed out. ?They negotiate the nitty-gritty while you maintain the ?let?s get the deal done? relationship with the buyer,? he said.
Business brokers can also maintain confidentiality if you don?t want your competitors to know your business is for sale, according to small-business expert Bob Adams at BusinessTown.com.
But the best reason to have a broker is to accurately price your business. King?s store, which averages 100 customers a day, was originally listed at $460,000 by her real estate agent, using a formula of 1.5 times gross yearly sales. But there are many ways to value your business, and brokers know them all.
According to the Business Owner?s Toolkit, a Web site at www.toolkit.cch.com, your business could be valued on your equipment, inventory and other assets; your current or projected earnings; and/or ?comps? of market value for similar businesses. Buyers will want to see your earnings and cash flow statements for the last three to five years; profit and loss statements; 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. If you don?t have an accountant, experts recommend hiring one to make your books professional and attractive to a buyer.
According to Minor, other factors that prompt a buyer to pony up the extra cash include:
- A stable, motivated management team
- Good and improving cash flow
- Operating systems that help sustain cash flow
- A solid, diversified customer base
- Effective financial controls
- A realistic growth strategy
- A store appearance that?s consistent with the asking price
You could also have your business appraised by a professional. The Institute of Business Appraisers in Herndon, Va., and the American Society of Appraisers in Plantation, Fla., provide names of independent appraisers. A business appraiser can also prove the value of your company to the Internal Revenue Service if you sell directly to relatives or employees.
To find a broker, check out the nonprofit International Business Brokers Association in Chicago for names in your area, or ask your accountant, attorney or business associates for recommendations. Once you?ve identified a candidate, ask for references and prepare a list of questions, including:
- How long a listing do you require, and how long will it take to sell my business? A rule of thumb is nine to 12 months.
- How much do you charge? Fees could be 10 percent to 15 percent of the total sales price, Adams said. King said the Realtor she originally hired to sell Nature?s Garden was going to charge 5 percent to 7 percent.
- Do you have any experience in selling natural foods stores? If so, how many and for what price? After your business is on the market, you need to decide if you?re going to keep that information confidential from employees, suppliers and customers. The plus to staying mum is that employees might leave if they think their job situation will change because the store is for sale. The minus is that they, along with customers and suppliers, are potential buyers.
Minor identifies five categories of buyers: family members, employees or co-owners, entrepreneurial buyers, strategic buyers and financial buyers. Entrepreneurial buyers are individuals, such as customers. Strategic buyers are companies that conduct business with your industry, such as suppliers. Financial buyers are private investment funds.
Financial buyers generally aren?t going to buy small natural foods stores. Most often, your buyer is going to be an individual, which means you might need to help with financing or require a smaller down payment. King of Nature?s Garden said the customers who bought her store put 10 percent down. Minor said entrepreneurial buyers typically can afford to pay $250,000 to $1 million for a company.
?You may have to carry back part of the purchase price in the form of a promissory note,? he said. This could be a blessing in disguise. According to the Business Owner?s Toolkit, financing part of the sale yourself could land a higher offer from a buyer who might be limited in the amount he can borrow from a bank.
Click here to order a copy of Market Overview 2004.
Vicky Uhland is a Denver-based freelance writer and editor.
Natural Foods Merchandiser volume XXVI/number 6/p. 24, 26