The Umbrella Shop’s looming closure in December marks an end to a Vancouver business being run by three generations of owners during the past 82 years.
And as surely as it will leave countless loyal customers wondering where to buy umbrellas, it will also spark thoughts among small-business owners for how best to shut down an enterprise and sell it for a profit.
Umbrella Shop owner Corry Flader told Business in Vancouver that she decided three years ago to stop running the business.
Her brother and business partner, Glen Flader, had died and her inspiration for the business was waning.
“I continued doing business but knowing that my end was coming, I told my staff, ‘I am not much longer for this business,’” said Flader, who has also recently been dealing with health problems.
At its height, the Umbrella Shop had four stores, a factory and 18 employees. It now has two stores, which are closing soon, and five employees.
Flader did not want to discuss whether she tried to sell the business, but she stressed that a shutdown is a “100% certainty.”
Business closures happen frequently.
Strategic Succession CEO John Robinson pointed to Pepperdine University’s annual surveys of business brokers that find that approximately 75% of small businesses valued at $5 million or less fail to sell after a first attempt.
The reasons for those failures, he said, tend to be that the owner either:
•is not emotionally ready to retire;
•has an unrealistically high expectation for a sale price; or
•is unwilling to accept terms, such as a fraction of the proceeds be up front and the remainder to be paid in future years based on performance.
Robinson is a consultant who gets businesses ready for sale.
Selling a business, he said, is not like selling a house.
You don’t simply find a broker, determine a price and put a for-sale sign on the lawn.
Selling a business is “massively more complex,” Robinson said.
He and his team collect hundreds of pages of documents – tax returns, financial statements, customer lists, contracts with suppliers, lease arrangements and other forms. They then often suggest a lawyer or accountant restructure parts of the venture.
Mistakes include having a substantial amount of cash in the business or owning real estate when the company’s core business is technology or retail.
Sometimes owning real estate can be a good hedge for the successful operation of the business.
Avigilon Corp. (TSX:AVO) bought a former Telus Corp. (TSX:T) office tower on Robson Street for $42 million in November 2015 and then sold the nine-storey structure for $107.5 million earlier this year.
More often, however, a prospective buyer for a small business is interested solely in the business and not in assets that are unrelated or distract from that venture.
“The mere act of getting ready to sell your business is going to require a number of advisers before you even get to a business broker or a mergers and acquisitions adviser,” Robinson said.
People are also important, perhaps most important, added Vancouver’s Michael Timms, who consults with executives and wrote Succession Planning that Works.
“In larger businesses, typically, you try to implement a culture where managers know that they can’t get promoted until they have at least one or two successors in place to replace them,” he said.
“That is a strong motivator for people to take succession seriously.”
He urges business owners who recruit staff to think longer term and not to hire a cashier and forever think of that person as simply a cashier.
“If you want to kill succession planning dead, don’t delegate,” he said.
“If you want people to be able to step up and be prepared to take on your role, you need to expose them to all that you do.”
When a business owner is the only one in the company who finds new business and manages client relationships, it will be extremely hard for that person to sell the business when they want to retire, he said.
The key to being able to pass on the business and extract a sale price is to have competent employees who are responsible and can run the operation.
Those employees might want to buy the business, and if they don’t, their presence will add value to the business in the eyes of an outside investor.
That is why keeping qualified staff is so important.
“If you’re never really talking to your employees about how they can advance in their career, you’re not giving them a compelling reason to stay with you,” Timms said. •