Now What? The Established Shop Owner’s Dilemma

You started it because it was going to be fun. You were younger- a lot younger. And perhaps just a bit naïve and optimistic. You didn’t know what it was about margins that made everybody think they were gross, but what the hell. If you could hang with your friends, do what you loved and have a few beers at trade shows, starting a retail shop obviously made sense.

A bazillion years later, your stop is still here and successful. You’ve gotten some of the things you wanted out of it. Along the way, you’ve become something of a businessperson. You’ve got good systems and know your numbers, are involved in your community, know your customers and why they buy from you, have managed to have some competent and semi-stable employees, and are actively involved every day in running the shop.
As is typical of most small businesses, you and the shop have become synonymous and therein lies the rub. Somehow, working six or seven 12 hour days doesn’t seem quite as attractive as it use to. There’s children, a spouse who for some unknown reason wants to spend time with you, some actual interests outside of action sports and, frankly, you just don’t have the stamina you use to have.
What use to be the thing that kept you going has the potential to become something of an albatross if it hasn’t started to already. What can you do? What are the choices, and how are some people in this situation thinking they might manage it?
I talked to some shop owners who, if they aren’t all in this situation already, are sure starting to think about it. I expect to quote some people, but I’m not going to identify them. Some of the things they said, that I want you to hear, are just a bit too personal for attribution. 
Most of your assets, a lot of your time, and a piece of your self-image are tied up in the shop. Someday, maybe now sooner than later, you are going to want or have to sell it, or at least make a management transition happen. You have basically four choices. Sell it all. Sell part. Don’t sell but get some management help. Or close it.
Selling it is easy to say, and seems an obvious choice. But you’re likely to run up against some significant roadblocks. 
Having partners who share the shop’s equity with you can be it’s own interesting challenge. What happens when you and your partner (s?) don’t agree about something important?
Just bringing in management and continuing to own it 100 percent kind of makes sense, but how comfortable will you be with somebody else making decisions with what’s still your money?
Closing the shop solves the issues of partners and management, but why would you shut down a perfectly good shop?
As we look at each of these, remember that these kinds of decisions lifestyle as well as business decisions, and must be viewed from both perspectives.
“For the 150 to 200 thousand dollars I could get, I can work really hard and maybe make that much in two years.”
The statistics suggest that you haven’t necessarily gotten rich owning a specialty shop. I forgot which retailer it was who told me, “Hey I paid the bills and snowboarded a hundred days this season, so I guess it was a great year!”
The sad truth is that from a strict financial point of view, a specialty shop isn’t usually worth that many dollars. “I tried to sell a shop I owned years ago, but all they offered was half the fixture value,” was one comment I got.
Much of its value to the owner is in the flexibility and lifestyle it offers. Financial buyers won’t focus on that. They will see how hard the owner works and how relatively little they pay themselves. They will recognize how critical the owner is to the business and know it’s at best difficult to replace them. It’s likely they will conclude that while some modest growth is possible, it’s not likely the business will double in the next few years.
To the extent you have more than one shop, this changes a little. Multiple shops suggests some growth potential and indicates you have made some progress developing management that might fill the hole left by the departure of the owner.
One owner has a plan to expand the number of shops and put management in place with the goal of having the option to sell for a reasonable price some day in the future. “That’s it,” he says, “That, or I work until I’m seventy.”
Partner Up
Yeah, but with who? And just what does it mean to have a partner?
“As far as I can tell, I’m kind of stuck here,” the owner said. “I took five weeks off and things got kind of sloppy.”
Did they really get sloppy, whatever that means, or were things just not being done the way the owner wanted? Could he stand it if somebody was making decisions differently from how he had always made them? Where and how do you find somebody you trust?
If you are truly sharing the equity in the business in a meaningful sense, then this is somebody whose judgment you are comfortable with. That means two things- they have been in action sports business for a while and you have known them long enough (measured in years) so that you have a high level of confidence in them. Even then, once you are both owners of the business, the relationship will change. Now, it’s their money too.
Sharing the company’s equity with a partner requires a lawyer. Sorry, no choice. You need a buy/sell agreement and a dispute resolution procedure not to mention the paper work by which the actual equity sharing occurs. And how, exactly, is that going to happen? Is your new partner going to pay you cash? Do they have any? Are you willing to take a note collateralized by the equity, which of course may not be worth shit if they screw up? How are you going to work together? Who’s responsible for what?
It’s not to say that it’s impossible, but equity sharing agreements can be damn tough and this is probably my last choice for an owner unless it’s part of a longer-term exit strategy where the new partner eventually becomes the one hundred percent owner.   
Management Help
How many hours a day do you work? I asked. “Fuck!!!” was the beginning of the answer. When the smoke cleared, he allowed as how he’d like to get down to twelve. A second owner estimated 200 to 250 hours a month. A third just moaned. A fourth, when asked how you got off this treadmill, said, “You don’t.”
Not surprisingly, all four of these owners are focusing on developing competent management for their businesses. One already has two good people he thinks/hopes might be buyers of the store in the future. Right now, he’s just glad there are there to take some of the load off his shoulder.
A second is “Waiting for somebody to step up to take over more responsibility.” He’s willing to give up some equity or more money when he sees that happen.
The person on the treadmill said he’s “delegating stuff that doesn’t matter as much” and “Not trying to do everything anymore.”
It’s my opinion that there’s nothing you can do that’s more important than develop some management. In the short term, it can take some of the load off of you. In the longer term, it may be the single most important thing you can do (besides make sure the business makes money) that will position the business to be sold someday- either to those managers or an outsider.
Close It Down
Somehow it isn’t very psychologically satisfying to talk about closing down a perfectly good shop. Yet, if there are no buyers at a reasonable price, for the reasons described above, it might be the most financially sensible solution. Are you better off selling for “half the value of the fixtures” or liquidating the inventory through a big sale and then selling the fixtures? Who knows, but it’s worth thinking about
Not Just for Old Owners
Or maybe, rather than having to contemplate closing down some day, you should start to think now about what you’re going to do with your shop. How are you going to make sure you have some options in the future when you need them?
We learned at least two things above. First, the single most important thing you can do to give yourself options and flexibility is to develop management. Second, we learned that it takes time- years in fact.
So even those of you who aren’t old enough to be worried about an end game for your business should start thinking about it now. If you’re lucky, some day you’ll get old enough for it to be an issue. And in the meantime it will make running your business a lot more fun, unless you just love spending every waking hour in your shop.