In last week’s post I discussed the first two steps to sell a martial arts school, defining your reasons and valuation of your business. In this week’s article, I’m going to cover what you need to know to find a buyer and negotiate a price.
Of course, there’s a heck of a lot more to selling a martial arts school than what I can fit in a few articles. So, be sure to do your due diligence by consulting an attorney and your accountant before you start negotiating with a potential buyer.
Step #3 – Finding Someone to Purchase Your Martial Arts School
The next step to selling your martial arts school is to find someone who is interested in buying your school. Often, potential candidates for buying a martial arts school are found from within the school itself.
If you’ve been practicing what I teach in my books (Small Dojo Big Profits, The Profit-Boosting Principles, and Developing Staff and Leadership Teams), then you’ve likely been training your replacement (or replacements) for some time now.
The best thing about finding a potential buyer from within your school is that it makes the succession of ownership a whole lot easier. Think about it; how likely are your students to stick around if you just hand your studio over to a complete stranger?
Now, there are ways to get around that issue, which I’ll discuss in next week’s article. However, you can dodge that issue completely by finding someone from within your studio (either a staff member or student) who is interested in buying your school.
Failing that, you will need to cast a wider net if you want to find a suitable buyer. One of the best ways to do that is to hire a sell-side business broker, which I’ll discuss more at the end of this article. A good business broker can help you find a suitable buyer and they can also help you negotiate the legal and tax issues involved with selling your school.
Selecting a Suitable Buyer
Finding someone who wants to buy a martial arts school is relatively easy – finding a suitable buyer is not. And, notice the emphasis on “suitable”. If your school is even remotely successful, you’re likely to have more than a few people interested in buying it once you make it known that it may be for sale.
However, finding someone who is suitable to purchase your martial arts studio is an entirely different matter, simply because it’s difficult to find someone with the right traits. Besides being highly motivated to buy your school, this boils down to four prerequisites a good buyer should have:
- Financial means
- Familiarity with martial arts school management
- Ethically sound
- Technical knowledge
Let’s go over each prerequisite in turn to examine just what makes a good buyer for a martial arts school.
Obviously, no matter how eager or technically proficient a person might be, if they lack the financial means to purchase your studio it’s all moot. In my experience, this is the most common stumbling block for finding a buyer for a martial arts school. However, this becomes less and less of an issue, the broader the net you cast to find a buyer.
There are numerous ways to overcome this should you find someone who meets your requirements in every other department, which is something I’ll discuss in the next part of this article series. However, I strongly suggest that you try to find someone who has good credit and who will be able to find financing for the purchase of your studio.
Why? Because it’s much better for you to get all your money up front. People will screw you if you let them, and it doesn’t matter how well you know them or what type of person you think they are, you can’t trust anyone when it comes to selling a business. Again, find someone with financial means so you can get all your money up front – it’ll save you a lot of headaches later.
Familiarity With Martial Art School Management
Better that you sell your studio to someone who is a good business manager, than to someone who is incredibly technically proficient but not business savvy. And just why is that?
Well, isn’t it obvious? You certainly don’t want to sell to someone who is going to tank the school six months or a year down the road. That would mean that all your former students would be left high and dry, and then they’ll be looking at you like you abandoned them to an irresponsible person.
Never, ever, ever sell your school to someone who shows little to no interest in the business side of running a school. I don’t care how good they are as a martial artist, or how much you like them, or how much they say they want to be a school owner. If they show no interest or aptitude for running a business, find another buyer.
There’s nothing worse than selling a school, only to find out later that you sold it to someone who isn’t treating your former students right. Some folks will talk a good game and lead you to believe that they’re solid people, and then later you find out that they’re flaky as a bowl of cereal.
This will reflect back on you. So, make sure you do a background check and a credit check on any potential buyer. And, if you find anything that would lead you to believe that the person purchasing your school is not of sound character, find another buyer.
You can’t sell a school to someone who is just going to manage it and not be on the floor; it won’t work. Sure, you can find someone who is going to manage the school and then hire other people to teach, but in my experience those sorts of arrangements always end up going south.
For starters, if they have to pay someone else to teach full-time, how are they going to pay themselves? That’s a rather large expense, and quite a risk for someone who is taking over a new business.
And, if they’re not out on the floor teaching, how will they manage to make a connection with the clients? The short answer is, they won’t. That leaves them in a precarious situation, should their instructor/employee decide to leave and start their own school. Trust me, this happens a lot, and it’s not uncommon for an employee/instructor to peel away a third or more of a school’s students when they defect.
The bottom line here is that you want to find someone who will be successful in running your school. You may think that once it’s sold, it’s no longer your worry. Well, maybe so but you still don’t want to sell to someone who is going to have to shut their doors six months or a year down the road; it’s just not fair to your students. Choose well and choose wisely, if only for the sake of the people who have trusted and looked up to you over the course of your time as a school owner.
Step #4 – Negotiating a Price
Remember in the last article how I told you that the valuation of a business is highly subjective? Selling a martial arts school is a lot like selling real estate; you sell it for what the market will bear.
If you have a profitable business, in a strong economy, with a solid buyer who has financial means, you should be able to get your asking price for your studio. In fact, if you line up several buyers you may even be able to spark a bidding war under such circumstances.
But don’t get your hopes up. Selling a business is typically one of the shakiest financial transactions you’ll ever make, and a million things can go wrong to blow your deal. And, you may run into someone who is willing to rake you over the coals a bit in order to get the best deal possible on buying your business.
So, bargain hard for the best price, and always be willing to walk away from the deal. And if you’re in a situation where you’re being forced to sell your school, don’t let the buyer know how motivated you are to sell. By keeping them in the dark, you’ll be strengthening your bargaining position and increasing the likelihood of getting a better sales price.
And if you suck at negotiating, hire someone who is experienced to do it for you (otherwise known as a sell-side broker). Brokers typically work on commission, so there shouldn’t be an up front cost to getting a professional to negotiate the sale. By using a broker, you’re likely to get a higher sales price for your business, and you’ll be able to distance yourself emotionally from the sale as well.
Just make sure that the broker is working for you, and not for the other party. There should be a contractual agreement between you and the broker, and their pay should be based on a percentage of the sale (no more than 10% to 15% of the sales price).
That wraps up this week’s article on how to sell a martial arts school. In Part III of this article series, I cover seller financing and the legal pitfalls associated with selling a martial arts school as well as how to avoid them.