Three Things Pawn Brokers Should Do to Avoid Underselling Their Pawn Businesses

“The most successful exits require considerable planning. The sooner you start, the more rewarding your eventual exit is likely to be. In fact, you already may have started planning without even realizing it. Many of the steps involved — including creating an independent board, upgrading financial reporting systems and controls, exploring growth through internal operations, and fine-tuning your company’s strategy — are the same ones required to build a successful company.”

Inc. Magazine, October 2010

Although the above advice from Inc. Magazine was published in 2010, as we move into 2013, the advice is still worth taking.  Consider it “evergreen” advice—advice that will always be true, no matter how the economy or pawn market fluctuates.

Ideally, you should develop your pawn business’s exit strategy at the start of your business, incorporate it into your initial business plan, and tweak it appropriately as your business grows and develops.  At Stallcup Group, we continually encourage pawn business owners to prepare to sell their businesses now, whether they anticipate selling five, ten, or thirty years down the road.  Why?  We believe that making a graceful exit is a big part of being successful in business.  A disappointing exit is one that doesn’t honor what you’ve invested monetarily, professionally, and personally.  It diminishes the successes you’ve had as a business owner, and doesn’t satisfy your future needs.  An exit that honors your hard work and what you’ve been able to accomplish is one that prepares you for the future, whether the future includes reorganizing your capital structure, launching a new business, or preparing for retirement.

In reality, when pawn business owners are trying to get their new businesses off of the ground, and later, are busy maintaining and operating their established businesses, developing an exit strategy is often low on the priority list.  Fortunately, if you don’t have an exit strategy in place and it does become apparent that it may be in your best interest sell, there are still things you can do to ensure that you don’t undersell your business.  Three of the most important things you can do are:

1. Refrain from reaching out to potential buyers without adequate representation.

It can be tempting to reach out to potential buyers, including the major pawn companies, and attempt to obtain fast quotes.  This is not in your best interest!  Buyers have their own interests and agendas.  You can’t rely on them to tell you what your pawn business is worth—and you most definitely shouldn’t base your decision to sell or not to sell based on what a potential buyer is able or willing to offer before you both know your business’s true value.

2. Get your finances in order.

Even if you’ve been keeping good financial records, preparing your financial records for review by outsiders is a good idea if you’re hoping to sell.  Depending on the structure and size of your pawn business, you may or may not need the help of an outside accountant to help you prepare your financial statements for review.  What financial statements do you need?  You need a balance sheet that reflects your assets (what you own) and liabilities (what you owe), a profit and loss statement that reflects how your pawn business has performed over a significant period of time (at least 12 months, in most cases), and a statement of cash flows that reflects the monies that pass in and out of your business.

3. Obtain adequate representation.

Contact Stallcup Group for a free business evaluation.  We will help you determine whether or not it is in your best interest to sell, what it will take to help you package and market your shop or shops to potential buyers, determine what makes your pawn business a promising buy, identify potential hurdles, and perform a preliminary valuation of your business.  If it is in your best interest to move forward with the sale of your business, Stallcup Group will perform an in-depth analysis of your business using a proven financial methodology that will help you see your business through the eyes of potential buyers.  We will then market your business to appropriate buyers and walk you through every step of the closing process.

While developing an exit strategy at the start of your business is ideal, the absence of a solid exit strategy is no reason to simply sell your pawn business to the highest bidder without making a concerted effort to uncover what your business is actually worth.  In order to launch your business, you had to take ownership and control of it.  Don’t give up ownership and control when it’s time to sell your business.  Instead, own the selling/closing process by making sure that you have the representation you need long before you reach out to any potential buyer.

Reorganizing Your Pawn Business’s Capital Structure

If an independent pawn business has multiple owners, it can be difficult for partners to decide what to do when one owner wants out, particularly if it doesn’t make sense or isn’t feasible for the remaining owners to buy out the partner who wants to move on.  Certain legalities and concerns that remaining owners might not be able to manage multiple shops after one owner bows out can also complicate matters.

Sometimes, the only way to successfully reorganize a business’s capital structure in a way that makes all owners happy is by selling the current business.  If you get enough out of the sale of your pawn business, you and your partners can make a clean split.  One or more partners can retire or begin different ventures; other partners can move on start new pawn businesses, if that is their wish.

In order to ensure that the unique goals of every owner are met, it is often in the best interest of owners to hire exit strategy specialists that can be objective and act as intermediaries that can provide solid information based on financial data, the pawn business’s unique characteristics, and the current market.  They can also help negotiate lenient non-compete agreements with the buyer so that owners who wish to move and start new pawn businesses aren’t forced out of their preferred areas.

Some of the other things that exit strategy specialists can do to help make the closing process go smoothly for all owners involved include:

  • organizing the purchase or sale agreement and allocating any closing fees appropriately,
  • keeping an updated checklist of items that need to be completed at various points throughout the closing process,
  • negotiating all closing terms, including non-compete agreements,
  • taking tax issues and how they will impact all owners into consideration, and
  • easing the transfer of your business to the buyer.

