When you first started your retail business, you were probably full of excitement and ready to be a successful business owner. Hopefully, you pulled through and accomplished that goal against all odds. However, there’s one aspect of the business world you probably didn’t account for way back when you were overwhelmed with forming partnerships, building supply lines, and enticing a customer base. How are you going to sell it?
Not only do you need to worry about how you’re going to sell the business, but you probably want to get the most out of it possible. That’s difficult when the buyer’s entire job is to try to get the lowest price possible to maximize their own potential going forward.
Today, we’ll go over the preparation and strategies needed to sell your retail business for the maximum value possible.
Let’s get started.
The Preparation Phase and How It Adds Value
Before you can even start to think about finding the right buyer or positioning your company appropriately, you need to do quite a bit of prep work. This can be easy if you’ve taken the proper steps throughout your business’s lifespan, or it can be incredibly difficult. Either way, it’s the most crucial part of selling a business, because it facilitates all the steps that you’re likely looking forward to.
For the most part, preparation is a bunch of organization and paperwork collection. It’s important, but it’s not too difficult.
Ideally, you will begin prepping for the sale years before you start looking for buyers. It’s not something you want to do over the course of a couple of months.
1: Gather All Financial Reports and Paperwork and Maintain Them
This is absolutely crucial. Selling a middle-market business is a huge transaction, and any buyer that gets involved will want the cold, hard numbers in regard to how much your business is making, what it spends, and how those expenses benefit or take away from the overall value and potential of the business.
While this sounds simple, it can actually be a major headache.
It’s best to start this process as soon as you open the business. Keep records of everything, and put effort into maintaining those records for the duration of your business’s existence.
You typically need records from the last 7 years of operations, but it’s a good practice to get used to, to ensure that you have 7 years of complete financial records if you decide to sell suddenly or don’t have 7 years to wait to generate complete records before selling.
Of course, that isn’t always a possibility, and many new business owners fail to do this, but hopefully, there is enough to meet the minimum requirements when it’s time to prep.
2: Gather All Licenses, Legal Paperwork, Partnership Agreements…
This is just like the financial paperwork you have to prepare, except it’s everything else. You’ll want to show your company’s legal track record, disclose any problems, and of course, make sure that partnerships and other stuff are all disclosed to the buyer. Those are things they’ll be taking on when they assume ownership.
Again, besides any glaring legal problems, the last 7 years are typically enough.
However, it is good practice to maintain these records from the start. That will prevent you from having incomplete records when it’s time to sell, and you won’t need to wait seven years from the beginning of the prep phase to the actual selling date just to pull it off properly.
Positioning the Business for Maximum Value Upon Sale
Once you have everything gathered to be able to properly present your business to assessors and buyers, it’s time for the more complicated stuff. This is when you start positioning your retail business to maximize its value. There are some simple common-sense tips here, but there are also some more obscure rules that many business owners fail to follow, and they typically cost themselves a huge chunk of their profits because of it.
1: Keep the Potential Sale Private
First and foremost, no one who isn’t part of the transaction process should know about the potential for a sale at this point. In the middle-market sector, it’s likely that you’re the sole owner. Your employees, business associates, suppliers, and service providers are not relevant to the sale at this point.
Keeping this information to yourself isn’t a malicious action. It’s not for the purpose of catching them off guard or not giving them a proper opportunity to prepare. It’s to make sure that they don’t make drastic, damaging decisions that ruin your potential to sell the company. It’s your right to sell the company as the owner, and you should be able to get its full value without anyone else’s personal decisions sabotaging this.
If you let everyone know you’re looking to sell the business, you risk a few problems.
First, employees might quit. A change in ownership can dramatically affect their lives. They might keep their jobs, but the new owner might sink the business. The new owner might fire them outright to bring in their own team. They might even end up in a better situation. That uncertainty tends to make employees consider their options and plan their own moves, but when employees start quitting right before a sale, it lowers the buyer’s confidence, damages the ongoing day-to-day operations, and potentially lowers the business’s value.
The same can happen with suppliers. A supplier might decide that they don’t want to deal with the problems that come from dealing with new ownership, and they might withdraw support.
In either situation, or both in some cases, your high-value business with record profits can suddenly struggle to be productive, and that dramatically damages the value it has to buyers.
There is a time to notify everyone of the changes and give them their due courtesy, but it’s something that will cost you dearly if you do it too early.
