Case Study of an Unsellable Business

Posted by Michael Metzger on

I recently had a prospective client here in the Richmond area who contacted me about selling his business . . . let’s call him Jim. I met with Jim and his lovely wife Sally to learn about their business and their goals.

wineJim and Sally were both in their 60’s and had retired from very successful careers. Jim had been a professor at a well-known public university and Sally was a corporate executive. Both were very well educated, friendly, and hard working. They purchased this upscale specialty wine shop to give them something to do in retirement while pursuing one of their passions.

As I began to dig deeper into their business, it quickly became apparent that the business was losing money. They confided in me that they were exhausted and just needed to get out. Working 50-60 hours a week, every week, was not what they had envisioned in their retirement! The whole reason they had moved back to Richmond was to spend more time with their grandchildren and this business was not what they had in mind.

Here are a few observations that can be applied to just about any business:

  • Know what you’re getting into! Just because you love wine, doesn’t mean you should own a wine store. I love skiing, but I would never buy a ski resort! Whether you’re making widgets or airplanes, running a business is often more about management, marketing and margins.
  • Understand your operating expenses. Jim and Sally were definitely in the high-rent district, and it was crushing their bottom line. Unfortunately, they had signed a long-term lease and the landlord was not being particularly sympathetic to their plight. If you’re selling product, you need a masterful understanding of your unit cost, COGS, etc.
  • Understand your franchise agreement. Purchasing a franchise can be a great way to de-risk the process of starting a business. You can leverage an existing brand and operating platform to get your business up and running quickly. However, there can be tradeoffs, for sure. Make sure you understand the ongoing royalty stream and how that will affect your bottom line. Remember, you’re “getting in bed” with your franchisor for a LONG time, so make sure you like each other!
  • Make sure your business is adequately capitalized. This is undoubtedly the number one reason businesses fail. Many young businesses simply run out of working capital needed to purchase inventory, advertise, and even make payroll.

Fortunately, Jim and Sally weren’t depending on their business to make a living, and they had some time to try to turn the ship around. Sadly, many business owners don’t have this luxury. I’ll put a plug in for my Business Coach colleagues here . . . sometimes it helps to get an objective view from someone outside your business. Consider working with a Business Coach or other neutral advisor to dispassionately review your strategy, operations, and financials.