If you or one of your partners is ready to move on, selling your current pawn business and starting fresh can be an excellent way to reorganize your capital structure and move forward.  Having solid representation is key.  Experienced exit strategy specialists can not only make sure you get the most out of the sale of your business, but that you and your partners are able to move forward and achieve new successes independently.

Achieving Lenient Non-Compete Agreements

One of the reasons that independent pawn shop owners are reluctant to sell their businesses to the major pawn companies is that they are concerned that due to strict non-compete agreements, they will be unable to open new businesses quickly enough to meet their needs.

Standard non-compete agreements restrict pawn shop sellers from opening any new pawn shops within 10 miles of sold shops for at least five years.  For those in the pawn business who aren’t seeking to exit the business entirely and don’t want to have to relocate in order to pursue new ventures, not being able to open new shops for five years can make put an end to any dreams of selling very quickly.

Fortunately, if you have stellar representation during the sale of your pawn business, it is possible to lighten the terms of your non-compete agreement significantly.  How?  If you have experienced representatives like those at Stallcup Group on your side—people who know the tactics buyers use to achieve strict non-compete agreement terms and can perform financial analyses that reveal the true value of your shop—you can leverage their negotiations experience and conclusive data to get top dollar for your business and put in place a non-compete agreement that is lenient enough to enable you to meet your future goals.

Contact Stallcup Group to request a case study that explains how our team recently helped a group of pawn business owners/partners achieve an ideal non-compete agreement.  If you have questions regarding the potential sale of your pawn business and the steps you might need to take in order to be successful during and after the closing process, we will be happy to provide you with a free initial consultation as well.

Why You Need to “Authenticate” the Value of Your Pawn Business

If a customer were to walk into your shop claiming to have a baseball signed by Joe DiMaggio, you wouldn’t think of giving him or her a loan without first seeing a letter of authenticity.  You would also assess the baseball’s attributes.  Does it have inscriptions that add to the value?  Is there a personal inscription, such as, “Best of luck, Burt,” or, “Knock it out of the park, Billy?”  Did Joe sign the ball, “Joltin’ Joe?”  You would make sure you knew the baseball’s worth before making the customer an offer or completing a transaction.

When you’re ready to sell your pawn shop or shops, essentially, you become the customer.  You have to know what your business is worth and be able to offer proof that backs up your claims.  You can have the most valuable independent pawn business in the country, but you won’t get what it’s worth from the national pawn shop buyers if you don’t have your financial information in order and haven’t properly assessed your business’s tangible and intangible assets.

A baseball signed by The Yankee Clipper can go for half of what it’s worth when a letter of authenticity doesn’t accompany it.  Your pawn business needs to be “authenticated,” too, or you could miss out on thousands, or even millions, of dollars that you could have and should have gotten.

Uncovering what your business is really worth may be a pain, but let’s face it:  a much bigger pain is finding out later that you got convinced to sell your business for less simply because you hadn’t used the right financial methodologies to come up with numbers that accurately reflected its value.

Stallcup Group can help you determine your business’s true value, put the right data in your hands, and walk you through every step of the closing process.  We give you all of the information you need to prove your business’s worth and force multiple buyers to make competing offers based on a base price that you set rather than on their own pricing models.  In other words, we put you in a position of power.  When it comes to negotiations, would you really want to be in any other position?

Why Specialty Pawn Shops Should Consider Diversifying

There seems to be no limit to the kinds of specialty pawn shops currently doing business.  Today, specialty pawn shops not only focus on buying and selling things like jewelry, guns, electronics, and musical equipment, but big-ticket or somewhat unusual items, such as motor vehicles, fine art, and specific types of antiques and collectibles.

Specialty pawn shops can provide highly valued services.  Pawn shops that specialize in musical instruments and sound equipment are considered a necessity in musical cities like Austin, TX.  In cities ripe with art lovers and artists like so many cities in New Mexico, for example, pawn shops that deal in fine art are fantastic resources.  Pawn shops near large bodies of water that deal in recreational water vehicles like boats and jet skis can also be a huge help to their communities.

Unfortunately, though specialty pawn shops may be highly valued by their customers, major pawn shop buyers typically don’t put a lot of value on them.  As a result, owners of specialty shops can find it very difficult to find buyers when they decide it’s time to move on and exit the business.  Often, owners of specialty shops simply have to sell off or liquidate their inventories instead of selling their businesses as whole units.  The majority of specialty pawn shops just don’t fit in with the national pawn companies’ business models, and therefore, are too much trouble for the national pawn companies to take on and turn into typical chain stores.

If you’re planning on selling your specialty shop or shops within the next few years, consider diversifying by seeking out and accepting a wider variety of items.  If you begin diversifying at least one or two years prior to selling your shop, you will have a much greater chance of selling to a national pawn company that will give you the kind of closing price that will enable you to retire well or turn around and begin your next business venture.

