02 Nov Having an Exit Strategy
This article originally appeared in a 2019 issue of Creative Retailer. We have updated it for you today!
There is no denying that starting a retail business is thrilling. You make plans, build out your store, and select inventory. When you finally open your doors, you’re a little high on a combination of adrenaline, exhaustion, pride, and fear.
It’s normal for that excitement to fade over time. Eventually the day-to-day reality of running a retail business sinks in. You never expected owning your own business to be easy. But is it supposed to be this hard?
Are you two years in and feel like you’re still pushing a boulder uphill? Are you wondering if you’ll ever be able to pay yourself a salary? Does the thought of going to work spark dread instead of joy? Maybe your business is profitable, but you don’t enjoy owning a store as much as you thought you would. Or maybe you’ve loved your time owning your own crafty business, but have decided that you’d like to retire and move on to other pursuits.
Whatever drives the decision, thinking about closing your business can be emotional. There is no shame in recognizing that your business isn’t working for you. Knowing when it’s time to leave can save wear and tear on your family, your health and your finances. Ask yourself these questions to help you decide:
Is this business financially sustainable?
Starting any retail business requires a substantial outlay of capital. But at some point, the business should begin paying you back. Some months will be better than others, and a short-term drop in revenues need not be a red flag. But if you find yourself dipping into your family’s savings to meet payroll, you’ve got a problem. If you’re using personal credit cards to pay your vendors, you are putting your financial future at risk.
Have I lost my enthusiasm for this business?
No business can thrive without passion. And you can’t expect your customers and team members to be more passionate than you are. Being successful in retail requires taking pleasure from helping other people solve their problems. This means being available to your customers and prioritizing their concerns over your own. Maybe you miss the time spent quietly crafting in your own creative space and you’re ready to go back to your craft being your hobby. If you find your passion waning, the business might be better served with an infusion of fresh creativity.
Is this business having a negative impact on my health?
Starting and growing a business requires hard work and long hours. Stress is unavoidable. In the push to get everything done, it’s hard to find time to take care of yourself and your relationships. Do you have trouble sleeping because you’re worried about the business? Are you neglecting regular exercise and health care? Does getting up in the morning to go to work feel like a chore?
If there are problems, am I willing and able to do what it takes to turn this around?
Spend some time writing down what’s working and what’s not working in your business. What were your original goals in starting the business? Which of those goals have you achieved? Do any of those goals now seem unattainable? How does that make you feel? List the things that cause the most stress. What would it take to relieve that stress? Can you cut expenses and make a big marketing push in an effort to improve profitability? Would a trip to a big craft show reignite your passion? Can you hire help so you can get to the gym or spend a weekend away with your family?
If you’ve decided it’s time to move on, let’s consider the pros and cons of selling vs. closing down. We’ll discuss some of the steps involved in selling your business, and we’ll talk about what you should do now to ensure you’re prepared for a smooth transition when the time comes.
Selling vs. Closing
You’ve spent years building your business, and you deserve to reap the benefits of all that hard work when you leave. In most cases, selling your business will bring a better financial return than simply shutting down. The price at which you sell is based on the expectation of future revenues, as well as the value of your assets. When you close, you’ll simply be disposing of the assets at a steep discount.
But, if your priority is moving on as quickly as possible, closing down is the way to go. Selling your business will likely take a minimum of 6 months, and might take more than a year. And if you aren’t able to locate a suitable buyer, you could find yourself closing down the business a year or two later than you initially wanted to.
If you’ve never been consistently profitable, you might not be able to find a buyer. Cut your losses, liquidate the assets, and move on.
Preparing to Sell Your Business
Get your financial house in order
A prospective buyer is going to spend a lot of time examining your books. To maximize the value of your business, work with your accountant to make sure your financials are clean.
You’ll need to have business tax returns for at least the last 3 years. If you’ve delayed filing your taxes, get it done before putting the business on the market.
