The foundation of a successful retail business is built on four pillars; selection, price, location, and customer service. Each holiday season the public votes with their dollars making purchases for family & friends based on need, impulse, price, location, and customer service. December 31 results from this critical time period are assessed in terms of revenue, profit, and inventory turns. If it is your desire as a retail entrepreneur to sell your business in 2017 it is critical to pay attention to detail this holiday season and strategically plan and implement systems that facilitate maximum business performance.
The following are four strategic suggestions from IBA, the Pacific Northwest’s oldest business brokerage firm, for retail entrepreneurs who are thinking of selling their business in 2017 that want to maximize the sale price for their business:
1. Profit = Value A significant component of business valuation is company profit during the most recent tax year. Business acumen when purchasing merchandise & making staffing decisions, the two largest expense categories for a retail business, can result in an increased sale price. Simply stated, $10,000 of additional profit on the 2016 tax return can equal $30,000 – $50,000 of additional value at time of sale.
2. Inventory A retail entrepreneur’s knowledge & business acumen are spotlighted in the merchandise offered for sale to their customers. It is critical to the success of a business that the correct product mix in the right quantity at a price that encourages sales while maximizing profits is available for purchase by the targeted customer group. This is true up until closing time on Christmas Eve. The game then changes to selling inventory in a timely manner to recapture dollars invested to maximize selection & profits during the holiday season. Success in this second stage of holiday sales is critical if a sale of the business in 2017 is desired. Business buyers do not desire to purchase damaged, obsolete, out of season, or slow turning inventory. Confrontation will occur in business sale negotiations if a business owner tries to pass on their own bad business decisions in the sale of merchandise to a buyer interested in the business. It is IBA’s recommendation, as the premier business brokerage firm in the Pacific Northwest, that even if wholesale cost is the only value recaptured from the sale of inventory, that an effort be made by a business seller to have a selection of inventory that is current & appropriate for the business when it enters the market.
3. Customer Service Customers whether they are interested in buying product or the business will likely search the internet for information on a business. Business buyers will read online feedback from customers. Unwarranted negative feedback occurs on the internet. It is the reality of doing business in the digital age. However, an entrepreneur desiring to sell their business in 2017 should also make an extra effort to encourage positive feedback and minimize negative comments on the internet. Positive feedback can enhance the goodwill value of a business in the marketplace. The best way to create positive feedback and minimize negative comments about a business is to provide superior customer service.
4. Timing Entrepreneurs desiring to sell their businesses in 2017 should be cognizant of two important timing issues. The first issue relates to filing a business tax return for 2016. It is IBA’s recommendation, as the oldest business brokerage firm in the Pacific Northwest, that an entrepreneur wishing to sell their business in 2017 complete and file their 2016 tax return in as timely a manner as possible. The 2016 tax return will be an important document for valuation, due diligence, and financing in the sale of a business in 2017. The other time period an entrepreneur should be aware of is that it is presently taking IBA typically 90 – 180 days to sell a business for its clients. If a tax return is filed by March 15, the corporate filing deadline without an extension, and the business is brought to market either with internal documentation or shortly after the tax return is filed, a sale would likely occur between April – September of 2017. Traditionally, knowledgeable retail business buyers desire to purchase businesses 60 – 120 days prior to the busy season for a business to facilitate a smooth transition of ownership and experience two strong cash flow periods as entrepreneurs in the first 18 months of ownership, so an entry of a retail business into the mergers & acquisitions marketplace in Q1 or Q2 is prudent if a business owner wishes to sell in 2017.
The sale of a retail business is a sophisticated process requiring knowledge, experience, and business acumen. If you are a retailer thinking of selling your business in 2017 the transaction team at IBA would welcome the opportunity to meet with you and provide an overview of the services we offer our clients. Until that time, we wish you an enjoyable & profitable holiday season as a business owner.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.