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David Brown: Groom Your Business

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David Brown: Groom Your Business

Prepare for the unexpected by keeping your store in a ready-to-sell state.

BY DAVID BROWN

Published in the March 2014 issue.

OK so you don’t have any plans to sell your business soon, you may have only just taken over the business and retirement seems a long way off on the horizon.

But don’t be too hasty … at some point you will need to pass the business on (none of us last forever!) and the time you want to be thinking about it is not when you’re ready to sell.

The process of setting up the eventual sale, or handing over, of your store should start some years before you sell. In fact, your business should always be in a readyto- sell mode as far as is possible.

Why? Because most owners make a decision to sell, and as soon as they make it want to quit tomorrow!

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Realistically, even a wellgroomed business takes time to find a buyer; one that isn’t in a saleable mode will take even longer. You should always be partially prepared for sale as circumstances can come up that aren’t expected. Most buyers will want to see at least three years worth of financials when they do their due diligence — it’s a little hard to improve results after they’re gone!

So what do I mean by grooming a business for sale? Often, especially if a business is running well you can get a little comfortable and things aren’t as tight as they should be. Here’s a short list of things to think about when you decide the get the business fit for sale:

1. Trim your inventory to an effective level. What do I mean by effective? That is the level of product that you need to run the business, not what you actually have. Most jewelers are overstocked, and with that comes all sorts of associated costs, including debt servicing, staff time and costs in handling. The cost of a redundant item of inventory is higher than you think. $100,000 in product that’s surplus to requirements can add a lot to a business’ costs. If you want those financials to look healthier, then get this under control.

2. Bank all your takings. Now, I’m sure you do, but some business owners don’t. They like to put a little cash in the back pocket. They think the only downside to this is running the risk of falling foul of the IRS. Sadly, it’s not the only issue. One dollar in cash taken reduces your profit by $1. If you sell a business for four times its profit, then every dollar taken out will cost you $4 off the sale price. If you siphon off $10,000 over the space of a year then you are talking $40,000 off the sale price of the business … and don’t try and tell the potential buyer that they can add that back in and pay you for it — they will only believe what they see. Their adviser will tell them to ignore any claims of income that aren’t reported in the financials.

3. Review your overheads. Are there costs that don’t need to be there? If you’re padding out some personal expenses through the accounts it may be quite legitimate, but showing a high expense account for travel for example that isn’t that important to the business may give the impression the business isn’t as good as it really is. Unfortunately, the type of activity you undertake to minimize tax isn’t necessarily what you want to be doing to improve the performance of a business for sale.

These are a few thoughts to consider if you are planning to sell in the future. I recommend seeking the advice of a CPA or financial adviser before taking this further.

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SPONSORED VIDEO

Celebrate Your Retirement with Wilkerson

For nearly three decades, Suzanne and Tom Arnold ran a successful business at Facets Fine Jewelry in Arlington, Va. But the time came when the Arnolds wanted to do some of the things you put off while you’ve got a business to run. “We decided it was time to retire,” says Suzanne, who claims the couple knew how to open a store, how to run a store but “didn’t know how to close a store.” So, they hired Wilkerson to do it for them. When she called, Suzanne says Wilkerson offered every option for the sale she could have hoped for. Better still, “the sale exceeded our financial goals like crazy,” she says. And customers came, not only to take advantage of the going-out-of-business buys and mark-downs, but to wish a bon voyage to the beloved proprietors of a neighborhood institution. “People were celebrating our retirement, and that was so special,” says says.

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David Brown

David Brown: Groom Your Business

Published

on

David Brown: Groom Your Business

Prepare for the unexpected by keeping your store in a ready-to-sell state.

BY DAVID BROWN

Published in the March 2014 issue.

OK so you don’t have any plans to sell your business soon, you may have only just taken over the business and retirement seems a long way off on the horizon.

But don’t be too hasty … at some point you will need to pass the business on (none of us last forever!) and the time you want to be thinking about it is not when you’re ready to sell.

The process of setting up the eventual sale, or handing over, of your store should start some years before you sell. In fact, your business should always be in a readyto- sell mode as far as is possible.

Advertisement

Why? Because most owners make a decision to sell, and as soon as they make it want to quit tomorrow!

Realistically, even a wellgroomed business takes time to find a buyer; one that isn’t in a saleable mode will take even longer. You should always be partially prepared for sale as circumstances can come up that aren’t expected. Most buyers will want to see at least three years worth of financials when they do their due diligence — it’s a little hard to improve results after they’re gone!

So what do I mean by grooming a business for sale? Often, especially if a business is running well you can get a little comfortable and things aren’t as tight as they should be. Here’s a short list of things to think about when you decide the get the business fit for sale:

1. Trim your inventory to an effective level. What do I mean by effective? That is the level of product that you need to run the business, not what you actually have. Most jewelers are overstocked, and with that comes all sorts of associated costs, including debt servicing, staff time and costs in handling. The cost of a redundant item of inventory is higher than you think. $100,000 in product that’s surplus to requirements can add a lot to a business’ costs. If you want those financials to look healthier, then get this under control.

2. Bank all your takings. Now, I’m sure you do, but some business owners don’t. They like to put a little cash in the back pocket. They think the only downside to this is running the risk of falling foul of the IRS. Sadly, it’s not the only issue. One dollar in cash taken reduces your profit by $1. If you sell a business for four times its profit, then every dollar taken out will cost you $4 off the sale price. If you siphon off $10,000 over the space of a year then you are talking $40,000 off the sale price of the business … and don’t try and tell the potential buyer that they can add that back in and pay you for it — they will only believe what they see. Their adviser will tell them to ignore any claims of income that aren’t reported in the financials.

3. Review your overheads. Are there costs that don’t need to be there? If you’re padding out some personal expenses through the accounts it may be quite legitimate, but showing a high expense account for travel for example that isn’t that important to the business may give the impression the business isn’t as good as it really is. Unfortunately, the type of activity you undertake to minimize tax isn’t necessarily what you want to be doing to improve the performance of a business for sale.

Advertisement

These are a few thoughts to consider if you are planning to sell in the future. I recommend seeking the advice of a CPA or financial adviser before taking this further.

Advertisement

SPONSORED VIDEO

Celebrate Your Retirement with Wilkerson

For nearly three decades, Suzanne and Tom Arnold ran a successful business at Facets Fine Jewelry in Arlington, Va. But the time came when the Arnolds wanted to do some of the things you put off while you’ve got a business to run. “We decided it was time to retire,” says Suzanne, who claims the couple knew how to open a store, how to run a store but “didn’t know how to close a store.” So, they hired Wilkerson to do it for them. When she called, Suzanne says Wilkerson offered every option for the sale she could have hoped for. Better still, “the sale exceeded our financial goals like crazy,” she says. And customers came, not only to take advantage of the going-out-of-business buys and mark-downs, but to wish a bon voyage to the beloved proprietors of a neighborhood institution. “People were celebrating our retirement, and that was so special,” says says.

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