Pay off as much business debt as you can. A buyer will likely ask that you clear outstanding debt with the proceeds of the sale, so you might as well take care of this in advance.
Be sure the business assets are separate from your personal assets. If your car is owned by the business, transfer the title.
Get an independent assessment of your company’s value
There are lots of formulas for estimating the value of your company – 3 to 6 times annual cash flow and 2.5 times annual profit are commonly quoted. But every business is different, and those variables can make a big difference in the value of your business.
Consider retaining an experienced business broker to produce a valuation of your company. For a fee, the broker will analyze your financials, along with the internal and external factors affecting your business value. They will use this information to determine the price you can expect your business to fetch.
Assemble your team
Talk to your accountant and your attorney. If they do not have experience in business transfers, you may want to ask if they can recommend a specialist.
Do you need a business broker? According to FitSmallBusiness.com, you should bring in a broker if:
- You need help finding potential buyers.
- You don’t know what your business is worth.
- Your business network isn’t very extensive.
- You want to sell as quickly as you can.
The broker’s fee will likely be about 10% of the selling price. In exchange, the broker will help you through every step of the process.
If your business is internet based, Quiet Light Brokerage is highly rated. For companies with revenues between $1 million and $50 million, BusinessExits is a popular broker. For smaller companies, BizBuySell.com is a great online option.
Clean up Your Marketing
One of the biggest assets of a modern business is the relationship with an existing audience. Any potential buyer is going to evaluate your website, email list, and social media activity. Will those customers and prospects stick with the business under new ownership?
If you are the public face of your company, begin to pull back a bit. Make sure your customers are familiar with your brand, not just your personality. Your social media following is not a valuable asset if it can’t be transferred seamlessly to the new owner of the company.
Identify Potential Buyers
In looking for a buyer, start close to home and work your way outward. Here are some possibilities to consider:
A family member: If you have children or other relatives already working in your company, are they interested in taking over the business?
An employee: Selling to an employee (or to a group of employees) can make for a remarkably smooth transition, since you won’t need to spend as much time bringing them up to speed on operations.
Your suppliers, distributors and customers: You may find that one of your suppliers or distributors would welcome the opportunity to bring more vertical integration to their business. Even if they don’t want to buy your company, they may know others who are interested. For retail businesses, do you have a customer who spends a lot of time in your shop? Ask if they are interested in buying the company!
Your competitors: Would your business represent a smart extension of a product line or distribution network for one of your competitors?
Industry organizations: You’ve spent years developing relationships within the industry, so put that network to use! Every organization has a few members who seem to know everybody and everything. Arrange a conversation with that person and ask if they know anyone who might be interested in buying your company. Check the member benefits of the organizations to which you belong. The Craft Industry Alliance has a classified section on their website where you can list your business for sale; other organizations might have similar classified listings.
Of course, selling your business to a family member or somebody else close to you comes with a unique set of challenges. Any dysfunction in those relationships will likely be magnified. Beth Casey (formerly of Lorna’s Laces) offers this advice:
“Remember that at the end of the day, this is a business transaction. Whatever your relationship, make sure everyone walks away from the table feeling they got a fair deal. This isn’t a zero-sum game. Everybody can walk away a winner.”
According to The Balance Small Business, one of the biggest mistakes potential business sellers make is waiting too long and failing to plan ahead. It’s a lot like keeping house: if you spend a little time each day keeping things tidy, you won’t need to spend the whole day cleaning before company arrives.
Talk to your accountant about keeping your books as if you intend to sell the business tomorrow. Keep your eye out for potential successors among the people you work with every day. As much as you love your company, you never know when that perfect buyer will walk in the door with an offer you can’t refuse!
Stitchcraft Marketing is a marketing agency of crafting experts. We customize every program to showcase your brand, engage your customer base, and generate sales in a way that is nothing less than magical. If you’d like more help creating and executing a marketing plan that eases the transition to a new business owner, contact us today!