Home » Association » 8 Tips to Buy or Sell a Business
NHPA Retail Marketplace

8 Tips to Buy or Sell a Business

You may have put selling your business or buying additional stores on hold during the peak of the pandemic. But now, following nearly two years of historic sales throughout the industry, you are finally ready to take that next step.

Whether you’re preparing to step down from your operation and sell or you’re looking to expand your business to additional locations, there are preparations to be made before you can move forward.

For professional insights into best practices for selling and buying a business, Hardware Retailing consulted Sam Brownell, managing director of Stratus Wealth Advisors LLC, which provides essential data and advice to help independent retailers make the best decisions for their company and family through valuation, succession planning, asset management and financial planning services.

Keep reading for tips from Brownell about the steps you should take—either as a buyer or seller—to prepare yourself and your business.

4 Tips for Sellers

  1. Start with a valuation.
    “Most business owners think their businesses are worth more than what a third party will tell them, and this can be an important reality check,” Brownell says. “Emotionally, you feel your business is worth quite a bit, but a buyer is not going to have that same emotional connection, so they are going to look at it much more objectively. Starting with a valuation helps ensure we’re asking the right questions.”
  2. Maximize the value of your business with:
    Audited financials
    “The first thing a buyer is going to ask for is historic financials. Audits show the buyer that you care about getting your business in the right place,” Brownell says. “Look at what expenses you can improve and make sure your financial statements are really clean.”
    A capable, self-directed team
    “So many owners, especially in this industry, are the business,” Brownell says. “To make their business more attractive to buyers and to make it more valuable, they need to start diversifying away from their leadership, develop their teams and build a company that can function without the owner.”
    A diversified customer base
    “If you’re a lumberyard or home center in a rural area, and maybe your top three contractor customers make up 30 percent of your revenue,” Brownell says. “You need to have a good explanation for why they will continue to do business with you or find opportunities to diversify that revenue stream.”
  3. Work with an expert to look at cash flow analysis, tax litigation, estate planning and busines legal documents, such as a professional will.
    “The thing about any legal documents is they don’t seem really important until they are—then they are key to have in place,” Brownell says.
  4. Understand the emotional component of selling a business.
    “For most people, the biggest hurdle is the emotions that get wrapped up in running a business. In my experience, these folks care deeply about their business, their employees and their communities,” Brownell says. “So in these initial conversions, it can be difficult for the owner to really consider what it might be like to not be an owner. It’s important that, as a seller who is approaching potential retirement, to talk with their family about what their business means to them, how they want to interact with the business as they go forward and their ultimate vision for the business. These retailers want to leave a good legacy and the culture they built to last. So recognizing that emotional piece is a really important step any seller can take.”

4 Tips for Buyers

  1. Establish a vision for your business.
    “Your vision for the business is key because that will help reduce the universe of potential businesses you could buy. There are thousands of stores that could potentially be for sale in the next ten years. Your job as the buyer is to ask what your vision is for ownership so you can narrow down those thousands of options,” Brownell says. “Questions such as, ‘Where is my ideal market?’ ‘How many stores do I want to own?’ ‘What is my ultimate ownership vision, and what type of retailer do I want to be?’ should all be at the top of the list.”
  2. Ask questions.
    “After you engage the seller and sign a nondisclosure agreement, you will assess financial statements to determine your own independent valuation of the business,” Brownell says. “You are going to want to ask lots of questions. For example, if you see that financial statements haven’t been audited, you need to talk to the accountant. Is the owner still really involved in the day-to-day operations? In that case, it’s not a deal breaker, but that will change the terms of any buyout. Maybe you will want them to stick around for a couple of years to help with the transition, and that becomes part of the negotiation process. Ask lots of questions so you can understand the seller’s business and uncover any red flags.”
  3. Consider how you will structure the buyout.
    “Is this over a period of time, are you going to finance it through cashflow from the business or are you going to have to take out a loan? You need to think through the structure of the sale,” Brownell says. “Will you buy the business, roll over the entity and continue operating under the same name? Or will you rebrand? Underlying each of these questions are potential tax consequences that need consideration. The buyer also needs to make sure their legal documents are tied up and they have a good corporate attorney.”
  4. Consider the seller’s perspective.
    “There are a lot of moving parts, but essentially, the buyer and seller should try to think like the other side so they can be prepared for any potential pushback during negotiations,” Brownell says. “Buyers also need to understand that there is an emotional component to this process and that they need to be very understanding and empathetic. That emotional component is really important, because it’s not usually something that will break a deal, but it is something that can sometimes be very difficult to manage, especially during the first couple of months or the first year of an ownership transition process.”

Ready, Set, List

If you’re selling your business or you’re looking to buy, the NHPA Retail Marketplace can be the key to taking the next step. Sellers can list their operations publicly or privately for a fee, and interested buyers can review listings to find a good fit for their operation.

In early 2022, NHPA is expanding the Retail Marketplace to include buyer listings and employee listings.

Retailers are making plans to list their open positions on the Retail Marketplace in anticipation of reaching a wider range of potential employees. Busy Beaver, which operates 25 locations and counting in the greater Pittsburgh area, has already noted the potential the platform presents as they continue on a strategic growth path.

“The NHPA Retail Marketplace employee listings will offer companies like ours an opportunity to fill professional roles with experienced people,” says Nick DeMao, CFO and vice president of administration for Busy Beaver. “This platform will allow us to look beyond our immediate market and find the right fit for our operation. We look forward to the possibilities this service will offer.” Visit YourNHPA.org/marketplace to learn more.

Currently, Busy Beaver has openings for district manager, merchandise manager and multiple store general managers. Click here for more information.

Inside the Marketplace
Listen to the episode of the “Taking Care of Business” podcast featuring NHPA CFO and executive vice president of business services Dave Gowan to learn more about the NHPA Retail Marketplace.

About Julie Leinwand

Julie Leinwand is the Special Projects Manager for NHPA. She graduated from the Missouri School of Journalism. In her spare time, she enjoys baking fanciful desserts and spending time with her puppies and husband.

Check Also

breakout sessions

Exclusive Breakout Sessions Bring ROI to Your Operation

As part of the Independent Home Improvement Conference (IHI Conference), four breakout sessions will provide …