Selling Your Business: How to Get What It’s Worth
By Kathy Hosler
“I absolutely loved my job, my clients and their pets, and I really thought that I would groom until I died,” says Cathy Hartley of Palatine, Illinois. But sometimes life has other ideas.
“I bought my salon, Jimminy Clippers, for $12,000 when I was just 21 years old. I put a lot of sweat, love, and hard work into that business. It was my pride and joy. It grew and flourished until I had 15 employees.
“Eventually, I started to feel burned out. Usually taking a vacation was all I needed to feel refreshed. I would come back from a trip with great enthusiasm and inspiration,” says Cathy.
But after owning Jimminy Clippers for about 30 years, the feeling of burnout was constant for Cathy. And she came to the conclusion that she needed to sell it.
“When you decide to sell your business, it becomes your job to find qualified professionals to assist you, and to prepare your salon for viewing by potential buyers. You need to clean, paint, de–clutter, etc.
“One of the most important things you need is to have good records. If you do not keep accurate records, you might not have much to sell,” says Cathy.
She decided to sell only the dog portion of Jimminy Clippers and keep the cat division, Kitty City, and operate it out of her home.
“I made an itemized list of everything at Jimminy Clippers that would go to the purchaser. Then I made a list of all the things I was taking with me.
“I met with my accountant, Mary Ellen Rizzo of Rizzo and Co. P.C., of Palatine, Illinois, to figure out how to price the business. My accountant did all my numbers and put my portfolio together. While compiling my portfolio, Mary Ellen shared some key information that anyone who wants to sell their business may find invaluable,” states Cathy.
“It is important to have complete and easy–to–review accounting records,” says Ms. Rizzo. “The buyer will want to perform a certain level of due diligence with regard to the value of the business and its future ability to generate profits.
“There are many ways to value a business. As a rule of thumb, using the average gross revenue of the business over the current and five proceeding years is a good start to a business valuation.
“This valuation would provide the buyer with a clear picture of the financial growth of the business. You then apply a factor to the average gross revenue. For example, if the average gross revenue is $100,000 and the factor to be used is 1.5 times, the recommended sales price would be $150,000.
“The factor you use is dependent upon the number of years in business, local competition, industry standards, longevity or turnover of the customer base, key employees to stay on, and if the lease for the business location is transferable. All of these components would allow for a higher factor to be used,” concedes Ms. Rizzo.
“Another important consideration in determining a valuation/sales price are the terms of the buyout. Will the seller need to hold a note? For how long? What is the down payment? Etc.”
Ms. Rizzo concludes with, “Of course, in the end, the value of the business is what a willing and able buyer and seller agree to.”
“When my portfolio was completed,” says Cathy, “I contacted a commercial broker. In addition to having the broker list my salon, I wanted to actively try to sell it online. And, if I did sell it online myself, the broker agreed that he would receive no commission. I had that put in the contract I signed with him.
“You’ve got to be up front about everything. You want the person that is buying your business to be successful, so letting them know as much as possible about the operational expenses is crucial. But, you don’t want to divulge that information to just anyone,” Cathy says.
“When a prospective buyer showed interest in purchasing the business and wanted to see the records, they had to sign an agreement. It stated that when they looked at my financial and other records, they would not repeat what they saw and could not make any copies.”
Cathy did some online advertising of the business and the broker actively searched for a buyer. Ultimately, within a year, someone answered her online ad and purchased the business.
“Honoring my sales agreement, I can’t state the amount I received for Jimminy Clippers, but the purchase price was in the six figures,” shares Cathy.
“My accountant prepared everything and sent it to the attorney who drew up the transfer papers. When the paperwork was signed, all the utilities, insurance, rent, everything connected with the business, was transferred to the new owner.
“He purchased the business name, the equipment and the client list. The building itself, he rents from the shopping center. He gave me a large down payment when he took over the business. I stayed on until it was paid in full—about three months,” says Cathy.
Cathy worked hard to make the change of ownership a smooth transition for everyone. And she talked to her staff before the sale and explained that they wouldn’t lose their jobs or make less money.
“Over the years, I have heard a lot of groomers say, ‘I would never buy a shop, I’ll just open one of my own’
“Well, there is a huge difference between buying an existing business verses starting from scratch. When you purchase an existing business, you have instant income because you already have clients. You have name recognition and the business reputation. And, if you never operated a business before, you have all the paperwork telling you what your employee and operating costs should be,” Cathy says.
The portfolio that was prepared was invaluable to the new owner of Jimminy Clippers. Everything was laid out for him so there were no surprises.
“It really aggravates me that many groomers practically give away their business when they decide to sell. I’ve heard of those who only get $12,000 to $15,000 for a business that they worked their whole life to build. That is totally unacceptable,” exclaims Cathy.
“I miss seeing my clients and their dogs, but the decision to sell my business was the right thing for me. And, after working all those years to create it, I am confident and satisfied that I got adequate compensation for it.”
Cathy concludes, “I really hope others who want to sell their business take the time to prepare their salon for sale, keep good records, and have an accountant, broker, or other qualified professionals to help them along the way—so that they, too, can get what it’s worth.” ✂️