If you are thinking about selling your business sometime in the next few years, it is time to start working on maximizing its value. Maximizing your business value is directly associated with reducing the buyer’s perceived risks. Buyers determine the value they are willing to pay for your business based on their perceived “Risk vs. [...]
If you are thinking about selling your business sometime in the next few years, it is time to start working on maximizing its value. Maximizing your business value is directly associated with reducing the buyer’s perceived risks. Buyers determine the value they are willing to pay for your business based on their perceived “Risk vs. Reward”. They often focus on the risks because they fear losing their investment if something goes wrong. I’ve listed some great ways to reduce buyer fears, and also maximize your business value.
The number one way to maximize your business’ value is to get approved for SBA lending. Third-party financing increases your business value by allowing the buyer to put less money down, providing a better cash-flow analysis. It also pays you more money when the business sale closes because the lender will be financing the majority of the purchase price. In today’s economy, banks providing SBA lending require a rigorous evaluation process and solid documentation, including tax returns, income statements, accounts receivable/payable, financial recasts, and other specific documents. Having a bookkeeper accurately maintaining your accounts and finances is a great way to keep your information organized and easily accessible. Clean books and records will also make the due diligence process easy for a buyer.
Your business relies on turning inventory, and without proper inventory management, a buyer will have a hard time determining if your inventory is making or losing money. In sporting goods, new equipment lines roll out every 3-12 months. Know the product lines you are selling and have a tangible system in place that identifies which items are selling and which are not. This will help you decide when to put last season’s equipment and apparel on the sale racks so you can replace them with the new season’s products. When a buyer looks at your business, they want to see that you are turning inventory quickly and not wasting space with items that aren’t selling.
Transferable Marketing Plan
What is your marketing plan? Finding, servicing, and retaining customers IS the sporting goods retail business. When a buyer feels they can duplicate or even improve on existing marketing strategies, they feel more confident about your business. Be able to present a formal marketing plan and demonstrate how it is transferable to the new owner. It will help your business stay on track and reduce the buyer’s perceived risk of taking over your business.
If your customers come to your store because of your personal expertise, it may mean that they are loyal to you more than your store. Customer loyalty is a large part of your goodwill, and a buyer wants to feel confident that those customers will come back once you are gone. Have a plan to train the buyer and have an exit strategy that considers you staying on part-time until customers feel as confident with the new owner as they are with you.
For sporting goods retail, location is very important to your success. If you have a great location, buyers will place higher value on longer leases with favorable terms because they want to secure the location. Know the details of your lease, and maintain a good relationship with the landlord. A happy landlord can expedite the process of transferring the lease and prevent the deal from falling apart.BizEx Business Broker | 310-882-2200 Ext 129