If the Grim Reaper had to earn a living like the rest of us, he’d probably become an auctioneer. He would trade his hood for a snappy-looking hat and his scythe for a gavel. He would preside over the demise of businesses, and as each asset passed the block his gavel would sound like thunder as he proclaimed “Sold!” in a voice that echoed with finality. The business owners would look on helplessly, stunned by the speed at which their life’s work evaporated.
Some businesses will be out of reach of the Reaper. According to a 2008 White House Advisors Survey, about 12 percent of all closely-held business owners have a written plan to sell their business intact and continue operations. Those business owners will cash out in style, selling at the right time to the right buyer for the right price. The remaining businesses will be sold piecemeal and shut down.
Most of the 40,000+ antiques businesses in the U.S. choose the “auction option” when the owners decide to close. Few of the antiques dealers I have spoken with are actually prepared for their inevitable exit. Overwhelmingly, dealers agree on the importance of an exit strategy, but few have done anything about it. Most dealers are uncertain about how to plan an exit strategy. Uncertainty leads to procrastination, and procrastination eventually leads to auction day.
Planning for the intact sale of an antiques business comes with its own special challenges. The 2008 Business Reference Guide (Business Brokers Press) quotes a “leading expert” as saying of the antiques business: “There are no rules of thumb for this type of business” and “handling inventory can be a real problem.” In spite of the “leading expert’s” statement that there are no hard and fast rules for selling an antique store, the Reference Guide offers at least one rule of thumb: Price the business at 20 percent of annual sales plus the value of the inventory.
Pricing an antique store as quoted above is hardly to the advantage of the seller. Most business brokers charge a commission of 10 percent of the gross selling price, and it is not unusual to have another 10 percent of the selling price eaten up by attorney and CPA fees. Deduct fees and commissions, and the dealer is left with less than the value of the inventory. When the value of the business comes down to just the inventory (let’s skip the lawyers and brokers) call the auctioneer directly.
The time it takes to prepare a business to sell at auction can be calculated in months. The time it takes to prepare a business to sell via private sale is calculated in years. An owner liquidating through auction is paid only for the hard assets sold. An owner selling a “going concern” is paid the value of the hard assets, plus the combined values of the employee team, customer list, reputation of the business, and present value of future profits.
Consequently, some antiques dealers don’t want to liquidate and walk away; they will lose money. Their business creates regular profits, has good cash flow, a nice facility and inventory, and a good staff. How does such a dealer move into the 12 percent of businesses that are sold intact and continue operations? What do these dealers need to do in order to sell at the right time to the right buyer for the right price?
Peter Drucker is quoted as saying “The best way to predict the future is to create it.” So, let’s create a future wherein you are one of the dealers that sells when you are ready, for the best price, to the best buyer.
Sell only when you are ready
When it comes to selling your business as a going concern you have to be prepared to prove everything and supply a lot of financial details. Having a written business plan that can be used for comparison to your financial statements will be beneficial, as well as an operations manual (job descriptions, relationships and suppliers). If your records are not particularly well kept, it will take three to five years to get your business ready to sell, plus a few years to find a buyer. You will need to keep your books and accounts scrupulously for several years and assemble your operating documents.
If you have your accounting and tax records in good order for the past three to five years, you are ready to assemble your advisory team and may begin to market your business when your exit plan is completed. In most cases, you can expect to have your business sold within two to three years. When I say “good order,” I mean income statements, balance sheets, cash flow statements, inventory and asset schedules and up-to-date tax schedules.
Sell at the right price
As discussed, finding the “right price” for an antique store can be difficult. The “book value” of the business on your financial statements seldom comes close to accurately representing the worth of your business. Also, terms affect price. If you are willing to carry back a secured note for all or part of the selling price, you will sell your business faster and get a higher price.
Understand that all the legitimate tax-reducing techniques you have used over the years have had the cumulative effect of lowering the value of your business. Your income statement should be recast to add back to profits all non-cash and discretionary expenses that you have deducted over the years. Interest, depreciation, your pickup truck, cell phone, and anything else that the business pays for at your discretion should be added back into your profits.
The recasting of your income statement is best handled by your accountant, but there are software programs available for less than $100 that can give you a quick value snapshot. I use software called BizPricer, but there are dozens of others available; just Google “business valuation software.”
Sell to the right buyer
Dealing in antiques is a lifestyle business. Antiques dealers are predominantly collectors that are passionate about their subject and have years of insider knowledge and experience. Such individuals make up a very small percentage of the general population, and an even smaller percentage of entrepreneurs searching for a business to buy. The best prospects to purchase an antiques store are existing dealers who are looking to expand into other markets, serious collectors who are looking to turn their hobby into their profession, and restorers who want to add a retail operation to their restoration business.
Begin with the end in mind
In his book “The Seven Habits of Highly Effective People,” Stephen R. Covey lists the second habit as “begin with the end in mind.” Antique dealers who plan ahead for their inevitable exit from business will find that over the years they are building wealth, not just income. And their business will become one of the few that avoids the Reaper’s auction gavel.
Previously published in Antique Trader Magazine