It has been said that a business is only worth what someone is willing to pay for it. Although you may vividly remember the struggles of building and sustaining a successful business, your buyer may only see what appears to be some used equipment and a simplistic business model. It is your job as the seller to provide a clear picture of why your business presents a unique value and sustainability.
While celebrating the 10-year anniversary of my Pilates studio in 2012, I got the itch: the feeling that it was time to move on. It wasn’t overwhelming, so I committed to another 2 year lease agreement. But I resolved to prepare for and pursue sale options during that term.
This wasn’t the first time that I would be moving on from owning a business. I owned a children’s gymnastics and fitness center from 2007-2011 which fell victim to poor economical times. After a brief effort to sell the business, I opted to liquidate the assets at the end of the lease term. It was quite heartbreaking and I vowed to end things on a better note the next time. Fortunately, I was able to successfully sell my Pilates studio last month.
Selling a business can be almost as involved and tedious as starting one. In the beginning, you had to create forms and policies. Upon selling, you need to update, organize and justify the system. In the beginning, you likely incorporated the business and developed an accounting system. Upon selling, you’ll likely dissolve that corporation and revise your accounting presentation to appropriately depict the overall finances. In many ways, I think it is easier to start up than to backpedal. For that reason, I have analyzed my experiences and compiled the following tips towards preparing your business for a successful sale.
1 year prior to the desired sale date
Review your lease and consult with your landlord. Make sure that you are allowed to sublet the space or transfer the lease to a new owner. Inquire as to whether there are any fees or restrictions involved. Find out what you need to do to secure a full refund of your lease deposit.
Get your books in order. The business needs to look good on paper. Organize all of your income, expenses and assets through an accounting program. If you’ve been accepting any payments under the table, start recording them so that the annual income is positively accurate. Reconcile all accounts payable to justify or eliminate any business debts.
Get your valuation in order. Having a professional valuation completed to accurately price the business can cost up
wards of $2,000, but may prove worthwhile in justifying your asking price. Some components considered include profit and loss, cash flow, assets, uniqueness and overall reputation of the business, instructor/client loyalty, performance and trend history, business maturity and future growth potential. If you do not commission a formal valuation, be sure you’re prepared to present detailed reviews of each component.
Get your business in order. Alphabetize the client release forms and separate active from expired client packages. Organize files for payroll, policies and log books. Make sure that any contracts you have with your instructors and vendors are up to date.
Get your online presence in order. Clean up your website and make sure it is up to date. Ask some valued clients if they will submit a quote to be displayed on your home page. Develop a strong social media presence that draws attention to your business offerings and deals. Make sure that the business has positive reviews on Yelp and resolve any complaints with the Better Business Bureau.
Get your property in order. Clean the entire space so that you can get a good look at what needs improvement. Discuss necessary repairs with the landlord/management company and make sure everything is up to code. Consider a fresh coat of paint indoors as well as some aesthetic improvements to the outdoor presentation.
Get your equipment in order. Clean and tune each machine. Distinguish between what needs to be repaired and what needs to be replaced.
6 months prior to the desired sale date
Create a pitch. Compose a written and oral presentation of the strengths of your business. Be sure to include positive as
pects of your location, client loyalty, instructor qualifications, online exposure and reputation, as well as any mutually beneficial referral networks with other businesses/professionals in the field.
Determine your intentions for the sale. List the desired date for the sale, what will be included, what will be excluded, and what (if any) your future involvement with the business will be. Clarify how the ongoing client packages will be reconciled.
Start networking with Pilates and fitness professionals in your area. Take a class with each instructor and ask them if they’d like to get coffee afterwards. Be forthright about your intentions to pass the business along and inquire as to their interest, as well as any possible referrals. You never know who may introduce you to your buyer.
Look online for other studios for sale in your area. Compare their business offerings to yours and evaluate their sale structure. Since an asking price is in some ways subjective, you will need to justify any variances. Determine which online venues seem to most effectively market the sale of similar businesses. While your ideal buyer may be an instructor who already works at your studio, you may need to search outside of your immediate demographic.
Consult with your attorney. It is important for any potential buyers to sign a confidentiality agreement prior to reviewing your business records. You will also want to discuss the options for passing along or dissolving your corporate entity, as well as the key points of a purchase agreement.
Speak with your accountant. Most buyers will ask for 3 years worth of profit and loss statements, balance sheets and tax returns. Additionally, determine the tax implications of any profit you make from the sale.
Negotiating
Some instructors may prefer to start their own Pilates studio, but in this saturated market it is favorable to acquire an established client list. What is important is to customize the negotiation to the needs and expectations of the particular buyer. For example, if the buyer is an instructor with minimal business experience, you may offer 6 hours of specific business training as part of the deal. If the buyer has a lot of changes in mind but is afraid of losing current clients, you may offer to continue working there for 3 additional months to help smooth over the transition. If the buyer is unable to purchase the business outright, you may offer a payment plan over 3 years with a minimal interest rate and no penalty for an early payoff.
Presenting a stable and profitable business with positive cash flow will likely secure a sale price well above the value of your physical assets. A struggling business, on the other hand, may only garner reimbursement equal to the proceeds of a liquidation sale. Upon finding an interested and qualified buyer, consider that they may be your best option and try to reach a deal that suits you both.
What I can say for sure is that the process is stressful, so be certain about moving on and try to surround yourself with professionals that can help you reach your goal. You are welcome to visit my website for any consulting and support needs you may have along the way. With a thorough outline of checkpoints as well as examples of contracts, I can help you navigate the challenges ahead.
Eme Cole earned a Master of Science in Exercise Physiology and a Pilates certification through the PhysicalMind Institute. She is the author of the ‘Pilates Expanded’ book series and currently teaches at Pilates Plus Cross-Training Studio in Chicago, which she formerly owned. You can contact her at www.PilatesExpanded.com