2: Focus on Boosting Value
Now, it’s time to start making your retail business even more productive. The more assets you have, and the more sales you’re making, the more valuable your business is to a buyer. If there are any acquisitions you can make, things you can change, or processes you can streamline to boost the figures that help increase value, now is the time to do that.
These do need to be permanent increases in value, though. Simply running massive sales and showing a huge uptick in profits isn’t enough.
Things such as long-term quarterly profit increases, securing more profitable supplier contracts, replacing old equipment to increase productivity dramatically, and various other things can be taken into consideration.
However, it’s important to determine how much each change can help versus how much it costs. You want to maximize your profits at the end of the day.
Also, make sure you’re properly recording these changes and maintaining your records. They’ll be added to the 7 years of records you’ve already compiled and organized.
3: Get an Assessment
Before you start reaching out to potential buyers or at least putting your business on the market, you need to get it assessed.
This is a two-stage process.
First, you need to do your best to get a ballpark number on your own. This is typically done by looking at how similar businesses with similar circumstances have sold recently. You can typically find these numbers via online research or your networking circle. This isn’t going to be the most accurate number possible, because there are a lot of factors you don’t know about that had a great impact on each of the other sales you’re looking at. However, it is a decent way to build your expectations.
Once that’s done, an assessment firm is required.
A proper assessor will go over all the information you’ve collected, look at the small details of recent sales you probably didn’t know about, and come up with a far more accurate number than you can. This is ultimately going to translate into how you generate your asking price and the price you try to push on potential buyers.
Of course, you should be flexible. Buyers are going to want to negotiate different terms and price agreements, and sometimes, it’s necessary to make a few concessions of your own. However, it should be fairly close to the assessed amount.
Finding a Buyer and Negotiating the Right Price
Finally, it’s time to start handling the actual selling process properly.
There are multiple ways you can sell your business that will impact how much you walk away with. However, it’s important to consider the tax liability and other costs that you’ll be responsible for with each type of sale because if you pick the wrong one, you might think you’re making far more than you actually do when it’s time to fulfill your obligations.
Here are the different ways you can sell your business.
1: Seller’s Note
Seller’s note is a method used primarily when you’re trying to sell the business to a family member or employee instead of a big-money buyer. In essence, you offer your own form of financing, and the buyer pays you back with the profits the company generates over time.
This can be a good method if you have the right buyer in mind and the business is in a position to consistently maintain its value after you leave. You gain regular payments that prevent you from making your own financial mistakes, taxes are stretched out, and someone you trust “inherits” the business.
However, it’s pretty risky. If the person you choose isn’t ready and committed, they might not get the profits necessary to pay you properly over time.
2: Splitting the Assets and Selling to an Investor
This is probably the best method to sell your business. First, you sell it to an investor. They usually have the capital necessary to make the purchase or can get it with ease, and while they will try to minimize costs, they don’t have to cut you short by too much to afford it.
However, selling the assets separately can help with your tax liability to increase your profits at the end of the day. By treating your various assets differently, there are tax breaks and loopholes that you can take advantage of for certain assets and lower the overall tax liability you have when it’s all finished.
3: Selling to a Partner
A partner is also a fair option. You can opt to leave the business and let your partner “buy you out”. Obviously, you only get the amount you’re entitled to, but that’s the maximum amount you can make, anyway.
With this type of transaction, it’s typically easier to get the full amount your business is worth thanks to the history you have with the buyer and their advanced financial position. With that being said, it can also create personal complications, and it’s not an option if you’re the sole business owner.
Get Help Throughout the Process
Finally, the best way to sell your retail business for maximum value is to get help from trusted M&A advisors.
Final Ascent is the service you’re looking for.
At Final Ascent, we can start helping as soon as you think you’re ready to sell. We have the experience and in-depth industry knowledge to guide you through each phase of the selling process.
We can help compile and organize your pre-sale preparations, help you decide on which adjustments might be crucial to maximizing the business’s value and help you through the marketing and transaction phases.
Not only that but have a deep insight into the post-sale obligations and lifestyle changes that many business owners don’t think of when they sell. This can help you make the best decisions going forward to protect your financial state and preserve the life you’ve built for yourself.
If you’re looking to sell your business in the middle-market sector, contact Final Ascent, today. We’re your all-in-one partner to help you make the most of the biggest earning event of your lifetime.