Succession Planning   

Why didn’t they sell the shop to their employees?” asked a colleague of mine when they heard that a long-time retailer here in Madison, WI was going out of business.  The loss of a beloved independent is painful for the community, and clearly there were many people who would have preferred to see someone else take over to keep the store running.

Unless you have a son or daughter interested in continuing to run your store when you retire, or unexpectedly leave the business due to ill health or death, succession can be a difficult issue for independent retailers. It’s also one that most of us don’t like to face, especially when we’re busy with the countless details involved in running the business.

The truth of the matter is that a retail store probably would net more for you as the owner if you sell off the inventory rather than sell the business. This assumes that you 1) don’t own your building and 2) would not receive a large sum for what is nebulously called the “good will”, or reputation, built up by your business over the years.

When you hold a going out of business sale, you can start your markdowns at 20% off retail, and if the majority of the goods are sold at 20% to 40% off, you’ll make considerably more money than if you sold the entire store’s contents at the wholesale price you paid for the inventory.  The store’s fixtures and supplies unfortunately don’t usually have a great deal of value whether you sell the business or liquidate.

So why should you sell to an employee (or partnership of employees), or to a good customer who has always loved your shop?  Well, you probably didn’t go into business for the money, so the decision to have the store carry on without you would be motivated by other factors as well.

Your shop is a unique creation that brings value to your town or city, and to the lives of your customers. And you have also created jobs that are meaningful and important to your employees. With these stakeholders in mind, you might want to examine whether there is a way for your shop to continue without you. But don’t forget that a limited period of time under the new leadership with you still present as an advisor or even actively working may make for the smoothest transition.

The biggest challenge in selling a business, whether to someone you know or to a new owner, is that the banks are reluctant to make small business loans today. There are other options, however, including a land contract arrangement that would minimize your risk and give you a steady income over the period of time of the contract.  This Wall Street Journal article about “cashing out” may be helpful. And you should talk with your local SBDC and with your lawyer to see what they recommend as options that will be financially sound and allow your retailing legacy to go on.

Happy Retailing,

Carol “Orange” Schroeder

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