Mistakes to Avoid When Selling Your Chain

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It’s the end of an era -- if you gauge eras by when the names on ledgers change. Jewel-Osco, the beloved, or at least unavoidable supermarket chain headquartered in Itasca, Illinois -- sometimes lovingly nicknamed “Jewels” -- is being sold by its Minneapolis-based parent company Supervalu Inc. Even though “several suitors have inquired about individual parts of the… grocery company,” as the Tribune reported, Supervalu isn’t looking to cherry-pick the stores.

So, zooming out on what’s going on at our finer grocery stores, let’s zoom back in on the entrepreneur. Entrepreneurs don’t always stay entrepreneurs. Sometimes they become moguls, or sometimes they become franchisors. Depending on your business and what you’re trying to accomplish, you might find yourself successful and fortunate enough to be in a position to sell your chain. What could go wrong? A lot.

Tony Shap, the CEO of Paymentmax Merchant Services, says, “What we see most often as the biggest mistake that our restaurant chain clients make: They forget to secure a new credit-card processor. A lot of time funds from the credit-card sales still go into the old owner’s bank account… [that’s] a big nightmare cutting off cashflow.”

And if you think your sale is a sure thing, think again.

“Most businesses, because of lack of planning, will sell for 30 percent less than what they are actually worth,” said Gokul Padmanabhan, owner of Murphy Business Brokers. “[And] only one in 100 listings will actually change hands.”

Which is true. We tend to hear more often about the big name places changing hands because there are billions of dollars involved or the companies are sexy. But even though we hear about them doesn’t mean they necessarily go through. Remember Google’s failed courtship of Groupon before the latter’s IPO?

And then, via email, Meg Schmitz, the senior franchise consultant with FranChoice in Chicago, had this to say:

What mistakes do people make?

  • They often lack preparation - sellers should have a plan/strategy to sell well in advance of making the sale -- for most chains of considerable size, this should be at least three years out
  • They often will fail to have an accurate valuation done on their business by a qualified third party expert. This in turn, gives sellers of chains an inflated view of the value of their business. 
  • They fail to organize the books and records
  • Customer/vendor/employee issues are not dealt with properly prior to sale
  • They lose their motivation, passion, commitment and momentum - instead they should try to increase revenues, increasing sales are important to buyers as they analyze trends 
  • They fail to de-emphasize the owners' personal role in the business:

Instead they should:

  • Have another decision maker
  • Get others involved in customer contact, and vendor contact
  • Develop a management team or a right hand person - it's not necessary to share this with the entire employee base - this could threaten the sale if word starts to spread
  • Build infrastructure and reduce dependence on owner
  • Reduce the amount of owner's perks that are paid for by the business
  • Don't live out of the business checkbook
  • Sell or remove unnecessary or personal assets
  • Adjust inventory to accurate levels
  • Other smaller items: update website, renew leases, eliminate unproductive employees, collect past due accounts receivable
  • Clean the premises - update the look and feel of the business to stay current and/or ahead of the times

I would’ve shorten or paraphrase these, but I figured if you’re making a checklist of things to get squared away when selling your business, you’d rather skim through a list than scan through some paragraphs.

So, there you have it.

David Wolinsky is a freelance writer and a lifelong Chicagoan. In addition to currently serving as an interviewer-writer for Adult Swim, he's also a comedy-writing instructor for Second City. He was the Chicago city editor for The Onion A.V. Club where he provided in-depth daily coverage of this city's bustling arts/entertainment scene for half a decade. When not playing video games for work he's thinking of dashing out to Chicago Diner, Pizano's, or Yummy Yummy. His first career aspirations were to be a game-show host.

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