Whether you’re running a highly specialized niche store that strictly does business online, or a large retail brand in a competitive industry with both physical and digital storefronts, you’re likely to be faced with the opportunity – or necessity – to sell your business at some point in the future.
For those of us who seem to have been born to be entrepreneurs, the thrill and joy of building and growing a small business is a driving force like no other. It’s about as close to a natural high as we can legally experience (in most states) and it’s really tough to let it go. However, both financially and for other important reasons, it may become necessary to sell your business at some point in order to allow it to grow further, to resolve financial challenges, or to move on to your next life goal, whatever that may be.
The purpose of this article is to discuss how retail business owners can make the transition from building and growing their businesses to successfully selling them with as little pain and frustration as possible. And, really, it comes down to retailers taking three simple but powerful steps:
Step One: Maintain a realistic valuation of the business
While we’re in the midst of running the business, there’s usually more than enough on our plate to occupy every waking moment and more. So, when other details seem less urgent or unimportant, it’s easy to let them slip by undone, sometimes for months or years.
Obtaining and maintaining an accurate valuation of the business is an example of that kind of activity that can easily be overlooked and neglected. After all, while you’re busy running the business, what does its “value” really mean? As long as it’s solvent, there are more important metrics to be concerned with, right?
But if and when selling the business becomes a serious consideration, an accurate business valuation becomes absolutely vital. By investing the time and effort into having that valuation done routinely, this vital piece of the puzzle will always be available to you as a reference point, based on which you can make many important business decisions.
How to obtain an accurate business valuation
With few exceptions, most business owners are not qualified to accurately value their own business. It’s always best to get outside assistance from third parties who have no direct stake in the business itself in order to eliminate any sort of bias from the procedure.
Usually, an experienced commercial accountant with experience in business valuation can do an adequate job. However, this is a specialty that supports many niche consultancies in which developing accurate business valuations is all they do. If your business is particularly complex, spreads across state and/or national boundaries, and/or if your selling requirements are very unique, you may want to consider choosing a specialist with experience working with your kind of business.
Working directly with the third party you choose, you should be able to arrive at an accurate and up-to-date value for the business based on one of the four most common business valuation models:
- Price/earnings ratio
- Entry cost
- Discounted cash flow
Retail stores often use a version of the price/earnings ratio valuation method that involves applying a standard multiplier to the business’s annual revenue or net profit. This “standard multiplier” is different in various retail niches and based on geography, so your accountant or valuation specialist should be able to discuss this option with you based on the specifics of your business.
How to maintain an accurate business valuation
It’s important to understand that a business valuation is merely a snapshot of the current value of your business. Although obtaining it in the first place is an important step, maintaining it is actually more important.
Any substantial change in the business itself (such as the acquisition of new assets, rises or drops in staff numbers, and technology upgrades) as well as changes in the market (like major economic factors, regulatory changes, or the appearance or disappearance of a major supplier) will likely affect the value of your business.
Therefore, it’s important to maintain an accurate business valuation by working with your third party expert to analyze the current situation every 90 days or so. This will ensure you have the most updated information at your fingertips if and when you need to start the sale process.
Step Two: Prepare the business for sale
While it’s tempting to assume this step doesn’t need to be taken until you’ve officially decided to sell, it’s actually smarter and more effective to treat this step as an ongoing part of how you do business day after day. That way, if and when selling becomes an option you need to consider, you’ll be in a position to realistically start doing so almost immediately, rather than having to take weeks or months accomplishing the preparatory work, and potentially missing opportunities as a result.
Put business records in order
A retail business generates a lot of records. Whether these are in digital or hard copy form, it’s easy to neglect or ignore them in favor of handling more pressing day-to-day concerns of the business.
However, from a prospective buyer’s perspective, few aspects of the business are more meaningful or impactful on their purchase decision. As a result, every serious buyer is likely to request access to your business records fairly early in the process. If they’re hard to come by, disorganized, or not up-to-date, it could be a quick and efficient deal breaker.
On the other hand, if the company’s legal, financial, and personnel records are clear and easy to understand, their going to tell the story you want your prospective buyers to hear about your business.
Although it may take some extra time and effort each week, you should make an effort to keep your records consistently up-to-date and organized so you don’t have a huge project on your hands if you decide to sell.
Clean up the premises
This is especially important for physical retail locations, although the principles can apply to the appearance and functionality of your website if you’re an e-tailer as well.
In real estate, the concept of “curbside appeal” is well known and understood: As an interested buyer pulls up to a house they’re interested in, their first impression – based primarily on the appearance of the front yard, exterior of the house, and the appearance of the front entrance – can and will have a direct impact on whether or not they end up buying that house.
In business sales, although perhaps not as emotionally-based as home hunting, the same principle can affect sales success. If your physical location is unappealing in any way to a prospective buyer visiting for the first time, that can create a negative first impression that’s difficult or impossible to overcome.
Keep the premises clean, well maintained, and inviting. Likewise, make sure the website (or any other visual representation of the business) is both appealing and functional so as not to turn off any prospective buyer who visits it as they begin making a decision.
Set up duplicatable systems that don’t rely on you
Another factor that can turn off a prospective buyer (even if the business itself is highly successful) is the impression that the company’s success is completely dependent on you as the current owner. Obviously, if that’s the case, a new owner taking over is going to struggle to duplicate that success, which makes the investment far less appealing.
While it’s common for small business owners to be intimately involved in nearly every aspect of their businesses, it makes good strategic sense to put systems and people in place that eliminate the company’s sole dependence on you as the owner. That way, a new owner stepping into that role can see that “business as usual” should be essentially unchanged by their arrival and they can have far more confidence in their ability to make a success of the transition.
Some examples of business systems and improvements that make this possible are:
- Automation wherever possible
- Documented processes, procedures, and rules
- Formal training for employees and management
All three of these preparatory efforts will have a positive impact on how quickly and easily you’re able to transition from running and growing your business to selling it. But, beyond that, they actually make running your business easier and more efficient for as long as you own it, too.
In fact, operating your business as if it may sell tomorrow keeps the business on the path to growth and success because it eliminates the possibility of your growing complacent or neglecting growth opportunities that are presented to you.
Step Three: List your retail business for sale
Finally, when you’ve accomplished the first two steps, you’ll be in a position to decide if and when to sell your business.
The value of accomplishing these steps in order is in the speed and efficiency with which you can potentially sell your business once you get to Step Three. Modern business listing services (like BusinessesForSale.com) can get your retail business listing out in front of millions of prospective buyers very quickly. So, to take full advantage of these powerful tools, it’s vital to be ready prior to putting your business on the market.
And, as noted above, following the first two steps can make for a better, more efficiently-run business for as long as you own it, so the benefits are multiplied.
No one wants to be in a position of desperately trying to sell a business in a hurry and being forced to settle for a low sale price as a result. By following these steps, the successful retailer can ensure their business is both appealing to buyers and ready to sell quickly for the highest possible price.
Bruce Hakutizwi is the U.S. and international manager of BusinessesForSale.com, a global online marketplace for buying and selling small- and medium-sized businesses. With more than 60,000 business listings, it attracts 1.4 million buyers every month.