Cashing Out

If you're like most retailers, you cherish your store with all the love a mother lavishes on her child. And you hate the idea of selling your "baby" to some stranger.

Fact is, though, there are many reasons why you might reach a decision to "cash out." Maybe you're looking at retirement with an eye on the golf courses. Maybe your children don't feel like taking over the shop. Or maybe you'd like to take the cash you get from a sale and invest in another enterprise.

Whatever your reason, deciding to sell is one thing. Doing it right is something else.


Like most people contemplating the sale of a business you probably have one paramount question: "How much can I get."

Coming up with a realistic selling price is critical, after all. You don't want to leave money on the table by selling for too little. "Your business may very well be the most important asset in your life," cautions Roger Winsby, president of Axiom Valuation Solutions, a consulting firm in Wakefield, Mass. "You need to have a realistic valuation done before selling it."

Let's look at one ballpark estimate formula called "the earnings multiple." This calculation values a business based on the cash it generates or its annual "cash .ow." To figure the value of your own business, start with your annual bottom-line profit figure. Then add back what you have deducted during the year for interest, taxes, depreciation and amortization. The resulting cash flow number goes under the acronym of EBITDA (pronounced "eh-buh-ta"). That stands for "earnings before interest, taxes, depreciation and amortization."

Businesses are often valued in terms of a multiple of cash .ow. "For smaller companies, the sales price almost always comes out around fourto-six times EBITDA," advises Rick Rickertsen, managing partner of Pine Creek Partners, a private equity firm based in Washington, D.C. So if your business's EBITDA is $300,000, then your business may sell for $1.2 million to $1.8 million.

One more formula is called the "owner's cash flow multiple." This one is often used in the case of a small retailer where the owner has been withdrawing a high annual salary. The analyst determines owner's cash flow by starting with the operation's annual bottom-line profit figure, then adding back interest, taxes and the owner's annual compensation. Retail operations often sell for one to three times the resulting number.


Simple formulas will take you only so far. Your business, after all, is like none other and possesses a host of characteristics that will affect its selling price. "To get a realistic valuation you need to thoroughly analyze your market, your industry and your business position within that industry," notes Kurt Myers, a valuation analyst in Goodlettsville, Tenn.

This valuation should be done by a specialist who addresses issues such as regional economics, the presence and quality of competition, your own business's growth trend, the quality of your management team and even the extent of your customers' loyalty. Long-term contracts to supply services and goods can help in.ate your selling price. So can a lean and effective inventory situation.

An analyst will also try to determine your organization's goodwill, because that also affects value. "Goodwill includes many intangibles," says Mark DiQuattro, a business valuation analyst in Belleville, N.J. "They include the value of past advertising, the state of your customer and client relationships, and your employees' proprietary knowledge and loyalty."

Does all this sound like a lot of effort. That's because it is. A professional valuation for a retail operation of any size can take nearly two months. And in the final analysis the process will still not generate a completely reliable number.

Fact is, it's the buyer who sets the selling price — and businesses often have different values to different buyers. "Special considerations for retail include the length of leases and the density of the population in the surrounding region," says Jim Rabe, managing director of Willamette Management Associates, Portland, Ore. And if your outlets are located in an area attractive to an expansionminded chain, your selling price will be higher.

The value of single-unit retailers is especially affected by the local economy. Two retailers, each with $3 million in annual sales, will have far different selling prices if one is located in a high-growth region and the other is in a slow backwater.

Skillfully analyzing business value is beyond the reach of most anyone but a specialist. To find an individual  who can do the job search the Web sites of these two professional organizations: the Institute of Business Appraisers, at; and the National Association of Certified Valuation Analysts, at

Don't overlook other sources of advice. Your regular accountant, for example, will help you determine the strong points of your enterprise. And how about individuals with businesses similar to yours in other parts of the country. Some of them may have been looking into a sale on their own and can share valuable information.


We've already covered some factors that might in.ate the selling price of your business. Conversely, one characteristic can depress a sale price considerably and sometimes even block a deal: the lack of a durable management structure in an organization where profitable operations too often depend on the continuing presence of the owner.

"Any buyer will want assurances that your business either has a management team that will stick around or has a second level of management ready to take the reins," notes Winsby. "To make your business saleable you need to have people and systems in place for the future. If you do not make yourself irrelevant to your business, it will be hard to sell."

If your own continuing contribution to a business still represents a good part of your organization's value, you may consider providing your services in some way to the new owner. "It is not unusual for a previous owner to stay around either part time or on a consulting basis," says DiQuattro. "That also gives the employees some comfort that the old boss will be around. It alleviates fears and concerns."


