“Revenue was stable, though our margins were always thin. We didn’t expect to make great money when we opened the store, but we loved what we were doing. That was before COVID, it killed our business.”
Beatrice (not her real name) was introduced to me through her accountant. She asked me to do a valuation on her Nashville business, and tell her what I could do to help her sell it. Once I saw the financials, I knew it was going to be a not-fun conversation.
Beatrice told me she opened her specialty shop in 2014. It was never all that profitable, but she was able to pull out a few thousand dollars a month in compensation and pay her other bills on time. She said she had a stable customer base, some had even become her friends.
I could hear the pain in her voice. “The stay-at-home order in late March just killed us. I had about $120,000 in inventory orders I had to pay for, and the April rent was due. I had these expenses with no revenue. We reopened a few weeks ago, but I’m still losing about $10,000 per month, and that’s before I pay the monthly rent. So far, I’ve covered the expenses with money from my husband’s 401K, but we can’t continue that.”
I have always wondered how doctors live with the trauma of having to deliver bad news. While no one was going to die in this situation, the business was on life support, so I wanted to be respectful of the pain she was in. “Beatrice, I’ve seen several situations like yours in the past couple of weeks. You aren’t the only business owner dealing with this.”
Beatrice was hoping I could find a buyer who would pay her for the inventory and take over the lease. “I kind of expect I won’t make any money,” she told me, “I just want somebody to take it from me.”
I don’t handle the sale of small retail businesses like this, I usually refer them out to a “Main Street” business broker. But in this case, I felt that I might as well tell Beatrice the truth: her business is not sellable for any amount. Specialty retail runs thin margins on a good day, and those margins don’t provide the business owner the fuel to sustain any disruption in the business.
I went on to give Beatrice my view of her options, or maybe I should say, her option: liquidate and stop the losses. She’ll have to pay the remaining lease obligation, but by closing now she can eliminate the monthly $10,000 operational losses.
On the day I write this story, about 150,000 Americans have died from the effects of COVID-19. We’ll never know the number of businesses it has also killed. But all this gives rise to a lesson everyone needs to remember before they launch a thin-margin business. When disruption comes, and it comes in many ways, a thin-margin business will likely not be able to sustain itself. My point being, I don’t think COVID killed Beatrice’s business, it was on life support the day she opened.
JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. Jim is the author of Home Run, A Pro’s Guide to Selling a Business. https://www.amazon.com/Home-Pros-Guide-Selling-Business/dp/1599329239 . He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee. The principles above are true, but the story, names and fact patterns are changed to preserve the parties’ identities.
Use of this photo is approved by the CDC.
Tennessee Valley Group
Latest posts by Tennessee Valley Group (see all)
- That’s How We Do It In Our Industry - April 15, 2024
