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 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:
Maintain a realistic valuation of the business
While you’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.
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.
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.
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.
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.
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