Last updateWed, 26 Feb 2020 1pm

Planning exit strategies

You’ve finally decided to reap the rewards of all the time you spent building your successful retail business. You’ve determined it’s time to sell. Now comes the most important decision of your life - how to maximize your assets and convert them to cash. There are typically two choices, sell your store as a going concern with inventory or convert your assets into cash through a professionally conducted sale event.

If you first want to explore the possibilities of a sale as a going concern, there are several things you need to do to prepare for the sale:

  1. Compile yearly financial records.
  2. Compile annual tax returns.
  3. Set a realistic price. This may be the most difficult as you do not want to set a price that is too high. Most buyers will want to pay an amount that is less than the original cost of your inventory and very little for the furniture, fixtures and equipment. Very little consideration is given to goodwill. You may want to speak with a business broker to help in determining a fair value for your business.

The major difficulty with selling your store as a going concern is the lack of qualified buyers. Many buyers do not have adequate financing and may want you to hold a note. The note may become useless if the jeweler does not run a successful operation, meaning you never get paid. Many buyers will only offer you a percent of your cost for the inventory, claiming that they would just as soon invest dollars in fresh inventory of their own choosing rather than in your dated stock. 

Some stores are just not saleable as going concerns and many that are, have difficulty finding buyers with cash. What are your alternatives?

First, separate your store’s assets. Obviously, inventory is the biggest asset. If you could get better than dollar for dollar on cost in cash, you’d surely take it. Then you could sell the store, without inventory, as a going concern. This strategy breaks the impasse of waiting for the perfect buyer to come along and write you a check for the whole thing.

How do you get better than dollar for dollar for inventory? A professionally conducted sale will often generate as much as 1.25 on the dollar for inventory and achieve close to your annual volume in as little as 8 to 10 weeks. It then will become much easier to find a buyer for the business since you have already converted your inventory to cash and now you are only searching for a buyer for the other remaining assets, which won’t require as large a financial investment. Conducting a sale to the public will generate cash quickly and in most cases achieve much greater returns than you may achieve by selling to an interested buyer.

The better you prepare for your exit strategy, the more success you will have. Use all of your resources if you decide to sell the business. Call upon your attorney to draw up the purchase and sale agreement, and have your accountant establish values on assets and make certain that tax implications are considered. Your business broker will help coordinate the efforts of these professionals for you.

While negotiating, remember that the best strategy for selling a retail business is to be conservative. Keep an open mind about the worth of your business. Carefully evaluate all prospective buyers.

If you decide to liquidate because you can’t find a qualified buyer, look for a professional consulting company that has a successful track record and several references. Ask the right questions: How long have they been in business? How many sales have they run? Can they supply additional merchandise that is priced right and of the same quality as your existing goods? What is the background of the professionals that will be involved in your liquidation? You only have one opportunity to run a successful liquidation so make sure you choose the right professional for your situation.

Bob Epstein is CEO of Eaton Hudson Jewelry Advisors. Eaton Hudson provides guidance to store owners seeking to turn around a business, sell off unwanted inventory, or liquidate an entire store. Epstein joined Eaton Hudson as chief executive officer of its Jewelry Advisory Division in 2016. The former CEO at Silverman Consultants, he has over 25 years of experience in finance, operations, strategic planning and corporate accounting. He also has extensive experience in the areas of inventory evaluation, restructuring, bankruptcy, crisis management, budgeting and financial planning. For more information, visit www.eatonhudson.com.