You will also obtain some insight into your possible selling price from brokers, who match people with businesses to sell with those who want to buy.

Maybe you've already heard from some of the many business brokers who like to cold call companies and ask them if they would like to go on the block. "There is a group of business brokers who shop companies without a lot of knowledge about them," says Rickertsen. Once these brokers get the go-ahead from a business like yours, they run around and track down potential buyers.

You will want to find a broker with experience selling businesses similar to yours. Ask for referrals from your Chamber of Commerce as well as from other businesses in your area, especially those that have been recently sold. You can also find brokers in the database of the International Business Brokers Association Web site,

Another source for brokers is the database maintained at BizBuy This Web-based marketplace is attempting to bring more buyers in touch with sellers by capitalizing on the nationwide coverage of the Internet. "Industry data state that as much as 40 percent of businesses are sold to buyers outside their immediate area," points out the company's general manager, Mike Handelsman, who claims over 2,500 brokers and 40,000 businesses are currently listed on the site.


Getting the best price for your store takes careful planning and patience. "The whole process of evaluating a business and closing the deal typically takes from six to nine months," says DiQuattro. You may well need a month just to get your paperwork together, including copies of customer agreements, employment contracts and leases. Obtaining a professional valuation might take a couple of months, then going to market can take three or four months — or longer.

Of course, you might be one of the lucky ones who sell their business in 60 days. Just avoid the temptation to rush to market. Invest the necessary time to understand your retail organization's position in the marketplace, and then price it right. "If you really want to sell your business, pricing it correctly is critical," says Rabe. "If you overprice the business, it won't sell. And if you under price it, you'll leave money on the table."

What It Costs To Sell

Selling your retail operation can put a lot of cash in your bank account. You'll quickly discover, though, the truth of an old adage: "You have to spend money to make money." It can take some serious dollars to hire the professional assistance you need to put your business on the selling block.

How much. Here are a few estimates from Rick Rickertsen, managing partner of Pine Creek Partners, a private equity firm based in Washington, D.C.:

• LEGAL REPRESENTATION A lawyer with experience in mergers and acquisitions may well run from $10,000 to $100,000, depending on the size of the deal.

• BROKER Who will intermediate between your company and the marketplace. Maybe an investment banker, with charges typically running from 3 to 5 percent of the selling price. Business brokers may handle smaller deals, with fees often ranging from 5 to 10 percent of the sale.

• ACCOUNTANT You will need a set of audited financials prepared by a CPA. This could run some $40,000 for a small business.

• VALUATION PROFESSIONAL A specialist may charge from $20,000 to $25,000 for determining a fair price for your business.

Some costs are monetary. Others are psychological. "Don't overlook the intangible costs associated with selling your business," warns Dr. William Rupp, dean of the college of business at the University of Montevallo, Montevallo, Ala. "It may well happen that the people who buy your business lack your passion for the organization. They may just be wondering, 'How can we make money with this.' and the answer may involve cutting many of the things you have long considered important."

Maybe the new buyer will terminate some of your favorite personnel, reduce benefits, or even cut back on the quality of goods and services, cautions Rupp. If you have agreed to hang on as a consultant you may find yourself in emotional turmoil as a result.


Breaking The News

When should you tell your employees about an impending sale of your business?

Timing the announcement can be difficult. You don't want to announce a sale so far in advance that you cause unnecessary workplace turmoil. This would be especially damaging if you finally decide against selling because you think you can get a better price later.

On the other hand, waiting too long has a downside: Putting a business up for sale is far more difficult to keep secret than you might realize. Once the rumor mill starts grinding, your best employees may resent being kept in the dark. Worse, in the belief they may soon lose their jobs, they may jump ship for competing retailers. That can leave you holding a business with diminished value.

"There is no upside in telling your people," counsels Dr. William Rupp, dean of the college of business at the University of Montevallo, Montevallo, Ala. "If you tell them early you are a 'quitter.' If you tell them late you are a 'cheater.'"

Some consultants advise informing people just as the buyer has come to a final agreement. "The best way to tell your employees is one by one, all on the same day," says Mark DiQuattro, a business valuation analyst in Belleville, N.J. "Schedule a half hour or an hour to talk to each, so they don't find out little by little and the gossip mill starts. Start with your senior employees and work down."

Avoid announcing the sale in a group meeting, advises DiQuattro. Frightened employees will start asking questions that are difficult to defuse in front of everyone, such as:

• "Don't you care about the employees."

• "Will the new owner fire us all."

• "A chain like ours got sold and they let go of half the employees. Will that happen here."

Consider locking in your best employees with one-year contracts. This will do more than help them feel secure when they hear about a pending sale. It will also assure your buyer that your top talent is aboard for the long haul.


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