What is in this article?:
- Selling your store
- Setting a price for your store
Expert tips for valuing, pricing and marketing your business
Setting a price for your store
Shamie took those factors as well as hard numbers into account when pricing her business. A former accountant who’s selling her store herself, Shamie is asking $750,000. She lists revenues of $850,000 and adjusted net income of $200,000.
“You have to have good records. You have to prove your sales, prove your expenses,” she says. “You have to show the buyer why your business is worth the price you are asking. I made a written list of everything about my business that makes it worth more than the balance sheet.” She also advises talking to several brokers and consultants before deciding on a price.
Rinaldi says the value of a store can be calculated a couple of ways: a multiple of your cash flow plus inventory or percentage of sales plus inventory. He favors the first because “sales don’t necessarily tell you if you have a profitable business.”
Shamie’s price is based on two times her cash flow plus inventory.
It’s also important to determine what you actually need from the sale. For example, says lawyer Mary Hanson, publisher of bizadvisor.com, “Do you want a premium? Do you have to sell quickly and so are willing to settle for a lower price?”
Once you have an idea of a valuation, it’s time to do an analysis with an accountant to figure your net proceeds. Rinaldi says questions to keep in mind include: “What are the tax ramifications? Do you have to pay off debt before the sale is final? What are the broker fees? What are the closing costs?”
Marketing to buyers
Whether you go with a broker or sell your store yourself, make sure the listing provides summary descriptions, inventory and pricing but doesn’t reveal the owner, store name or location. The reason? “Confidentiality,” says Fowler. “That’s number one.”
“Don’t let anybody know your business is for sale,” adds Rinaldi. “When employees find out, they start looking for other jobs. Vendors might tighten credit. Clients or customers might try to find new providers.” Fowler points out that most buyers of small businesses want to keep the store employees. “They need them for continuity. That’s important to the customers.”
You or a broker should also market your store online, because most retail business searches are now done via the Internet, Rinaldi says. Shamie listed her business on bizben.com. Thousands of listings can be found on such sites as chicagolandsunbelt.com and sunbeltnetwork.com (Rinaldi’s company), businessnation.com and mergernetwork.com.
No matter what type of business you own, there are common hazards all sellers face. Here’s how to bypass them.
- Time it right. Put your store on the market when things are going well. “There’s a natural tendency to not want to sell your business then. But that’s the time,” Rinaldi says.
- Don’t take your eye off your store when it’s for sale. “Make sure you’re working harder than you ever have. That’s a great way to show a buyer your business,” Rinaldi says.
- Be honest. “Owners should convey the good and bad about a business. And these days, there’s going to be some bad,” Fowler says. “You should show the buyer you aren’t afraid to talk about that.”
- Negotiate other terms of a sale before discussing price. “Don’t set the price first. Don’t tip your hand,” Hanson says.
- Don’t overvalue your business just to see if you get a bite. “The longer a business stays on the market, the more likely someone will find that out,” Rinaldi says.