The Importance of Being Profitable Before and at the Time of Sale

sg3409u83mPawn shop owners often opt to sell their businesses when the business is no longer bringing in the kinds of profits that they want or need. Unfortunately, selling a pawn business when business is down is not optimal for anyone. The seller usually has difficulty selling the business and winds up getting much less than they would have gotten had they sold when times were better, and the buyer, despite having gotten the business for a relatively low price, has to scramble to figure out how to make the business more profitable in order to ensure that their investment actually pays off.

In a March 2013 Huffington Post article, author Jack Garson explained, “The typical purchaser’s formula is ‘buy, build, sell.’ Buyers start with good companies. If your business is profitable, it tells a purchaser that your company has hit upon a formula for making money. And if your profits are growing every year, it means that there’s a good chance those profits will continue to grow. In fact, experienced buyers count on growing these reliable money-makers.”

The major pawn companies are like typical business purchasers when it comes to profitability. They want to know that they are going to be able to make money and grow your pawn business once you’re out of the picture. When the future is uncertain, they’re not only less likely to make a purchase, but less likely to pay what the business is currently worth if they do purchase it.

Are you considering selling your pawn shop or shops? Increasing profits, maintaining a high income, and having a high number of regular, core customers before and at the time of sale will help you achieve your ideal selling scenario.

For more information on how to prepare to sell your pawn shop or shops, click here to review Stallcup Group’s sale preparation checklist.

Shop Talk: No Serial Number, No Deal?

Soon, Richmond, VA pawn shops will not only have to keep the IDs of the owners of items they accept or purchase, but refuse any items without visible serial numbers, according to a recent WWBT-TV NBC 12 report. This doesn’t sound too extreme or unusual, but one has to wonder whether requiring visible serial numbers on all items is really practical. When you can see that someone has tried to mark out a serial number purposely, obviously, that’s a huge tip-off that the customer may not be the actual owner, but penalizing customers when a serial number has just been worn down or diminished over time or by regular wear and tear doesn’t seem like the greatest scenario.

What do you think? Would being limited to only accepting or purchasing items with visible serial numbers hurt your pawn business?

Marketing a Pawn Shop to Multiple Buyers

sg234098lrSelling a pawn shop requires committing to taking on a considerable number of challenging and time-consuming tasks, not the least of which include pricing the pawn shop, marketing it to the right buyers, managing negotiations, and being responsible for the terms outlined in contracts or agreements.

Which task takes the greatest amount of effort to perform depends on the unique attributes and challenges of a particular pawn business, but one thing that’s true for almost all pawn shop owners/sellers across the board is that they don’t anticipate how much effort it takes to properly market a pawn business to potential buyers.

If you’re marketing your business to one or more of the major pawn companies, you’re going to want to show them that your pawn business is scalable; in other words, you’re going to want to prove that your business can grow—not just now, while it’s still yours, but in the future, once the buyer takes over. This can take a lot of time to do, and can be almost impossible to do well if you don’t have firsthand knowledge of the major pawn companies’ inner workings. It’s one thing to make cash flow valuations based on your records; it’s quite another to try and prepare cash flow projections for a monster like EZPAWN or Cash America.

You should also keep in mind that although it’s almost always better to market your pawn business to multiple buyers, dealing with multiple buyers takes a lot of work. It can be all too easy to become so busy responding to buyers’ requests and inquiries that, before you know it, you’re caught up in multiple buying strategies and forking over your selling power left and right. When this happens, numbers start trending downwards. On top of that, the current business suffers. Many pawn shop owners who sell their shops on their own wind up struggling to remain profitable, or even just to keep their businesses manageable, during the marketing and selling/closing processes. Their focus is simply too split to manage both their dealings with multiple buyers and their pawn businesses well.

Pawn shop owners can make things much easier on themselves by enlisting the help of experienced pawn shop exit strategy consultants. While owners may be tempted to think, Why should I pay anything out to a consultant when I am a savvy business owner and capable negotiator, and could keep all the money for myself?, the reality is that exit strategy professionals, in addition to taking the bulk of the tasks associated with marketing pawn shops off of owners’ plates, 9.9 times out of 10, will get owners far more for their pawn businesses than they ever would have gotten on their own.

