Running a wine bar may sound like an amazing lifestyle business, but like any business, one day may be the right one to move on to other things. That happened around the 50th birthday of one of the owners of The Art of Wine in Sedona, Arizona and the sale of the business offers some helpful lessons for buyers and sellers.
So few business owners will tell you that they knew they wanted to own such-a-such business “when they grew up.” So often winding career paths make them experts in fields they might not know existed before landing on something they loved, were passionate about, or were really good at.
Laura Gisborne, one of the owners of The Art of Wine, took one of these paths. She married into a family business in her early twenties, exited after a period of time with her husband and got into real estate, which exposed them to retail businesses, which they also ventured into. During this time they moved to Sedona, Arizona, where they decided to open a wine bar to cater to the 3-4 million annual tourists that Sedona sees.
This would be the 9th business that Laura was involved with.
The business took off and before too long they had added a wine subscription business to their events and tastings. They shipped a box once a quarter and made an effort to curate the box around the tasting preferences of subscribers instead of just using it as a place to dump overstock or clearance inventory.
The quarterly shipments depended on a year-long original commitment, after which time they often saw churn around 30%, but since they had a solid stream of new subscribers through their retail location, that core continued to build up.
Laura’s first job was at McDonald’s and she very much took to heart the lesson of creating written manuals that would enable people of high school age and intelligence to run key business functions. While high schoolers obviously couldn’t help with a wine bar, she kept the same principles in place and advocates for every single role in a business to be clearly articulated in written form. It’s short-term “pain” with lasting value.
She believes that everyone in the business has to be replaceable, not just for running a business, but for eventually selling it, something she always considers when creating a new venture.
Often the end can come suddenly. A business owner can wake up one day and realize he/she is mentally done and needs to sell. Less ideally, people can go through a personal crisis and be forced to sell. In this particular case it was more of the former: Laura’s husband hit his 50th birthday and realized he didn’t want to work at a wine bar anymore, even at the 15-20 hours a week he was working.
For her part, Laura had started to get more speaking requests around entrepreneurship and leadership and realized she would like an exit that would allow her to pursue that as well.
After experience selling more than half a dozen businesses, they opted to list the business on BizBuySell and had three different serious interactions in which she required not just an NDA but the unusual additional requirement of a noncompete, as the market in Sedona had significantly changed since they were the first mover in the space back in 2005.
One of the potential buyers made it far enough into the process for a site visit, and Laura and her husband discovered that there was a lifestyle motivation as well: the couple looking to purchase lived in Washington State, with hundreds of rain days a year, and were looking to move to sunny Arizona anyway.
The Art of Wine had been sliced up into different business lines, primarily to give Laura a bit of negotiating. She knew the inventory would be worthless to them once they sold, so she held it as a bargaining chip should they need to push the deal over the line (they could “throw in” the inventory).
However, they discovered that the nonexistent regulation when the company was started in 2005 had developed at the same pace as the burgeoning Arizona wine industry. That meant the new owners would need a liquor license, something Laura and her husband never needed because they were grandfathered in.
That meant telling the buyers that they needed to spend $20k to acquire a license before the sale closed. For their part, Laura and her husband simply deducted that $20,000 from the selling price to make sure they were offering a like-for-like scenario: the business would have been on a completely different footing if they couldn’t serve wine at events.
Thankfully all went well and The Art of Wine was successfully handed off to new owners grateful to change their climate in addition to their income stream.
As always, there are lots of lessons here, but we will focus on three:
Want to buy a wine bar or some other hospitality business? We’ve got options for you. Call us!
Jeff Crooks has been with Apex for nearly 22 years. He stopped by to share his story. On this episode of the Apex Business Advisors Podcast, you’ll hear about his first deal, how he found a secret to success of the buyer search, and he shares advice for buyers, sellers, and new brokers.
In our social-media conscious age, we might think it’s a perfectly normal thing to announce a new business acquisition to the world. Imagine the humble-braggy LinkedIn post, “I’m honored to announce…” along with press releases and maybe even a shiny new “under new management” sign to drape across the exterior of the business. The problem? These aren’t always the smartest moves. Balancing continuity with change is one of the biggest challenges that any new business owner will face.
We shared a success story some time ago of an owner that made pretty dramatic changes right off the bat which led to major financial gains. Short version: the old owner didn’t always send complete orders, but customers put up with it because they liked the owner and there weren’t a lot of alternatives.
All the new owner did was actually start fulfilling the orders as requested. No more partial fulfillment. Customers were delighted and unsurprisingly, new business followed.
As we recently shared in a podcast episode, one new owner made a change and was bankrupt before the year was out. As in the previous example, the old owner could have improved a part of the business before the sale. In this case, his products and services were underpriced for the market.
The new owner, dreaming of dollar signs, immediately implemented a dramatic price change when he took over the business. The customers were unhappy and it was only 60 days later that the new owner had driven the old business into the ground.
Were the prices outdated? Definitely. They hadn’t been changed in over a decade.
Could they have been changed gradually, with explanations and context? Of course.
Did the customers save any money by switching? Probably not, but they got to vote with their feet, which is one of the most powerful muscles that consumers like to flex.
But the new owner thought revenue was just a matter of flipping a switch. Unfortunately for him, it was the off switch.
We may not like to admit it, but we are creatures of habit. That’s why you see companies spend untold millions getting you to simply try a new beverage or toothpaste or even a type of “burger” made with beets. They know that at least trying something is a gateway to possibly making that product a willful future purchase.
