When it comes to selling a retail store, owners are often focused on achieving the highest possible purchase price. While various factors influence the final purchase price, one critical element that’s often overlooked by sellers during the sale is the depth and skill-level of the management team. 

Of course, maximizing income and cash flow is paramount. However, for owners who are looking to sell their stores, not prioritizing a strong bench of supervisory and management staff will significantly detract from the potential sale value. 

More specifically, stores that are put up for sale without a management team are valued based on the company’s on-hand inventory plus any owned real estate. Little to no value is placed on the actual business, brand and operations. 

However, stores with management teams are valued at a premium; often as a multiple of annual cash flow or income. This multiple valuation is often in addition to the store’s on-hand inventory and real estate.

The main reason for the difference in valuation is because the future buyer will have to spend his own time to keep up the pre-sale level of profitability. The buyer will have no one to depend on when buying the store. 

Said another way, the buyer will have to be both owner AND manager. The Buyer loses out on the income he or she could generate by working somewhere else, when acquiring the store. This lost potential income (otherwise known as “opportunity cost” in classical economics) is netted against the purchase price of the retail store. 

On the other hand, a management team allows an owner to retain his time and optionality of generating income from other sources. Thus, a valuation premium is placed on companies that allow buyers to retain their time instead of having to spend it working in the store.  

A good store manager or management team allows buyers to delegate scheduling of employees, organizing purchase orders and receipts, improving customer service, and much more. Put simply, a management team streamlines operations for an owner, saving him/ her time and usually lowering costs. 

To be clear, when we refer to a “management team” in this article, we are not referring to an overloaded bench of marketers and administrators. A “management team” is simply the smallest group of people necessary to effectively remove a business owner from the “day to day” of store operations. While the exact members of the management team are different for each business, key positions usually include a 1) purchasing supervisor, 2) bookkeeper, and 3) day-to-day manager who oversees store opening and closing and scheduling. For those owners who are having a hard time finding capable personnel for these positions, 360 Retail Management provides affordable staffing solutions specifically for local retailers. 

A strong management team adds immense value to a business, instills confidence in potential buyers, and ensures a smooth transition of ownership. Below are three key reasons why investing in a management team will improve the sale price of your retail store. 

1. A Strong Management Team Reduces the Risk To the Buyer and Justifies a Higher Sale Price

One of the primary benefits of a strong management team is the guarantee of business continuity after the transaction. A competent team in place, capable of running daily operations and making important decisions, reduces the perceived risk associated with the sale. A smooth transition becomes more likely, as the management team can assure the buyer that key experience and knowledge about the store’s operations, customers, vendors and capabilities will be staying, despite the seller/ owner’s absence. Because of this, Buyer’s are generally willing to pay more for stores with existing management. 

Additionally, the management team can provide ongoing support and mentorship to the new owners, sharing their insights and lessons learned from their years of experience with the store. This support helps the new owners navigate potential challenges, make informed decisions, and implement successful strategies, ultimately ensuring continuity of the business after the seller departs. 

Lastly, having a management team also allows for the Seller to transition more quickly. With a management team in place that is available to support the seller and answer key questions, a seller does not need to provide as much training time to the buyer, ultimately allowing for a more efficient transfer for both parties. 

2. Management Teams Make Sale Process More Efficient and Competitive

Efficient and competitive sale processes result in higher purchase prices. 

When a business is on the market for an extended period of time, buyers perceive that there may not be much interest from others in acquiring the business. This usually leads to lower offers and sale values. When selling a retail store, completing the sale efficiently and quickly should be of critical importance to the business owner. 

Good in-place management teams make the sale process more efficient because of two reasons: 

1) They are able to quickly and accurately respond to the dozens of incoming requests and questions from potential buyers; and 

2) They increase the pool of potential buyers. 

During the sale of a retail store, potential buyers will conduct thorough due diligence to evaluate the company’s assets, liabilities, operations, financials, legal aspects, and other relevant factors. Having a competent management team in place to accurately respond to these questions streamlines this process. The team’s comprehensive understanding of the business allows them to provide prompt and accurate information, reducing delays and uncertainties for the buyer. 

In addition to being efficient, management teams that can adequately respond to buyers showcase professionalism and preparedness, positively influencing the buyer’s perception of the business. Moreover, efficient due diligence can lead to quicker negotiations, minimizing the risk of the deal falling through and maximizing the likelihood of achieving a higher purchase price.

Management teams also increase the pool of buyers that could be appropriate suitors for the store’s next chapter. When a management team has the ability to oversee the day-to-day, owners who are not immediately in the area or do not have retail experience but can leverage the management team’s knowledge are able to take the leap towards store ownership. 

When management teams are able to oversee opening, closing, ordering, inventory, purchases, bookkeeping and other aspects of store operations, this allows for less “in person” involvement from potential buyers. Buyers are able to effectively delegate and manage their stores (potentially even remotely). Because of this, buyers from outside the immediate geography of the store are able to participate, increasing the potential number of buyers (and the competitiveness and sale price of the store). 

3. Management Teams Provide Scalability, Which Results In Higher Sale Prices

Financial theory stipulates that the correct value of any business asset is equal to the sum of its future cash flows, discounted to the current period. Effective management teams provide the necessary experience and professionalism necessary to demonstrate to Buyers that future cash flows will be greater than today’s income, and that the required people and processes are already in place. These factors justify a higher sale value. 

In less theoretical terms, an effective management team allows for delegation, a cornerstone of successfully growing a retail business. Retail business owners who recognize the importance of delegation and empower their team members to take on responsibilities experience faster and more sustainable growth. 

Providing a team of experience professionals for the buyer of a business to delegate tasks and responsibilities demonstrates that the Buyer will not get bogged down in day-to-day operational tasks. It makes it clear that they can concentrate on high-level decision-making, developing plans for new locations, onboarding new products, and exploring other growth opportunities.

In conclusion, a strong management team that is in place at the time of a retail store stale is a valuable asset that will optimize the purchase price. Management team’s provide potential buyers of businesses with the ability to scale, a more efficient transaction process and lower operational risk post-transaction. 

However, assembling management teams can be challenging and expensive, particularly for local store owners. One simple solution to hiring a full management team is to consider working with 360 Retail Management. 360 Retail Management provides a full suite of staff and services necessary to run your store including bookkeepers, purchasing and inventory managers, website and e-commerce developers, data entry analysts and much more. The solutions and staff are already trained and able to be integrated into your operations quickly and efficiently.