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, Paint & Decorating Retailer 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 to get tips from Brownell about the steps you should take—either as a buyer or seller—to prepare yourself and your business.

Inside the Marketplace
Listen to Episode 48 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.

4 Tips for Sellers

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.”

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.”

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.

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.”

Ready, Set, List

If you want to take advantage of the flourishing acquisition market, the North American Hardware and Paint Association (NHPA) has a platform to meet those needs.

The NHPA Retail Marketplace has expanded its capabilities to include listings for potential buyers and job postings.

“Expanding the NHPA Retail Marketplace is a natural evolution for the platform,” says NHPA CFO and executive vice president of business services David Gowan. “Retailers who are looking to exit their business but want to pass it to another capable operator can use this service to vet the next generation of ownership, and retailers looking for their next investment opportunity can find an operation that fits their growth strategy.”

Additionally, NHPA understands the challenging labor market, so the job posting segment on the NHPA Retail Marketplace will offer another solution for retailers who are looking to fill their open positions with high-quality, experienced workers.

Start the new year off right and invest in your future with a limited-time offer. List your business for sale, post a buyer listing or post your open positions on the NHPA Retail Marketplace by March 31 and receive 25 percent off the listing price.

For more information, click here or send an email.

4 Tips for Buyers

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.”

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.”

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.”

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.”