The same is true with businesses we deal with. We develop relationships with them and just like employees, we fear that the new owners might mess everything up. We might stay away from the business for a while “waiting to see what happens” but that in itself can create a self-fulfilling prophecy in which fewer people go and the business hits a revenue death spiral, simply because of the perception of change.
This is not an impossible problem. In fact, we’ve seen it successfully negotiated hundreds of times.
Firstly, don’t change anything. The reason you bought a business in the first place is because it works. If it ain’t broke, don’t fix it.
Obviously changes that are not customer-facing can be done right away, whether that’s a change of who the company banks with, or processes credit cards with, or solicits for insurance coverage.
But other things, like what we mentioned regarding pricing, or personnel who are customer-facing and have developed relationships with the customer base, should be left as is.
If there are changes you’re considering, poll employees and customers. Give them a voice.
If there are changes you are definitely implementing, think about how to give context and explanations to customers. They deserve it. They don’t owe you anything, especially as a new owner. Take the time to explain why prices need to change, or the logo is adding a new color, or why you’re adding a new product or service (or getting rid of old ones). People won’t always be happy with the changes, but they’ll appreciate the explanation.
And you’re much more likely to keep them as customers. And keep the business too, instead of losing it in 60 days.
Want more tips on how not to lose a business in 60 days? Give us a call!
We recently spent time at a festival that made us wonder, are these businesses salable? In this podcast, we discuss whether online businesses like Etsy shops, Amazon resellers, and the tents at festivals and art shows are salable or not.
All transactions start with a first buyer/seller meeting. There are lots of ways to get this meeting right, and a few ways to get it really wrong. In this article we’ll share some do’s and don’ts you need to have on hand for a successful buyer/seller meeting.
While the pandemic normalized video meetings for buyers and sellers not geographically convenient to each other, meeting in person is always the best case scenario. You get all the advantages of real-life meetings, including enhanced body language reads.
But if you can’t meet in person, definitely opt for a video meeting. It’s a new normal that we’ve seen enhance the business transaction process significantly.
If the end goal is a transaction, realize that this is where everything starts, so take it seriously.
Be yourself and truly get to know the other person via the frame of their business. Before they decided to put the business on the market, what were some of the high points they experienced in growing the business? Ask about the lows too.
The worst thing we as brokers can experience is an unprepared buyer. They don’t just make themselves look bad, they make us look bad as well, as the seller might understandably assume we didn’t prepare our client for the meeting.
This is not the meeting to be asking questions about add backs or negotiating on price point (it is a first meeting, after all…slow down!). Just as an employer doesn’t like it when a candidate for a job has zero questions during an interview, a seller might understandably be skeptical if a buyer doesn’t come with at least one or two questions to this meeting.
This is not life-story time. It’s enough to find out what a day in the life is for the seller as well as what mistakes they feel they’ve made and what opportunities they have not yet taken on but could be attractive to a seller.
On the other hand, don’t let sellers get away with short, closed answers. They should be willing to give context, not just answer “Yes,” or “No.”
American consumer culture teaches us that “the customer is always right.” The healthiness of that attitude is a topic for another day, but we can certainly say it does not apply in business transactions. The seller is interviewing the buyer just as much as the buyer may be interviewing the seller. Stay humble and try not to lead by bragging.
This isn’t a job interview or a home purchase (it’s actually a little bit of both) so don’t fall into old habits of meetings but think about this as a different sort of meeting than you might be used to.
Buyers should remember that this is a 60-90 minute meeting, tops. It’s a high-level meeting to establish a relationship and ask some key questions.
That begs the question…can you make an offer at this meeting?
Absolutely. We see people ask for an Offer to Purchase form and sometimes end the meeting by signing one and giving it to the seller.
However, that’s not the expectation for most transactions. As we noted above, this is a first meeting and it’s understandable that both parties may want to take some time to reflect before progressing further.
Want to make sure your first buyer/seller meeting goes well? Ask one of our team to prepare you! Give us a call today.
On this episode of the Apex Business Advisors Podcast, Andy and Doug answer a question from a networking meeting – what are the first things I need to do to prepare to sell my business?
We’ve talked about our signature Offer to Purchase (OTP) before. In this article we’re going to break down that OTP into some broad areas to make sure buyers know what can make an offer attractive to sellers.
Sometimes buyers will ask to do due diligence before making an offer. But a business is like anything for sale, and those who submit offers sooner are more likely to get accepted than the offer that may come from someone “after they’ve seen additional details.”
Earnest money or escrow is typically required of a buyer when making an offer. A seller wants to know that a buyer is serious and committed before allowing additional confidential information to be shared. Often the escrow money that accompanies an offer is the first of three payments that together can comprise a down payment:
These three payments will usually comprise at least 10% of the total amount of the sale, but can sometimes be more.
The amount of the earnest money can also signal to a seller how serious an offer is. This doesn’t by itself make the offer better, but it’s definitely something that sellers consider when looking at competing offers.
The offer should also mention milestones. Examples include:
Obviously all these times are negotiable, as they are part of an offer, and when the seller accepts, he/she may accept with changes made to these timelines.
While it’s exciting to accept an offer, it’s important to remember that it’s only the beginning of the process. We often tell sellers to keep working in their business as if the sale was not going to happen.
That means:
We help draft offer letters just about every week of the year as part of the service we offer to our clients. Learn more about how we can help you by giving us a call.
On this episode of the Apex Business Advisors Podcast, Andy and Doug talk about best practices when closing a deal when a bank is not involved.
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