I get at least one inquiry a week from owners wanting to sell their flooring businesses. I certainly can advise, but I’m not the expert. So, I decided to reach out to John Palladino, an advisor on divestures and acquisitions of businesses, to get a pro’s take on selling a business.
Palladino tells me that selling a business, like anything else, takes a certain amount of skill. “The biggest problem is the valuation of the business,” he explained. “Like anything else, the value of a business is determined by what someone is willing to pay for it and what one will accept for it. That doesn’t mean you should devalue your business, and there’s always room for negotiation; you just need to be realistic. There’s a big difference in the price of a business that’s up to date and one that hasn’t changed much in 30 years.”
Here are key factors Palladino said you should consider:
1. Ask yourself what the business is worth. Once you arrive at a number, ask an advisor for his or her opinion of the valuation of your business and if it’s realistic in the marketplace. If your valuation is not realistic, see if you can come to terms with what others may think your business is worth. Then continue the process of making your business ready for sale.
2. Who you should sell your business to. Your store could be a business enhancer for someone; for example, a major contractor or remodeler may consider flooring to be a strategic acquisition for supply chain reasons. Another possibility is your business may be in a new, geographically developing marketplace.
3. Pay attention to the details. Before putting your business on the market, be sure it meets the benchmark standards of successful businesses in your industry. Are the books and taxes updated? Do you have a viable customer base? What about your website and your social media? If the only thing you have to sell is inventory, it might be just as easy for an interested buyer to open across the street from you and go into business.
Bottom line: Do your due diligence before selling your business. What is the history of the business? What’s the growth rate? A potential buyer will also want to know if management is in place.
4. Devise a solid, post-sale personal financial plan. It’s likely your business is your retirement fund as well as your most valuable asset. What will you do with the money once you receive it? Be sure to invest it wisely.
5. Can you stay on as an employee? If your business is complex, or the new owner will need a significant amount of training, agreeing to stay on for a finite period of time can increase the sale value of your business. In addition, the buyer may wish to value a portion of the business on future earnings, and you may wish to stay connected with the business to ensure that such benchmarks are achieved.
6. Should I just ‘will’ the business to my children? Not necessarily. “This can present several problems unless you consult a skilled advisor,” Palladino said. “If you are expecting a payout over a few years and it’s part of your retirement funds, you need to groom them early so you can be sure they know how to be effective businesspeople. If you’re expecting a payout over a few years, a buy-sell agreement should be created. If this is your retirement money, you want to make sure you’ll receive it in a timely manner.”
Lisbeth Calandrino has been promoting retail strategies for the last 20 years. To have her speak at your business or to schedule a consultation, contact her at email@example.com.