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No Plan B

Are you sure you want to close your business?

The subtitle of a Van Morrison album is, ‘No Plan B’. The album comes to mind as I wonder the aisles of a show and see so many vendors exhibiting whose service is to help you close your business. Just before starting to write this column, an e-mail was received from a couple that had been in business for 35 years and were looking at closing their doors.

They stated their business had been on the market for three years and without producing a sale, they were asking if it was time to consider, ‘Plan B – closing the store’. This is not the first time this scenario had been discussed, but to this writer, Plan B is not a good alternative.
While they mentioned visiting with their attorney and accountant, it appears the conversation is a few years too late. When you want to sell a business, these discussions need to be held about five years before you want out.

There is a different strategy to operating a business through the last few years and the preceding years of the retail life cycle. When you are operating your business, as the owner you have an advantage that most people do not get.

Most people get a W-2 at the end of the year and there are a minimum of tax and medical deductions they can take. The owner of a business can do a lot more. From having the business provide you with a car to giving your children a salary instead of an allowance, there are many opportunities for the small business owner to place a lot of expenses within the operation of the store.

Of course, this makes the store earn less, but there something neat about paying your children to take out the trash at the store and being able to pay them money as a legitimate business expense instead of giving an allowance which is not tax deductible. You are not as concerned with the bottom line of the business when you are getting these perks.

However, when someone wants to buy your store, in addition to looking at the store they will want to look at as many as five years of financials. This is the same five year time frame we were just mentioning.

When the buyer is going to offer a contract, they are going to pay for the inventory at landed cost, a fair valuation of the fixtures, equipment and the build out of the store, and the best part – ‘good will’ or blue sky’ money which is calculated as a multiplier of the average of your net profit for the last three to five years.

Stop and do the math for your store right now. Look at the net profit for the past five years and add those numbers together. Divide by five to get the average, and then we will assume your buyer is going to offer you 2.4 times that average amount. Nice pile of money?

That explains why for the last five years you own the store, you want to get all of these ‘marginal expenses’ out of the business. Look at all of that other money we talked about in inventory, fixtures and other items. If you take ‘plan B’ and close the store, you are getting none of the blue sky or good will, pennies on the dollar for the fixtures, equipment, and build-out,  and your now empty building is not only worth less, but your insurance is going to be more expensive for an empty building.

Definitely, ‘no plan B’ wanted here. Perhaps the people writing this week would think about changing the way they are selling their store if they knew how much money they could get by selling the store.

Questions for our prospective selling couple? They would include:
How many different brokers have you utilized in these past three years? Were each of them specialists in small business? Where have they been advertising the business? Have you had someone give you a qualified business evaluation so that you know you are asking the right price? Have you considered keeping the building but selling the business?

There are a lot of questions to be asked when you are thinking about selling the business. Definitely the questions need to start well before the date you are ready to get out. And in light of what you can get from selling a going business, there should be ‘no plan B’.

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This article is copyrighted by Tom Shay and Profits Plus Solutions, who can be reached at: PO Box 128, Dardanelle, AR. 72834. Phone 727-823-7205. It may be printed for an individual to read, but not duplicated or distributed without expressed written consent of the copyright owner.

MARCH 2024
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Small Business

AdvisorieS

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The big news item on November 30, 2022 was the advent of ChatGPT; Artificial Intelligence applications which many believe are used exclusively by big businesses.

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Article of the Month

"No plan B"; the subtitle to Van Morrison's Born to Sing album. The idea of no plan B also applies to a small business when you think (or is it when you don't think) about when the time, or opportunity, comes that you can sell your business. Generally speaking, a small business owner gets less money when they decide to close their business.


Book of the Month

"Escape from Cubicle Nation" is the March book of the month. While directed towards those working a corporate job and wanting to become an entrepreneur, we remind readers about utilizing their gut feeling to make decisions in their business.

After all, you did use your gut feeling when you decided to open or purchase your business.

BOOK US

With over 25 years of frontline experience Tom Shay is America's leading Small Business Management Expert. He's a "Must Have" for your next event.

Small Business

Conversations

We are taking a break with the Small Business Conversations programs. However, we have the many years of the program cataloged by date on the website.

Small Business

Advisories

The March Small Business Advisory remembers a line from many a western movie; "They went that a-way" and expressions similar to that distract from a business giving great customer service.

Small Business

News

 

Top Story

The big news item on November 30, 2022 was the advent of ChatGPT; Artificial Intelligence applications which many believe are used exclusively by big businesses.

This does not have to be true as there are many applications we share that have usage in a small business.


Article of the Month

"No plan B"; the subtitle to Van Morrison's Born to Sing album. The idea of no plan B also applies to a small business when you think (or is it when you don't think) about when the time, or opportunity, comes that you can sell your business. Generally speaking, a small business owner gets less money when they decide to close their business.


Book of the Month

"Escape from Cubicle Nation" is the March book of the month. While directed towards those working a corporate job and wanting to become an entrepreneur, we remind readers about utilizing their gut feeling to make decisions in their business.

After all, you did use your gut feeling when you decided to open or purchase your business.