Liquidation sale. Store closing. Everything must go.
If you’re considering liquidating your business, it’s likely taken a lot of forethought and seems like the best option before retiring.
Selling your business to the public is a good option for hot tub retailers who need to eliminate inventory and break even.
“We tell our clients to get as much money as you can back out of your capital you put in,” says Gabriel Prado, president of LocalAuctions.com based out of Arizona. “Your No. 1 goal should be to make as much back as you can but not necessarily make money off assets. If you can, great, but a big key factor in the liquidation process is time.”
As part of our succession planning series, here’s a look at how to close a spa retailer storefront with a big bang of a sale.
Cashing in for retirement
During his two-month liquidation sale in 2015, Len Rosenberg made millions from sales. Normally, it would have taken him a year to hit those numbers at his store, Pool & Patio Specialists, in Westwood, Massachusetts.
He says it’s all thanks to using a professional liquidating company.
“It was like locusts coming into the store; I can’t explain it,” he says of the sale’s success. “It wasn’t just one item they were coming in to get.”
In 2013, when Rosenberg discovered the property he leased was being sold for around $12 million, he felt the time to retire had come.
He even considered moving the business location. At 63, he says he was “afraid not to work,” even though he didn’t need the money. However, after driving in rush hour and commuting halfway to a potential new business location, he made a U-turn and returned home.
“That was the final straw,” he says.
The sale — held partially during a tax-free weekend — proved successful. By the end, Rosenberg had sold all his products and secured a check to start his retirement.
Taking notes
Rosenberg credits the success of his closing sale to what he learned from watching a friend close his business years earlier.
Knowing retirement was near, Rosenberg tagged along and helped his friend interview liquidation companies. When his friend finally had his sale, Rosenberg took extensive notes of what worked and what didn’t — like keeping old inventory around.
While many businesses wouldn’t dream of ordering more products as they’re closing down, Rosenberg did just that. A year before his sale, he rearranged his showroom and adjusted his warehouse space to add products he knew would sell well.
For Rosenberg, a $10,000 sales day was good, but on the first day of the sale, the store ended up doing $175,000 thanks to a great start of 150 people waiting to get into the store that morning, he says.
Throughout the sale, Rosenberg and staff collected contact information of buyers who had inquired about items like shelves and desks that were still being used. He contacted them once the items were no longer needed and customers claimed them. Keeping contact details proved pivotal to ensuring he didn’t need a dumpster at the end of the sale.
It worked out in his favor — not a single item was left behind.
A fast process
Unlike other exit plans, following the liquidation route is a much faster process. Instead of taking several months to complete the ESOP conversion — and years for the owner to receive the complete payout — liquidation takes months or sometimes only weeks.
When Prado of LocalAuctions.com does liquidation events, it’s usually because owners are on borrowed time with leases running out. A four-week time frame is ideal for marketing the sale, and professional liquidation companies usually take a 10%-35% commission.
LocalAuctions.com offers everything from full service — where liquidation companies send hard-hitting salespeople in — to self-service and services in between, even listing items in online auctions. Prado’s first bit of advice to those considering liquidation: “Look at the expenses,” he says. “Everything has a cost. I’ve seen way too many business owners try to liquidate their business [on their own] and they just don’t pay attention to their costs. There’s always a cost to move assets; there’s a cost to store assets.”
Chrystal Camacho, owner of C&C Auction and Liquidation, says people often forget that auction houses are an option.
“It’s such an old-fashioned way of doing things,” Camacho says. “It’s an old-time selling market and with all the apps and stuff now, I think people forget about it.”
The closing process can go quicker when pros are helping to move sales along, she says.
“In a lot of cases, we see people will try to sell it themselves, and they get what we call “cherry-picked” so all their best stuff will get sold, and then they’re left with crap,” she says, noting owners are usually in a time crunch because of property sales.
If business owners plan accordingly, the liquidators can come in and get a place cleared and turned over quickly, she says.
Do research and lean on experts
When it comes to finding a reliable auctioneer, Camacho says to check Google reviews while keeping in mind they’re subjective. She also recommends searching state auction association directories and looking at the National Auction Association to find reputable companies.
Additionally, she says, ask what an auctioneer’s policies are for sale days. Crowd control is just as important as hitting sales numbers, she says.
“We do one customer entry at a time,” she says. “When it gets crowded, that’s when things happen — people get hurt, things break. We like to keep it calm, cool and collected.”
Wheel and deal
For the sale preparation, Prado says business owners should focus on working with their liquidation company and invest time in relevant marketing. Most liquidation or auction companies are responsible for marketing the event.
Prado says marketing is key to successful liquidation and a good liquidator will include that in their fees.
Social media posts, email blasts, classified ads, traditional store signage, Craigslist and Facebook Marketplace are all good avenues, he says.
One area Prado doesn’t recommend spending too much time on: aesthetics. While many hot tub owners are proud of their showrooms, a liquidation sale is not the time to worry about a perfect setting.
“Ultimately, people just want a good deal,” Prado says. “It’s not about making it perfect.”
Prado recommends retailers avoid “buyout liquidators” who purchase all the inventory.
“You’re lucky if you can get 10 cents on the dollar; they have to buy it, load it, store it and sell it,” he says. “Any time you can just find a buyer that can get the stuff from the location, the owner of the spa company will net a lot more.”
Let it go
One of the major mistakes Prado has seen after liquidating 10,000 businesses is owners trying to squeeze every penny they can out of an item if they feel they can make more.
“A key factor is time; there’s always a cost to time between rent, employees, utilities and the owner’s time,” Prado says. “If you set the goal to get your money back that you put in or as close as possible, you’ll be in a lot better situation in the end.”
For hot tub stores with a lot of inventory like filters and chemicals, Prado says starting a sale before hiring a liquidator can help thin out products.
“That inventory is best to do a discount sale with; a lot of times there are higher quantities in stock depending on how big the store is,” he says. Prado recommends picking a few weekends to host a sale, starting at 25% off and going up to 50% off the second weekend.
The goal is to score between 25%-50% of the retail value, Prado says.
Stress less
Whether you’ve owned your hot tub business for five or 45 years, closing can be a tough decision. Before a public announcement, consult business partners, stakeholders and, of course, an attorney and accountant.
By involving a reputable auction house company or liquidator, you can alleviate some of the emotional burden; they’re simply there to make you as much money as possible as you move toward retirement.