Shop Talk: Gold’s Seven-Straight Weekly Loss

According to a CNBC video report released today, gold is experiencing a seven-straight weekly loss (the longest losing streak in four years) at a drop of almost five percent.

In contrast, a recent article by Frank Holmes, chief executive officer and chief investment officer of US Global Investors, Inc., promotes having a positive outlook for gold. Holmes explains how “the price of gold moves in near-lockstep to each increase of the Fed’s balance sheet,” and that since the Federal Reserve is printing more and more dollars, the price of gold is likely to move along with it, as it has historically.

Gold’s ability to recover sooner rather than later may be debatable, but one thing is for certain: The precious metal promises to remain a hot topic for a very, very long time.

Click here to read the Holmes article in full.

Selling a Pawn Shop Isn’t Like Selling Just Any Small Business

sg14098sdkJust about every book or article on how to sell a business advises business owners to do things like search the Internet for buyers and market their businesses online. This might be good advice for the majority of small business owners, but it’s not good advice for independent pawn shop owners.

If you’re an independent pawn shop owner and you’re not passing your pawn shop or shops down to the next generation or selling out to a partner, your best (and perhaps only) buyer is probably going to be one of the major pawn companies. If you want to sell your pawn shop for top dollar, the last thing you want to do is look up these companies, give them a call, and ask them what they will pay you for your business. Go this route, and you will practically guarantee that you do not sell your pawn shop for anything near what it’s actually worth.

The major pawn companies have been buying independent pawn shops for years, and have gotten very good at it! They have put tools, resources, and processes in place to help them get the most out of each new acquisition. If you don’t have a team on your side that has its own tools, resources, and processes in place, you can quickly find yourself woefully underprepared for what these buyers present to you and ask of you in an effort to drive down your selling price.

Unfortunately, even if all of your financials are in order and you have a solid understanding of your business’s advantages and disadvantages, it can be very hard to combat the analyses that the major pawn companies are able to perform. You need objective pawn shop exit strategy consultants to compile and analyze all of your pawn business’s unique characteristics, combine the information with relevant pawn market information—while keeping in mind the overall economic climate, and then present all of the data in a way that buyers can’t dismiss. Go this route, and you will practically guarantee that you will sell your pawn shop at the best possible price.

Shop Talk: Delaware 11th State to Require Pawn Shops to Photograph Jewelry?

sg23409dv01On April 29, 2013, Newsworks.com reported that Delaware could become the 11th state in the country to require pawn shops and secondhand dealers to take photographs of all of the jewelry they buy. If the proposed bill goes through, pawn shop owners and secondhand dealers will be required to keep photos of all of the jewelry they accept or purchase in their records for one year.

This new legislation could come through on the heels of other legislation that requires the mandatory reporting of lost or stolen firearms in Delaware. Senate Bill 16, according to another Newsworks.com article published on May 3, 2013, states that all gun owners (including pawn shop owners), “have one week to notify police; the seven-day clock, however, starts running when the gun owner discovers the weapons are missing.” Per the article, the bill passed by a single vote and now moves to the House.

For pawn shops, there are advantages and disadvantages to both pieces legislation.

On the upside, taking photos in order to help prevent theft and help jewelry owners recover stolen property is good for communities and helps improve the image of pawn shops. On the downside, having to take photos on top of recording and keeping detailed written records of all jewelry transactions could present yet another barrier to successfully completing transactions. Customers would have more time to change their minds; pawn shop owners may decide to forego smaller transactions just because they don’t want to go through all of the red tape.

When it comes to the lost or stolen firearm legislation, in theory, pawn shop owners will be able to find out much sooner that a firearm was stolen if people have fewer days to report lost or stolen firearms. This should logically lead to fewer purchases of stolen firearms, which would be good for everybody. However, one has to question whether the legislation will really make that big a difference. After all, no one can ever really know exactly when a firearm owner actually noticed a piece was missing but the firearm owner.

Are You Lowering the Price of Your Pawn Shop—Again?

sg2309ucx4It is considerably more stressful and time-consuming to try to sell an item when you don’t know what it’s really worth. As a pawn shop owner, you know this, having experienced trying to get rid of an item on your shelf that is of indistinct value. What happens? You either wait around and hope that the right customer eventually comes through your door, or keep lowering the sticker price until the item finally moves.

