Doing little things now could pay off hugely later. Josh Hayes, a business analyst at Wilkerson & Associates, sees it all too often: Jewelry retailers, embarking on retirement, don’t think through all the details that go into liquidating a business or passing it down to the next generation. A number of questions have to be asked: Do the kids want to take over the business? How many siblings are there? How is the owner going to be compensated? Are there tax implications?
On the face of it, it seems like transitions are simple. But the tiny decisions mount up and never-to-be corrected mistakes can be made. “You can’t just wake up one day and make the transition,” says Hayes. “Have you just signed a lease? What are the inventory levels? If there is no subsequent generation to take over the business, how are you going to maximize the valuation of the business?”
Wilkerson & Associates believe it’s never too early to start asking these questions—and retailers should not be afraid to ask for help. There are many things store owners can do years in advance to help their retirement go smoothly, not the least of which is to manage and reduce inventory.
“You can’t just bet on the fact that when you retire, you will find a buyer,” says Hayes. “Because the fact of the matter is, there aren’t a lot of buyers.”
As Wilkerson & Associates are well aware, the current average age of store owners is older than previous generations, and there’s not a spate of younger blood on hand waiting to get into the business. The worst thing Hayes has encountered is watching a jewelry store owner suffer an unplanned health issue—such as a heart attack. “No one wants to think of that,” says Hayes, “but they need to consider having a medical clause in their lease once you reach a certain point.”
Wilkerson & Associates also helps clients navigate things like new tax laws. It all comes down to how a business is set up, whether it is an LCC or a sole proprietorship, and there’s a wide variety of possible outcomes. Hayes says it’s worth clients’ time to meet with their CPAs, attorneys, and anyone else who could help so that they walk away with a positive tax effect.
Ideally, the firm will receive a call from a client about five years ahead of the planned retirement, the time needed to adjust their structure of inventory. For example, if a retailer’s merchandise is largely bridal, or they have a lot of loose stones on hand, and they’re holding a going-out-of-business sale, they’ll likely be stuck with much of that inventory.
“People are not going to go and get engaged just because you’re running a sale,” Hayes points out. “Whereas, fashion merchandise will be your bread and butter at a sale event.” In this case, working five years ahead of retirement, might give retailers time to unload bridal inventory or mount stones and enjoy a more successful final sale and end net returns.
Planning is not an overnight process, and the payoff can be huge. “We put together a plan,” says Hayes. “These are all the facets of your business we’re looking at. It’s multiple years of conversations to get to the final product.”