Chances are, at some stage in the future you are going to look to sell your business. Even if it is being passed down to family members there are a few steps you need to put in place to make the transition as smooth as possible and provide the maximum value for those taking over. Even if exiting your business is something you don’t see happening for several years, it’s important to put the steps in place now. Grooming a business for sale can take time, and you should always be ready should circumstances require action on short notice.
Here are a few tips I suggest to help for prepare that sales process:
1. Work out your point of difference. Every successful store has something that helps them stand out from the crowd. This is the competitive advantage for which potential buyers will pay a premium. If you don’t have a point of difference or something to offer then there is no reason for a buyer to purchase your business. They would do as well to set up in competition to you.
2. Make sure your cash flow is strong. If you don’t pay bills on time, or you allow customers to take too long to collect repairs, this will have a negative impact on cash flow and the businesses value.
3. Systemize. When someone buys a business they are ultimately buying a system to print money. If there is no system in place then they will effectively be paying you to provide themselves with a job. The more effort required by them to run the business, the less they will pay you for the privilege. The more the business runs as a well oiled machine without you, the more of a premium it can achieve.
4. Build a great team. Having a strong team who know their roles will add to the businesses value – especially for someone who has had no previous experience in the industry. It will also help with running the system – the better the team, the less the owner will have to do.
5. Bank all your money. It can be tempting (and illegal) to not declare all sales and to allow the money to slip into the back pocket. Problem is, this affects sales figures and profitability for the business. Given the typical business sells for 4x it’s profit then every dollar not banked can wipe $4 off the sale price of the store... and don’t think telling a buyer there is unbanked cash will make up for it. Their advisors will only value the business on what they know to be fact.
6. Find a good broker. You need someone who will work in your best interests. Make sure when finding a seller for your business you ask for 3 references you can contact. The first question you should ask each of these former clients is “Would you hire them again?”
7. Be patient. The sales process can be a long drawn out affair - and bear in mind it is never sold until it is sold! A large percentage of conditional sales fall through so resist the temptation to assume it’s a done deal until it is all over.
8. Don’t keep prospects waiting. Just like sales in the store, potential buyers can be hot one moment and cool the next. Taking too long to get information to them can see their interest start to wane. Make sure you have all information ready and available once you decide to market the store.
9. Exercise goodwill. Offer to go above and beyond the call of duty during the process. Extending goodwill to the other party will normally see them wanting to reciprocate. Make yourself available and where possible, offer your services free of charge for a period of time after they take over if they need your support or assistance with the transition.
10. Build a database. One of the most valuable things you can have is a list of prospects and customers. This is often what buyers really want to pay for. They don’t want to start fresh. They want to know there is a list of warm prospects that are looking to buy from your store. The value of a strong list to a business can be thousands of dollars, especially for large ticket items with repeat sales opportunities such as jewelry.