Canada’s convenience stores are holding up well amid competition from supermarkets and other food retailers, according to IBISWorld.
And if you’re selling a convenience store, then the pool of potential buyers is also widened by the fact that these small businesses sit at the more affordable end of the market, and don’t necessarily need owners with extensive retail experience.
Those are a few potential reasons for buying a convenience store, but what about your reasons for selling? The motives behind your decision to sell up will have implications for your negotiating stance.
If you’re in ill health or the business is struggling, for instance, you might be more flexible on the terms of sale than if you were in no rush to sell – say if you wanted to relocate and buy another convenience store a year or two down the line.
Either way, it’s important to understand that you cannot sell your business within a few days or weeks. You need to spend some time preparing the business for sale before you even put it on the market – the longer the better – and then navigate a multi-stage process.
Preparing a convenience store for sale
Before you put your convenience store on the market you need to get your paperwork in order – balance sheets, tax records, lease documents and so on.
You also need to put together a handbook documenting day-to-day business processes like ordering inventory and setting the burglar alarm at night, as well as a sales prospectus outlining the business’s key features.
Strong sales revenue and profits are, of course, the most obvious advantage to flaunt. If it’s on a busy main street with little nearby competition, then you might emphasize its prime location too. A decent amount of floor space is another plus.
Perhaps you have a great, long-term deal with your supplier – potentially a boon in this high volume/low margin business. Finally, you need to get the premises looking as clean, tidy and inviting for potential buyers.
If the fixtures and fittings are showing their age, you might consider re-flooring or repainting the interior, or replacing signage at the front.
A business broker with experience of selling grocery or convenience stores can help you prepare the business for sale, target the right buyers, and help you with the rest of the buying process, including determining a realistic asking price.
LA-based valuation experts Fulcrum Inquiry have set out performance metrics for benchmarking performance in the grocery business: sales per square foot, employee and customer transaction, number of items carried and inventory turnover.
They also identify four methods for valuing grocery stores (similar to convenience stores but with more fresh produce):
- Capitalization of earnings: Cash flow projection for one year divided by capitalization rate. Suitable for with business’s with a long, stable trading history
- Discounted cash flow: Based on the projection of future cash flows, this method is effective for low growth, established operators or high growth newcomers
- Asset-based: Subtracting total liabilities from total assets to ascertain net asset value, but rarely used in this sector
- Market approach: Based on the sale price of similar assets
Valuers will also take into account whether the real estate is owned or leased, the lease duration, the favourability of the location and competitive environment, and local demographics.
Negotiations and due diligence
These factors will also be scrutinised by buyers during due diligence once negotiations conclude in a provisional agreement or ‘letter of intent’. They will expect your cooperation in helping them get a holistic view of the business’s reputation, assets, financial performance and potential for continuing or greater success under their ownership.
It’s important that you furnish relevant, accurate paperwork and information promptly at appropriate junctures, under the direction of your adviser. Trust is fundamental to successful negotiations and you erode it to your own detriment.
Your adviser can also advise you on whether to accept an offer and the wisdom of offering the buyer additional incentives such as vendor financing, warranties and indemnities, or staying on for a period post sale to smooth the transition to new ownership.
The letter of intent forms the basis of final negotiations. If successful, both parties will sign a purchase agreement setting out the sale price, deposit, payment schedule, and other terms and conditions.