The Good, The Bad and The Ugly

How to sell your store without killing yourself.

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Merchandising Insights

People of a certain age will remember The Good, The Bad and The Ugly, a now-classic 1966 Clint Eastwood spaghetti Western where good-guy gunslinger Eastwood teams up with a bad guy gunslinger to find a buried cache of stolen Confederate gold during the American Civil War. The messy plot, with its twists and turns, may be a lot like the experience you’ll have in selling your store. And, if you saw the movie when it first came out, and still own your natural health store these 50 years hence, you’re probably thinking it’s about time for you to sell and ride off into the sunset.

I asked some of my good independent retailer friends about their experiences in selling their stores. What follows are some lessons from the front lines.

When Should I Sell?
Here’s when not to sell: “When you are so exhausted, tired and beaten down by the competition, the employee revolving door, and fickle customers that you throw up your hands and rush your store onto the market,” my good friend Kristina says. Why? “Because no one will buy a store that smells of problems,” Kristina asserts. “We started thinking about selling about five years ago, not because we wanted to sell immediately, but because we wanted to make the store run more efficiently.” Good.

Details Matter
This turned out to be a very smart idea that helped smooth and speed up the negotiations and due-diligence process that led to the eventual sale of the store. Kristina developed monthly sales reports by department, which gave the buyer a great deal of confidence that the numbers the store was producing were real. This established a foundation of trust—essential to any deal.

Also, employee and operations manuals, outlining policies and procedures for the cashiers, drawer counts, mechanicals, cleaning, and opening and closing, were very attractive to the buyer, reassuring them that they were not walking blindly into a complex operation they knew nothing about. Very good.

Fringe Benefits
One of the fringe benefits of ownership is being able to take product out of the store. But, unless you keep track of this on a yearly basis, you really have no idea how much this benefit is worth. For example, eating out of your café a couple of times a day, five or six days a week; taking supplements and vitamins home; body care and household items, can add up to thousands of dollars.

If you pay personal bills such as utilities and other household expenses through the store, keep a record of them on file to document the value. The buyer will be willing to give you credit for these costs in your selling price, but not if you can’t show a record that proves your withdrawals are real. Fortunately for Kristina, she was well organized and could show a yearly history of how personal expenses were separated from store expenses. Bonus.

Who Has Your Best Interests at Heart?
“We were so afraid of word getting out to customers, employees and the competition that we were selling, that it handicapped us,” Kristina relates. Coming from this sense of fear influenced the choices Kristina made in finding help to sell the store. While she interviewed and eventually hired one of several local general business brokers, in hindsight, Kristina believes it would have been better to involve an industry expert who understood and could explain the particulars of the natural products business to help establish and defend a true fair value for the store.

“Our broker had experience selling convenience stores, hardware stores and gas stations, and was a top producer in identifying and negotiating with buyers, but he was not knowledgeable about our particular type of business,” Kristina recalls.

“You might think that, because you are paying a commission, your broker is going to protect your interests, but we found out this is not necessarily the case. Our broker was just interested in the transaction, in making the deal.” Bad.

How Much Is It Worth?
Kristina’s experience is not unusual. Many owners who started their stores decades ago now have operations that generate significant sales volumes and large free cash flows. But in order to realize your store’s full value in a sale, you must first be able to document your results, as Kristina did, and then have access to valid comparisons from the natural products retail industry.

In Kristina’s case, the broker took advantage of the absence of industry comparisons and recommended a price that would yield a quick sale, effectively underpricing the business. “We think we left some money on the table.” Ugly.

After the Sale
Selling your store is an emotional experience. If you’ve run your store for decades, don’t be surprised to find your personal identity is now linked to the business. Imagine yourself on the first morning you don’t have to get up and open the doors. This reality may come as a shock, so be prepared.

One of the ways to bridge the transition from owner to free agent is to arrange a temporary consulting agreement with the buyer. Usually, a 90-day period is enough to give the buyer confidence they know how to run the business. This arrangement should operate outside your purchase and sale agreement, with your compensation based on a maximum, and possibly a minimum, number of hours.

In anticipating a sale, if you’ve got any debt on your books, making an effort to pay it off by the time you sell will make your financial situation afterwards much more comfortable. You won’t have to dip into your principle or siphon off your retirement savings. Superb.

Come From Strength
If you’ve planned ahead by organizing your business, documenting your sales, operating procedures and fringe benefits, you are in a good position to think about putting your store up for sale. To get the most out of a deal, the best time to sell is while your business is growing. Nothing creates a more powerful attraction for a buyer than seeing a strong pattern of consistent top-line sales growth.

By putting your store on the market while in this position of strength, you will increase your chances of attracting several offers. This is important because not all offers will be the same quality. For example, you might have one offer with a higher dollar value, but the buyer wants you to take back a personal mortgage note. This is not unusual, and in fact for small businesses under $10 million in sales, is the norm. If you’ve done all the due diligence to prepare your store for a sale, and you’ve got strongly growing top and bottom lines, you’ll be more likely to strike a deal with the strongest buyer on the most favorable terms and consummate it in the shortest amount of time. And that’s, well, marvelous. WF

Jay Jacobowitz is president and founder of Retail Insights®, a professional consulting service for natural products retailers established in 1998, and creator of Natural Insights for Well Being®, a comprehensive marketing service designed especially for independent natural products retailers. With 39 years of wholesale and retail industry experience, Jay has assisted in developing over 1,000 successful natural products retail stores in the U.S. and abroad. Jay is a popular author, educator, and speaker, and is the merchandising editor of WholeFoods Magazine, for which he writes Merchandising Insights and Tip of the Month. Jay also serves the Natural Products Association in several capacities. He can be reached at (800)328-0855 or via e-mail at jay@retailinsights.com.

Published in WholeFoods Magazine July 2016