Why should a plan be prepared before selling a bakery?

March 2020 | Przegląd Piekarski i Cukierniczy (Baking and Confectionery Review)

SELLING THE COMPANY

A plan is something that puts future actions in order. It makes it possible to achieve future goals in a planned and organised way. Selling a company is an undertaking for which one has to prepare. A company which is unprepared for sale will probably be sold considerably below its potential market value.

The most important element of a plan is its goal. Everyone who is contemplating the future sale of their bakery or confectioner’s shop should answer the question: why are they selling it? Selling a company is a long-lasting, difficult and complicated undertaking. Of course one can sell a bakery from one day to the next. Similarly, from one day to the next one can sell a car, a plot of land or a house. The better the price for the buyer, the faster the object will find its purchaser. The better the price for the buyer, the greater the seller’s potential loss.

In order to sell a company and be satisfied, one has to prepare for this transaction. Preparing the sale operation of a medium-sized company usually takes from several months to as much as several years.

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The preparations should be based on a business exit plan. A kind of road map in which all the stages of the preparations and the methods of their realisation will be taken into account. The methodology here is identical to that used in conducting technological projects. Milestones appear, which are symbolic markers of the ends of the successive stages of the preparations. The process is monitored by indicators created for that purpose, the time of realisation of the individual stages is controlled, and the economic situation of the environment is analysed.

A business exit plan is created on the basis of the final goal. In order to create an optimal plan, one has to answer the question: why is the owner selling the company? On the answer to this question depend the next two questions:

• How quickly does the owner want to receive the money for the sale of the bakery?
• What does the owner want to do after selling their bakery?

For example, the owner is selling the company because they want to invest in another business which seems better to them. The owner needs the money immediately after selling the bakery. In such a situation several problems are solved. There is no longer any need to look for alternatives useful in the final negotiations. The possibility of sale by instalments, or the necessity of long-term improvement of cash flows, falls away. The owner agrees to a lower price for the sale of the bakery in exchange for a quick transaction and working capital in their account. In this case the owner does not have a very strong negotiating position. Such expectations of the owner have an influence on the shape of the business exit plan being created. The plan will certainly indicate what changes should be made in order to realise a quick transaction and maintain a relatively high price.

Here is another case: the owner is selling the company because after years of work they have decided to go into a well-earned retirement. The owner has decided to buy themselves a house in the mountains and to go regularly on long winter trips to Italy. The business exit plan should contain many variants of procedure. One may take into account sale by instalments, or retaining part of the real estate with a view to leasing or selling it later. One may consider the question: should the bakery be sold, or is it better for it to be run by new managers hired from outside? In this case, when creating the business exit plan, the calculations are made from the end. How large must the bakery’s or confectioner’s shop’s revenues be so that, given defined reserves and the costs of the new managers of the company’s board, it should be possible to pay the owner a pension systematically? The exit plan serves to reach such a financial level that the realisation of the dreamed-of, considered goal becomes possible. The business exit plan describes what steps have to be taken in order to restructure/recapitalise the bakery, which in the future will make it possible for the owner to retire without the necessity of selling it.

It is most difficult to work out a business exit plan when the owner wants to hand the company over to their children. As in the previous case, it is necessary to mark out a road to achieving such results that the company retains liquidity while paying out the pension and at the same time paying off the owner’s remaining children. In this case the business exit plan should also indicate whether the owner’s successors possess the required aptitudes and competences to run the bakery or the chain of confectioners’ shops. If these are lacking, the exit plan should indicate in what way these gaps should be filled.

Wojciech Moszczyński

Wojciech Moszczyński — graduate of the Department of Econometrics and Statistics of Nicolaus Copernicus University in Toruń; specialist in econometrics, finance, data science, and management accounting. He specializes in the optimization of production and logistics processes. He conducts research in the area of the development and application of artificial intelligence. For years he has been engaged in the popularization of machine learning and data science in business environments.