Checklist When Selling Your Stores

Checklist for Selling Your Stores

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.

To improve the likelihood that your reward is adequate, consider these 8 practical tips as you go through the selling process. It all starts, of course, by being certain your store is ready to sell!

Have you kept sound financial records?
If not, you need to compile yearly financial records that will make sense to the buyer, as well as monthly records of the most recent operating year.

Buyers of businesses love small, fast-growing companies that have not yet reached their full growth potential. If you’re lucky enough to own this kind of business, provide records that substantiate your claims.

Compile tax returns
They probably offer a different picture of your business than the financial records do, but an astute buyer will want to see both. The accuracy and thoroughness of available financial information will affect the valuation of your business. Unknown or questionable financial information may lead to a reduced valuation of your business.

Set a realistic price
Intelligent buyers will not invest in a business that’s priced higher than it’s worth. And, it certainly isn’t unusual for a seller to feel that his or her business is worth more than anyone else does. To avoid the obvious disadvantages of unrealistic pricing, hire a professional to set the price or range of prices.

Remember, there are no exact answers for the seling price of a business. The principle of supply and demand controls the price, just as it does for nearly any product.

Any professional you hire to price or value your retail business will probably consider the following points before arriving at a valuation of your business:

Current financial conditions of your business. This includes your profit-and-loss statement, balance sheet, and an analysis of intangibles such as goodwill, patents and trademarks. Book value and market value of assets are also important and include the condition of company facilities.
Historical financial conditions and trends.
Business market, including the competitive position and marketing arrangements of your business.
Supplier relationships, including exclusive merchandise arrangements and availability of products.
The retail segment in which you operate. This encompasses trends and risks of involvement in that industry, as well as a general economic overview. The professional also may conduct a comparison to other businesses in your specific retail niche.
Personnel, including responsibilities and experience of managers and other key staff members.

Agree on a value for inventories, goodwill and equipment. The buyer and seller are at opposite ends when valuing the transaction for the Internal Revenue Service. Agree on these values before the sale and you may avoid a trip to tax court.

The buyer may be interested in purchasing only the assets of your store, rather than the entire business. These assets may include the company’s name and goodwill, in addition to the common balance sheet assets. In this way, the buyer can avoid inheriting liabilities incurred by you, the owner.

Be Conservative
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. Remember your goals!

Consider using a business broker
You’re not the only retail owner looking for a buyer, and chances are you will need help finding one. Business brokers help connect the seller with a qualified buyer, something that’s frequently difficult for the business owner to do alone.

Be prepared
Whether or not you use a broker, there are a few questions you will need to prepare to answer before the time of sale.

For instance, the buyer is going to want to know "Why are you selling your business?" Many businesses for sale are lemons. Don’t let the buyer imagine problems by being unclear about your reasons for selling. It is very difficult to sell a business that potential buyers suspect may be failing or having problems.

Expect to include the following provisions in your sale agreement, and to address them during the negotiation stage.

A period of time in which you, as the seller, may assist and train the buyer.
The payment structure details and default provisions.
A non-compete clause. Buyers frequently resist this, which states the seller cannot be employed by or establish a competitive business within a certain time period or area.
A hold-harmless clause. This excludes the new owner from liabilities previously incurred by the past owner.

Know your buyer
To avoid a large tax impact in the sale year, the purchase price is usually spread out over a number of years. The balance owed is generated from business profits.

That’s why it’s important to know your buyer’s ability to run a business. Check out the buyer’s background and financial status or, if you use a broker, make sure that he or she has done this research to your satisfaction.

Carefully evaluate all prospective buyers. After all, you’ll more than likely have a long relationship with this person, and you want to lay solid groundwork for the future.

Use your professional resources
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. You also may need the services of an escrow agent. Your business broker will help coordinate the efforts of these professionals for you.