PEMBROKE, Mass. — At one time or another, most dry cleaners think about selling their businesses. They’ve been working for many years, the challenge is no longer as exciting as it used to be, and their income needs, what with the children grown and retirement income kicking in, are less.
But there are pitfalls. If the negotiation goes poorly, the results could be disastrous. Either the prospect pulls out at the last minute, the full payment is not received, or there’s a lawsuit involving deception. All are things you don’t want to experience.
Here are some ways to avoid a disaster:
HIRE A BROKER
Why, you ask? You built the business completely on your own, so why should you seek advice from a so-called “business broker”?
You’re in uncharted waters here. First, where are you going to get your qualified buyer? The key word is ‘qualified.’ Second, you’re dealing with a lot of money, and people feel strongly about shelling out hard-earned savings. There’s an aura of distrust around the transaction. The buyer thinks, “Is he/she giving me what is stated? Am I overpaying? Am I making a mistake? Will I be able to run the business?” This means that you must manage the transaction carefully.
A third party is needed to respond to both the buyer’s needs and the seller’s needs. The business broker finds and evaluates the buyer, works through the negotiation, and sees that all the T’s are crossed and I’s dotted. The broker might charge 5-6% of the sale price, but you can split the fee with the buyer.
Consider these scenarios. You come up with a price. The buyer agrees. Then the buyer finds some of the equipment not up to snuff. He checks the books and finds some information incorrect. He wonders if your figures are fuzzy. There is distrust all around. He wants to take another look at the selling price, but you are adamant that the price is justified. This negotiation is heading for trouble.
CONSULT AN OUTSIDE PARTY
If you have a buyer who agreed to your price, you can handle the transaction yourself, right? Wrong. At least consult a trusted adviser during the negotiations. This might be your accountant, your lawyer, or a friend who has had experience with buying and selling businesses. The adviser is a sounding board for you as well as a person who can see the other person’s side and provide a big-picture viewpoint. The adviser assists the seller in resolving any issues and acts as an intermediary in disputes.
For example, the buyer is worried about aging equipment. The adviser suggests bringing in a mechanic to look over the equipment and report his findings. If the mechanic thinks some of the machines have a useful life of less than two years, some negotiation is in order. If the mechanic thinks the machines can be used beyond two years, then the agreed-on price remains. The adviser can do such fine-tuning, not the seller.
PAY ATTENTION TO TIMING
Unfortunately, timing is a critical part of the transaction. Not paying attention to timing could cost you a lot of money.
Take, for instance, Florida real estate. Seven years ago, a nice condo would have sold for $150,000. That same condo goes for $40,000 today. The reason: overbuilding, foreclosure, real estate downturn, and fear that property isn’t worth as much as it was.
Perception changes everything. It’s the same in business. There are periods of optimism when, it seems, businesses can’t fail. Then there are periods when the economy is in the doldrums and every business worries about its survival.
It’s the same business, and the sales and profit figures might be the same, but the different time period colors the facts. To generalize, you could probably get 30% more for your business during an upswing than a downturn. The goodwill factor simply adjusts up or down.
It might be a good idea to time your sale during an upswing. Postpone your current plans for a few years and hope for a changed economy. Even the beginning of an upswing creates confidence, which you can channel into a higher price. You say, “We’ve had a tough couple of years, but now things are beginning to look up. Customers are loosening their purses because they can sense good times coming, and they’re tired of being down. As a new owner, you will be there to capitalize on the boom. You’ll be able to double my figures, and then consider where you will be.” Such an argument works.
To use another real estate analogy, it is like the period, not too many years ago, when buyers would bid above the asking price to secure the property. Perception means money in the bank.
Check back Thursday for the conclusion!
Information in this article is provided for educational and reference purposes only. It is not intended to provide specific advice or individual recommendations.