How to Sell a Main-Street Retail Business: Important Things to Know
Updated: Sep 2, 2022
If you're looking to sell your main-street retail business, there are a few things you need to know to get the best price for your store. This blog post will discuss some critical factors you must consider when selling your retail business. We will also discuss how to value your store and work with a business broker in Sacramento to get the maximum amount.
How much is your main-street retail business worth?
When selling a main-street retail business, one of the most important things to consider is the value of your business. Main-street retail companies generate less than $1 million in annual sales. Therefore, the most common way to establish a value for this type of business is by taking a multiple of the seller’s discretionary earnings (SDE).
SDE is generally calculated in the following way: net income (or net loss) reported on the company tax return + owner's salary + interest expense + depreciation expense + amortization expense + owner perks*.
*Owner perks is an area where we often find personal things that were passed through the business, such as personal vehicle expenses, equipment that ends up at the owner’s residence, paying children a salary, etc.
The goal of valuing the business based on SDE is to help prospective buyers understand how much they can realistically expect to get out of the business. We then consider other factors, such as comps, location, and reputation, and apply a multiple somewhere between 1.7 and 2.5 to establish the list price.
Clean up your books
Buying a business comes with inherent risk. The more information you can provide to prospective buyers, the better they can measure the risk, allowing them to make an informed decision.
For prospective buyers, are sales down year over year? If so, why?
Reviewing your books with a qualified CPA is recommended.
Managing current Inventory
Your inventory is not included when calculating the list price of your business. It is typically sold at the wholesale price to the buyer as a separate transaction. If items are obsolete or just don’t sell very well, the buyer may not choose to purchase them. Extensive inventories can also be a financial burden to a new buyer.
The buyer's goal is to maximize their ROI so they will purchase the amount and types of inventory that they believe will help them generate the most profit.
When managing your inventory for sale, be careful not to invest too much in new stock. The products that sell quickly should be replaced, but be cautious about the ones that turn slowly.
Common questions that prospective buyers will ask
What is the average order value?
Do you use a POS?
What percentage of your sales come from repeat customers?
How do you manage inventory, and how often does it need to be reordered?
What are the biggest challenges that you deal with?
How much training will you provide?
Identify areas of opportunity
A key selling point is to help prospective buyers visualize how they could grow the business. For example, could they add an eCommerce platform and expand into online sales? Are there services that they could offer along with the products? Could they expand into new markets? Could they create events to draw in new customers? What marketing strategies could be improved on?
Learn more: Key Terms for Selling or Buying a Business
Work with a business broker
Once you have determined the value of your store, you need to find an experienced broker who can help you sell your business for the maximum amount. The right broker will have a thorough understanding of the main-street retail market and will be able to provide you with a detailed analysis of your store’s value. They will also be able to negotiate on your behalf and get you the best possible price for your business.
Contact us today if you want to sell your main-street retail business. We would be happy to help you through the process and ensure that you get the best possible price for your store.