The same sort of thing can happen when you put your pawn shop on the market without knowing what it’s really worth. You can hope that the right buyer will come along and meet your asking price, but over time, chances are you’ll find yourself lowering your price again and again until you eventually close the sale.

In a paper put forth by the US Small Business Administration, business valuation expert John A. Johansen explains, “All too often, sellers arbitrarily decide on a price for their company and then go to the expense and effort of developing prospective buyers, only to be unable to strike a deal. It is only after repeatedly lowering the price that they learn what their business is really worth.” He continues, “A professionally prepared appraisal eliminates this problem.”

If you don’t want to wait and see if you’re going to have to keep lowering the price of your pawn business again and again, contact Stallcup Group. You should never be in the position of waiting for a buyer to bite—and at the wrong low price! Stallcup Group’s exit strategy specialists can proactively seek out the right buyers and ensure that you never have to play the wait-and-see game.

To learn why it is important to obtain your pawn business appraisal, or valuation, from experienced pawn shop exit strategy consultants rather than from business brokers with little or no experience working within the pawn industry, see last week’s blog post.

Putting a Price on Your Pawn Shop

sg2309dsdl9A price that’s too high will make buyers think that you don’t understand the market and are overvaluing your pawn shop. A price that’s too low is bad because, well, it will most certainly result in a lower payoff than you deserve! Arbitrarily deciding on a price that’s somewhere in-between your highest imaginable price and lowest imaginable price isn’t a good idea either because it’s not a compromise based on facts; it’s guesswork.

How, exactly, is a hard-working pawn broker supposed to come up with the right price for his or her pawn shop?

There are many, many things that go into determining what price you should put on your pawn shop or shops, which is precisely why you need as much support as you can get when you’re planning or ready to sell.

Lenora Chu, a CNNMoney.com contributing writer, suggested in a 2009 article on pricing small businesses, “If you’re serious about selling, the best first step is to consult with a business broker or investment bank to evaluate the specifics of your business and determine an appropriate multiplier.” For most small business owners, this would be perfect advice, but if you’re an independent pawn shop owner, you’re probably going to need the assistance of professionals who use a financial methodology designed specifically for pawn shops in order to come up with the right selling price. Exit strategy consultants like those at Stallcup Group have a proven financial methodology in place that enables them to valuate pawn businesses appropriately.

In addition to providing you with a pawn business evaluation that reflects the true value of your shop based on your financials, tangible and intangible assets, and a number of other factors, pawn shop exit strategy consultants can help you develop an entire sales and marketing strategy that will allow you to locate the right buyers and put the right information in front of those buyers. They can also help you navigate through every step of the negotiations and selling/closing processes.

While you can certainly come up with a price for your pawn shop on your own, it’s not advisable. Your price isn’t just a dollar amount, but a reflection of your entire sales strategy. Going into buyer negotiations with the wrong price can be catastrophic. It’s an exit strategy consultant’s job to make sure that you go into negotiations with the right price and walk out with the best possible price you could get.

Shop Talk: Can You Use Your Shop to Dip into Other Markets?

sg2349ujlk3On April 12, 2013, Sun Star Davao reported, “The Cebuana Lhuillier Insurance Solutions (Clis), the insurance arm of pawnshop chain Cebuana Lhuillier, launched on Thursday its latest product to offer a more affordable compulsory third party liability (CTPL) insurance to vehicle owners.”

In case you haven’t heard of Cebuana Lhuillier, it’s the largest pawn shop chain operating in the Philippines. According to the company website, Cebuana Lhuillier has branches all across the country, some of which serve more than 30,000 customers daily.

The Sun Star Davao article explains that Cebuana Lhuillier wants to be much more than a pawn organization. Expanding Clis by offering more affordable insurance options is a way for the company “to become a total micro finance solution center other than being a pawning and remittance outlet,” the article states.

Obviously, moving into the insurance sector may not be in the cards for a lot of pawn shop owners, but Cebuana Lhuillier’s approach to pawnbroking and expansion has to make pawn brokers everywhere wonder what unique or out-of-the-box business ventures they might be able to engage in through pawnbroking.

Click here to read the Sun Star Davao article in full.