I got a call the other day from the business manager of a small group of natural food groceries. He said his company is considering selling one of its stores and was looking for information that could help them with that process. (He asked that I not print his name or location.)
Natural Foods Merchandiser had published several articles on this very topic. But the call got me wondering: How is selling a small, natural food retail business different from selling, say, a house? I phoned Jay Jacobowitz, founder and president of the Retail Insights. As a consultancy for the natural products industry, his company has helped dozens of independent grocery store owners find buyers for their business. Here are his four tips.
1. Show your profit.
Because retailing is a cash business, it's tempting for some store owners to document only a portion of their sales and pocket the rest. That may feel great today, but it’s actually decreasing the value of the business. Imagine explaining to potential buyers that past sales at your business were actually higher than what’s on the books. No, really, it's true!
2. Inventory is included.
Buyers are going to expect that the store will be able to operate on the first day they take ownership. So you’re not just selling the bones of the business—the cash registers, the shelves, the sign out front—you’re also selling everything on the shelves. This means the dry goods, the fresh produce and the meats. “People make the mistake of thinking that the inventory value is a wholly separate value,” says Jacobowitz . “It is not.”
3. Expect to take back paper.
Most buyers of small businesses won’t be able to obtain financing for the full amount of the sale price. This means that you as seller should be flexible in accepting a note—essentially a legally-binding IOU— for some portion of the sale price. “A good target amount to have in mind is 20 percent of the value of the business,” says Jacobowitz.
4. Do your crying now.
Saying goodbye isn’t easy. But it can be particularly tough if you’ve spent decades running a small natural food grocery. “Many times an owner is not aware of how linked their personal identity is with the business,” Jacobowitz notes. “You need to recognize the emotional aspect of this and come to terms with it.” Unchecked emotions can cloud one’s judgment, which is the last thing you want when entering negotiations.