Do You Know the Value of Your Pet Business?
Even if you aren’t ready to hand over the keys to your kingdom, you should treat your store as if a potential buyer could walk in at any time.
A few years after I opened my store, I received a call from another pet supply/grooming store a few miles away. The owner was retiring and wanted to sell her business. She thought that because we were relatively new, maybe it would help build our business to purchase her client list, equipment and inventory.
Her business had been around a long time and I knew the store name, but not much else about her or the business. I stopped in a few days later and immediately knew I would not be interested in anything. As soon as I walked in the front doors, there was a horrible stench—the smell of stale urine and small pets, such as ferrets and gerbils, lingered in the air. The store had a very dated appearance and was in need of some serious cleaning.
I introduced myself and asked about her grooming department and client lists. She said she had not been grooming many pets in the past few years due to her health. She did have all of her clients’ information from when she had a very active grooming salon. She handed me a recipe box containing 3-by-5 cards with a little information on them about her clients. Some of the cards were from clients who had visited the store more than five years ago, and then never booked another appointment.
She encouraged me to look around and wanted to show me all the grooming equipment. As I entered the grooming salon, I thought I had entered a museum showcasing the history of grooming. She had caged dryers that have since been condemned, old folding tables propped up on various items to make them a little taller, and homemade tubs fashioned from bathtubs. At this point, I wanted to gracefully exit the shop without hurting her feelings.
The owner continued to press and wanted to show me the food inventory. I randomly picked up a few bags to check the expiration dates; most of them were close to expiring. I asked her for sales figures on one line of pet food she carried. The extent of her information was “It is a fairly good seller.” She did not have a point-of-sale system tracking items. It was an old system in which you basically put in the cost of goods by department. When she made a sale to a customer, it would ring in as “dry dog food” instead of “Acme Small Breed 5#.” I immediately went back to my store and started thinking as if my store was for sale.
As the years went by, I began to pay more attention to any pet businesses for sale in my region. In many cases, they were very similar to the store I had looked at—old and rundown. Others had great curb appeal but no real data. A potential buyer is going to want to see customer data. I also discovered most businesses for sale shared a common thread—they were selling too late. Had they sold their business five years prior, they probably would have made much more money. As time passes, many micro independents start slowing down mentally or physically, which translates to income slowing down, bringing down the value of the business. Most buyers are going to look at the last three years of business at a minimum, and if they see a decline, the value of the business changes. Who wants to buy a business that is slowly failing?
Looking at different pet stores on the market caused me to treat my store as if a potential buyer could walk in at any time. If a light bulb is burned out, I’m going to replace it as soon as possible. If I have a piece of equipment that I’m not sure if I should repair or replace, I am going to replace it. I want to keep our place looking as brand-new as possible. Every penny that comes into our store gets run through our point-of-sale system.
I visited a business for sale, which was overpriced based on the owner’s books, and he explained that if customers were paying in cash, he didn’t always record those transactions. Setting aside the legal problems associated with hidden funds, this practice also causes a business to be worth less in the long run.
I found a business broker who would spend time with me even though I had no immediate plans of selling my business. I learned from him how businesses are valued and sold, common mistakes sellers make, and even ways to structure my business to make selling it easier down the road. I talk with him every couple of years. I give him my books and ask, “If we were selling today, what would you sell it for?”
Chances are that I am going to sell my business prior to being ready to retire, so I’m going to have a plan to be able to survive until retirement. I don’t know if I’ll be starting another business or working for someone, but I’m sure there will be a window where my business value is at its highest but I’m not ready or able to retire. If you thought your business was going to be worth 30 percent less in a few years than it is right now, would it be better for you to sell or wait a few years to build the value up?
I know many micro independents might be reading this thinking their stores are too small to sell, but if you have been making a living off of your store, chances are it has some value to someone. Find a business broker in your area who has the heart of the teacher and see what you can learn about selling your business—even if you’re not ready to sell!
B.C. Henschen is a well-known champion for pet owners who want the best in their pet’s food. He is the Association for Truth in Pet Food (ATPF) consumer advocate at Association of American Feed Control Officials (AAFCO), serving on the Pet Food Ingredient Definition Committee, and is a director with the World Pet Association (WPA). Henschen is a popular speaker at industry events and meetings. A certified pet care technician and an accredited pet trainer, he is a partner in Platinum Paws, a full-service pet salon and premium pet food store in Carmel, Ind. His knowledge of the pet food industry makes Platinum Paws the go-to store for pet owners who want more for their pet than a bag off a shelf.