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How To Plan A Profitable Transition | May 06, 2015 (0 comments)
La Costa, CA—In a time of industry consolidation and when many retailers are nearing retirement age, it’s no coincidence that interest in succession, or transition, planning has risen. According to the Jewelers Board of Trade, in the U.S., business closings for all categories were up 39% this year over last. While retailers are just one of those categories, that’s still a significant increase. With that in mind, The Centurion spoke with Lori and Dan Askew of Vantage Group about this trend. Vantage Group is a California-based company providing strategic, analytical and operational consulting assistance to motivated jewelers.
The Centurion: Are you seeing a greater interest in usual in succession planning?
Dan and Lori Askew: Yes we are seeing a tremendous amount of interest in succession or as we like to call it ‘transition planning.’ A jeweler generally has three options when they are ready to retire:
one, they can sell to an outside firm or individual; two, sell to a staff or family member; or three, run a “Going out of Business” sale. So, it is truly a point of transitioning out for the owner.
Centurion: Is retirement the trigger for transition planning?
Askews: Owners start thinking about transition when they are approaching retirement age or when the business is no longer exciting for them. Many jewelers are simply tired of doing business in a tough, unpredictable economy. In our industry, 60% of owners are in their late 50s or older. Many of them have been working in retail jewelry for 30 or more years; we understand why they are tired!
Centurion: It seems that a one-year window is one that many people are familiar with for this process. Is this the best timeline?
Askews: Actually we are finding that it takes longer than that. It takes time to identify a new buyer and reduce debt so the owner can maximize their return. Each store is different and it requires a well thought out plan and strategy in order to make it a smooth transition.
Centurion: How do most of your customers find the next buyer?
Askews: Finding an outside buyer today is very difficult. The barrier of entry is expensive and industry expertise is imperative to be successful. The other downside to an outside buyer is they need to purchase the business for as little as possible because the buyer is uncertain about hidden risk. Of course, that’s the opposite of what the owner wants.
Centurion: What can you tell us about the various options?
Askews: The best way to sell your store and maximize the value is to sell to an existing staff member, who may also be a family member. The reason is they are willing to pay more because they understand the potential -- therefore their purchase is at a lower risk. The key to selling your store to a family member or staff is their experience. Do they have the skill set that is required to be successful? When we work with a client on transition, we identify a potential staff member and then we train them for ownership. That is why it requires a longer time-line.
However, the investment is worth it to the selling owner because the value of their business is worth more when sold. This is also important if the selling owner owns the building the store is located in because as a landlord you want a successful business to continue paying rent. We are concerned not only with the immediate transaction but the long-term health of the seller, new owner, and business.
If a store does not have a qualified staff member, then running a GOB is a viable alternative. We work with stores prior to a GOB to get them financially in shape for such an event. A typical GOB will produce 1.2 times the store’s annual volume in a 6 to 8 week sale. The key objective is at the end of the sale the owner has eliminated all debt and has minimum inventory left over to deal with.
Centurion: What the best advice you have to offer to someone thinking of selling or moving on?
Askews: Plan ahead. Get professional help to formulate your strategic plan. Owners need someone who understands the jewelry industry in order to maximize the value of their business and their future financial position.
For more information on this topic from Vantage Group, click here. Additional reading on the topic in general is available here and here.