Retail businesses are unique. Smaller businesses succeed through the vision and hard work of one or two individuals, often family members. As the operations grow and owners find it challenging to be present at all times, managers take on greater roles. If online sales supplement sales from brick and mortar stores, these businesses can grow substantially.
As businesses grow further, the workload requires a layer of back office management. While people with specialized jobs like buyers, full time financial officers, full time webmasters, facilities managers for multiple locations add costs, the complexity of the business rewards having people fill these specialized functions.
At the next level, when real estate, online sales operations and analytics-driven floorspace management become critical, and as treasury management and financing require greater sophistication, the chief financial officer becomes a critical link between the company and its lenders and investors. The CEO must possess the skills to manage a varied workforce and the vision to survive in a competitive environment.
Owners considering selling their retail businesses need the patience and foresight to prepare for the sale. From the time the owners start to think about selling the company until the day of the closing is rarely less than six months. Efforts spent organizing financial records, documenting processes and developing a financial presentation will take time and money but are invaluable. Most privately held companies need to clean up internal paperwork that was never completed, finalize shareholder arrangements on various matters if there were none and assemble due diligence material in an organized way. Pre-sale work is unexciting but critically important.
Business owners have many ways to seek a buyer, including word of mouth, looking to the existing senior employee base, working with a business broker or investment banker or, for the brave, posting on online sites that list businesses for sale. Each approach follows a different process. It is wise to consult trusted advisors at this stage.
While business valuations are not really meaningful in themselves – the value of the business it what someone is willing to pay for it, not what some third party thinks someone should pay for it – they can help set reasonable expectations. Importantly, valuations may be done in similar ways by sellers and buyers, so they may help parties get on the same page when the time comes for negotiation. There are many different approaches to valuation depending on what the goal is, so sellers should be sure to discuss the context with the valuator. Most valuators are accountants, investment bankers or business brokers. Each has a place, so sellers should consider carefully who they hire. If the context is an estate sale, there will need to be a date of death valuation that the sellers should want to be on the low side in order to minimize taxes. If the sale comes from a disagreement between owners, an accountant might be helpful to engage in forensics to be sure nothing untoward is going on. If it is a voluntary, cooperative sale, a third party who will be helping to sell the business may be the best source. Shop around: the costs are all across the board.
Legal counsel should ideally have been involved before a buyer is identified, but afterwards their role becomes vital. A nondisclosure agreement should be in place before sharing detailed business information. Due diligence investigations may be going on at the same time as the lawyers are working on purchase documentation and will ultimately result in “disclosure schedules” that are attached to the back of a purchase agreement. Over the past few years, there has been an explosion of lawyers using complex purchase agreements in smaller acquisitions, based on the proliferation of private equity forms on the Internet and AI-generated form banks. Acquisition agreements of 60 or 70 pages have their place, but they increase transaction costs unnecessarily for the purchase of a $1-10 million business. As one of my bosses put it when I was just out of school, “It will take you six months to learn what to ask for. It will take you years to learn what you don’t have to ask for.” Clearly, businesses with both brick-and-mortar and online presences are more complicated. Businesses with multiple physical locations are more complicated. Businesses with more employees are more complicated. When we are representing sellers, one of our jobs is to simplify the complexity in order to help sellers manage costs and risks.
Every business is unique. While selling them is part of our firm’s day to day business, it is crucial for sellers who may only go through the process once or twice in their lives to be comfortable with their legal counsel. If you are considering selling your business, we invite you to discuss it with us.