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David Brown: Lay Your Exit Plan Now

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Knowing what potential investors are looking for is the key to a good price.

{loadposition davidbrownheader}

[dropcap cap=P]reparing a business for sale is not something that can be done quickly. Potential owners will be looking at a new store’s balance sheet, and many of these assets and liabilities can’t be transformed overnight. Profitability can’t be improved with a click of the fingers; planning is required.[/dropcap]

[inset side=right]A purchaser would expect a return on his investment of somewhere between 20 and 30 percent.[/inset]So what aspects should a business owner consider in order to groom his business for sale?

The primary factor in determining what a business is worth is profit. A new owner is purchasing a future income stream — the value he places on your business is relative to the return, and he will be comparing this return against what he would gain by investing his money elsewhere. A purchaser would expect a return on his investment of somewhere between 20 and 30 percent.

In addition to maximizing your profits, here are a few factors that will add value to your business:

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BAND ALL YOUR TAKINGS. Some stores don’t declare all their income in an effort to avoid tax. This may save you 20 to 50 cents on the dollar in tax by not reporting income, but when it comes to selling your business, that $1 of profit is worth $3 to $5 to the value of your business.

REDUCE UNNECESSARY COSTS. Many businesses don’t look at their overhead costs until they have to, which could be too late. A smart buyer will look at your financial performance for at least the last three years. Tidying up your act the year you wish to sell is leaving it a little too late. The big three costs for any retailer are wages, advertising and rent.

REDUCE INVENTORY. Make sure you aren’t running more inventory than you need, as this will create extra costs through freight, staffing and display. Make sure the inventory is fresh. A smart buyer will look at the age of your inventory and offer only cents on the dollar if it is too old.

LOOK AT THE INTANGIBLES YOU CAN PROMOTE. How much competition do you have? How long has the business been established? Are you able to stay on and assist with the transition? How large and tidy is your database? Does the business rely entirely upon you to succeed? This one is particularly relevant. We all know Mr. Indispensable whose staff can’t make a decision without him and whose customers always ask for him even if they only want a battery. Many of these owners enjoy being tied to their business. Sadly, when they come to sell their stores, the true value of the business will be walking out the door with them when they leave. Don’t leave yourself in this position if you can help it!


David Brown is president of the Edge Retail Academy, an organization devoted to the ongoing measurement and growth of jewelry store performance and profitability. You can contact him at [email protected]

This story is from the May 2010 edition of INSTORE

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SPONSORED VIDEO

Wilkerson Testimonials | Sollberger’s

Going Out of Business Is an Emotional Journey. Wilkerson Is There to Make It Easier.

Jaki Cowan, the owner of Sollberger’s in Ridgeland, MS, decided the time was right to close up shop. The experience, she says, was like going into the great unknown. There were so many questions about the way to handle the store’s going-out-of-business sale. Luckily for Cowan, Wilkerson made the transition easier and managed everything, from marketing to markdowns.

“They think of everything that you don’t have the time to think of,” she says of the Wilkerson team that was assigned to manage the sale. And it was a total success, with financial goals met by Christmas with another sale month left to go.

Wilkerson even had a plan to manage things while Covid-19 restrictions were still in place. This included limiting the number of shoppers, masking and taking temperatures upon entrance. “We did everything we could to make the staff and public feel as safe as possible.”

Does she recommend Wilkerson to other retailers thinking of retiring, liquidating or selling excess merchandise? Absolutely. “If you are considering going out of business, it’s obviously an emotional journey. But truly rest assured that you’re in good hands with Wilkerson.”

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David Brown

David Brown: Lay Your Exit Plan Now

Published

on

Knowing what potential investors are looking for is the key to a good price.

{loadposition davidbrownheader}

[dropcap cap=P]reparing a business for sale is not something that can be done quickly. Potential owners will be looking at a new store’s balance sheet, and many of these assets and liabilities can’t be transformed overnight. Profitability can’t be improved with a click of the fingers; planning is required.[/dropcap]

[inset side=right]A purchaser would expect a return on his investment of somewhere between 20 and 30 percent.[/inset]So what aspects should a business owner consider in order to groom his business for sale?

The primary factor in determining what a business is worth is profit. A new owner is purchasing a future income stream — the value he places on your business is relative to the return, and he will be comparing this return against what he would gain by investing his money elsewhere. A purchaser would expect a return on his investment of somewhere between 20 and 30 percent.

Advertisement

In addition to maximizing your profits, here are a few factors that will add value to your business:

BAND ALL YOUR TAKINGS. Some stores don’t declare all their income in an effort to avoid tax. This may save you 20 to 50 cents on the dollar in tax by not reporting income, but when it comes to selling your business, that $1 of profit is worth $3 to $5 to the value of your business.

REDUCE UNNECESSARY COSTS. Many businesses don’t look at their overhead costs until they have to, which could be too late. A smart buyer will look at your financial performance for at least the last three years. Tidying up your act the year you wish to sell is leaving it a little too late. The big three costs for any retailer are wages, advertising and rent.

REDUCE INVENTORY. Make sure you aren’t running more inventory than you need, as this will create extra costs through freight, staffing and display. Make sure the inventory is fresh. A smart buyer will look at the age of your inventory and offer only cents on the dollar if it is too old.

LOOK AT THE INTANGIBLES YOU CAN PROMOTE. How much competition do you have? How long has the business been established? Are you able to stay on and assist with the transition? How large and tidy is your database? Does the business rely entirely upon you to succeed? This one is particularly relevant. We all know Mr. Indispensable whose staff can’t make a decision without him and whose customers always ask for him even if they only want a battery. Many of these owners enjoy being tied to their business. Sadly, when they come to sell their stores, the true value of the business will be walking out the door with them when they leave. Don’t leave yourself in this position if you can help it!


David Brown is president of the Edge Retail Academy, an organization devoted to the ongoing measurement and growth of jewelry store performance and profitability. You can contact him at [email protected]

Advertisement

This story is from the May 2010 edition of INSTORE

Advertisement

SPONSORED VIDEO

Wilkerson Testimonials | Sollberger’s

Going Out of Business Is an Emotional Journey. Wilkerson Is There to Make It Easier.

Jaki Cowan, the owner of Sollberger’s in Ridgeland, MS, decided the time was right to close up shop. The experience, she says, was like going into the great unknown. There were so many questions about the way to handle the store’s going-out-of-business sale. Luckily for Cowan, Wilkerson made the transition easier and managed everything, from marketing to markdowns.

“They think of everything that you don’t have the time to think of,” she says of the Wilkerson team that was assigned to manage the sale. And it was a total success, with financial goals met by Christmas with another sale month left to go.

Wilkerson even had a plan to manage things while Covid-19 restrictions were still in place. This included limiting the number of shoppers, masking and taking temperatures upon entrance. “We did everything we could to make the staff and public feel as safe as possible.”

Does she recommend Wilkerson to other retailers thinking of retiring, liquidating or selling excess merchandise? Absolutely. “If you are considering going out of business, it’s obviously an emotional journey. But truly rest assured that you’re in good hands with Wilkerson.”

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Most Popular