by Grooming Business in a Box®
In a challenging economy for selling businesses pet groomers are doing relatively well. We know at least half the advertisers selling their businesses at PetGroomer.com Classifieds report their businesses sold to us within six to nine months. We don’t often know the final selling prices or the financing details, but having talked with some advertisers we know business opportunities (no real estate included) selling for $50,000 or more often take longer for one reason, the lack of cash or financing.
Even when the national economy is bright selling businesses to pet groomers has it problems, and once again the most popular one is lack of cash or financing. Looking back to when we were operating our grooming business we assisted others to buy grooming businesses with zero down. It does require the business owner to carry the sale by offering private financing and to stay involved with their business for at least a year and usually not more than two years.
The length of time is not be a great obstacle for most sellers. Many advertisers at PetGroomer.com buy one year ads. They know that selling any small business commonly takes a year. Selling in less than a year is a stroke of luck and good timing, but not the norm.
If the seller accepts the sale might take a year or more, they are a potential candidate for selling with zero down. If no one wants to buy your business it may sell when you accept zero down.
Offering to sell with some or no private financing usually generates interest from potential buyers. There are risks which we will discuss here. They are more manageable when the seller already expects to stay in business for another year or more while selling. We don’t recommend offering private financing when the owner plans to sell their business, carry the loan and not stay active as a consultant in the background.
We successfully sold our business and carried the loan. We turned the business over to the buyer and departed, but we retained strict demands to review several operational reports and complete financial statements provided by the buyer’s bookkeeper within three weeks after the close of each month during the entire loan period. Some sellers accept these conditions when they simply cannot find a cash buyer. By carrying the loan you can earn interest income too.
There are risks. The buyer can make serious management mistakes and actually sully the reputation of the business. Because you are carrying the paper it is within the realm of possibilities that you could repossess the business when the buyer cannot make payments. You are forced back into ownership and management. You are back on the job until you sell again, or simply accept the loss and close the business.
We accepted these risks because our buyer had successfully worked under our employment for several years as a full-charge groomer. She volunteered to work after grooming hours learning how to manage. We did have to occasionally intervene with advice while carrying the sale when sales temporarily went down, or other problems. That is why we required operational reports. Our zero down idea is similar. It requires you to:
- Know your buyer well.
- Offer your private financing.
- Continue to “co-manage” in the background as a consultant.
- Have a detailed contract of sale written by your company attorney.
- Limit the zero down sale financing period to 1 to 2 years.
- Buyer should be the new lead groomer and manager.
- Buyer should have a modest cost of living household and minimal other debt load. You will learn why just ahead.
Example. The current owner and lead groomer sells her business for $60,000 to an employee with zero down (down payments are OK and preferred). The current owner groomer is earning approximately $50,000 a year gross personal income from the business before taxes. The buyer plans to cover the identical grooming and management duties as the current owner, and thereby assumes she will now earn the $50,000 instead of the current owner.
Here’s the key! The new owner doesn’t take the full $50,000 personal income from the business, not even close. The new owner agrees to take a minimal salary of only $20,000 a year, and everything above it goes to the seller until the seller is paid $60,000. In this case it would be $30,000 a year ($50,000 less $20,000 adjusted salary). Theoretically the buyer will have the seller paid in two years (2 X $30,000 a year), and then her personal income will skyrocket as long as the business is doing well. New owners may excel and pay off commitments early much to the joy of their sellers. In the end, sellers get their selling prices and interest income, and buyers become business owners with zero down.
Do not arrange a sale like this without the involvement of your attorney and accountant. Discuss this idea with them. Let the buyer meet them. Allow the buyer to have their own professionals too. Have them package a deal that works for both buyer and seller.
Sellers must stay involved with their buyers until paid entirely. By doing so they are more likely to get paid. Sellers don’t have to work onsite. Instead their contracts should require monthly copies of detailed operational reports, tax returns and professionally prepared financials for their review until paid in full. When selling to employees sellers should start training them to manage several months before the sale. ▲
