Succession Planning I The following is a summary of the presentation used in a well-received educational session on succession planning that was offered at BEA 2002 in New York City. For more on valuing a bookstore, click here. Caveats Regarding This Material There is no "right way" to buy or sell a bookstore. People buy and sell bookstores for many reasons, and with many types of transactions. Virtually every interview uncovered a new creative approach to some element of the process. Please use the following ideas as thought starters, but recognize that your approach and transaction will no doubt have numerous special or unique features. Agenda - Elements of Success Allow ample preparation time Develop a thorough sales document Choose the best succession option Know your ideal buyer and terms Use professionals as needed Make an orderly transition 1 - Allow Ample Preparation Time Expect a minimum of one year Create: Proof of a strong management team CPA financial statements that show actual profits (be willing to pay taxes) that are consistent with historical returns after tax strategies are explained An arms-length asset appraisal No minority or third party interest, or miscellaneous liabilities Clean and well-organized physical assets 2 - Develop a Thorough Sales Document A thorough sales document can increase sales value more than anything else. It also helps set realistic objectives. It should show: Clear history of cash earnings Environmental scan (e.g., population growth, regional prosperity, reduced competition) that bodes well for growth of your business The "soft" benefits of bookselling (e.g., customer quotes, role in the community, a "day in the life") Acknowledgement of potential risks A valuation (including terms) using one or more generally accepted approaches 3 - Choose Best Succession Option Sell Have family members take over Sponsor employee buy-out Be acquired Merge Close 4 - Know Your Ideal Buyer and Terms Start broad Assume little third-party financing Recognize that there is no "right" way to structure a deal - many variations can work Meet people from each serious category Then narrow scope aggressively based on interest, ability to finance, and vision Be prepared to act quickly and flexibly once your ideal buyer emerges 5 - Use Professionals as Needed Match use to scale and complexity of your transaction and your personal skills Recognize strengths and weaknesses. Match professionals and tasks Consider: A business broker for developing your sales document and identifying buyers An accountant to review your financials An attorney to structure your documents An opportunistic combination of the above to help you develop terms and negotiate 6 - Make an Orderly Transition The most important time in the life of your business is the last year before you sell it. Focus on showing all that you have achieved Be explicit about confidentiality if there is risk to being "shopworn" Expect to work harder than ever Plan to go out on a high note! NOTE: For an inventory of related books, please visit www.BookSense.com and type in "business valuation" in the search box on the left.