Whether you’re a specialty pawn shop owner or the owner of a more traditional pawn business, contact Stallcup Group for information on what you can do now to make the process of selling your business easier in the future.  Stallcup Group can not only help you determine what you might be able to expect out of the sale of your business, but help you meet your future goals by assisting you throughout every step of the negotiation and closing processes.

One Deal You Should Never Broker Alone

In the pawn industry, many believe that in order to be successful, you have to have an innate sense of the value of things.  Pawn shop owners who’ve had to let go employees who just didn’t have what it takes to make good value assessments know that not everyone has an innate ability to make good deals consistently.  There are few tricks you can learn, and certainly, you can get better at appraising items and brokering deals over time, but if you don’t have that certain something, you’re probably not going to be successful in the pawn business.

Most independent pawn shop owners who actively run their shops have that certain something.  Perhaps that is why so many of them are resistant to the idea of seeking out representation when it’s time sell their businesses.  Why would they need help?  After all, they have a good idea of what their shops are worth and know how to the buyer-seller relationship works.  Why shouldn’t they be able to get a good price for their businesses and come to fair agreements with buyers on their own?

The reason you need representation when you’re ready to sell is because the same way you have an innate sense of what items that come into your shop are worth, there are people out there who have an innate sense of what your pawn shop is actually worth—from the buyer’s point of view.  They know how to properly assess the value of your location, the local population, the licenses you have in place, and much more.  They have honed their appraisal and negotiation skills over time, and already have the resources in place required to remain organized, run accurate numbers, and negotiate with savvy buyers throughout the closing process.

As you know, your behind-the-scenes operations are much more complex than most people realize.  In addition to the many other tasks you perform daily, you have to keep up with a large amount of paperwork, track every piece of inventory, adhere to federal and regional government regulations, engage in good accounting practices, maintain your reputation through solid management and good customer service, and, of course, accurately assess the worth of a wide variety of items.

At Stallcup Group, our behind-the-scenes operations are more complex that most pawn shop owners realize.  There are certain steps that have to be taken at certain times in order for the sale of your business to come off without a hitch.  Just like you, we have processes in place that ensure that all of the proper steps will be followed.  We have honed the skills necessary for coming up with contingency plans when snags do arise, and have amassed enough experience and knowledge to think on our feet and come up with solutions quickly.

We can also help you determine whether the time is right for you to sell.  Contact us today for a free business evaluation.  We will be happy to discuss your future goals, and will tell you honestly whether or not you should move forward with the sale of your business based on actual analytics.

If you’re a pawn shop owner, you know that one simple misstep during the appraisal or negotiations process can cost you money.  You may run an excellent business, but if you haven’t spent years and years learning how to go about getting the most out of the sale of your business, chances are, despite having a thorough knowledge of the pawn industry, great instincts, and strong negotiation skills, you’re just not going to get what you should have gotten out of the sale of your shop or shops.

You can’t act on what you don’t know.  When you’re ready to sell, Stallcup Group can help you fill in the blanks.

Three People You Need at Closing

Every pawn shop owner has an idea of the dollar value of his or her business, but without the assistance of objective third parties, it is practically impossible to know whether that number is correct.

Selling your pawn shop is an undertaking you should never attempt on your own.  To determine what your business is really worth, at the very least, you will need an accountant, a lawyer, and an exit strategy expert that can perform valuations based on your financial data and the unique characteristics of your shop or shops.

Enlisting the help of outside individuals does not imply that you don’t know your own business or aren’t capable of negotiating your own deal; it just means that you recognize that by enlisting outside help, you’re going to be much more likely to get what your business is actually worth.  Qualified accountants, attorneys, and financial advisors are people that every legitimate business needs at one time or another.  There is no better time to make the most of the qualified professionals and resources available to you than when you’re ready to sell.

Your Accountant

If you have an in-house accountant, use that person to organize your books.  Make sure that in addition to having experience in the pawn industry, any CPA you use is able to advise you on personal and corporate tax matters.

Your Lawyer

You don’t need a lawyer to negotiate the sale of your pawn shop.  (Your exit strategy expert will help you do that.)  However, you do need one to review your closing agreement and leases.  If you are planning on using the funds from the sale of your business to make new acquisitions, you will also want a lawyer to review any non-compete agreements.

Your Exit Strategy Expert

Exit strategy experts like those at Stallcup Group are the people who analyze your financial data, your shop’s tangible and intangible assets, and the current market in order to help you put an accurate value on your business.  At Stallcup Group, our knowledge of how the national pawn companies approach negotiations and the tactics their buyers use to lower sale prices gives us a significant advantage throughout the closing process.  Experience in these areas and an unparalleled number of successfully closed acquisitions set us apart from other financial advisors.

While it may be tempting to sell your shop on your own, the truth is it’s just not worth the trouble.  Before you pick up the phone and call a major pawn company to find out what they believe your business is worth, contact Stallcup Group.  We’ll make sure you won’t ever have to wonder whether your final agreement reflects the very best deal you could have gotten for your shop or shops.