Trailheads

The outdoor industry is undergoing a significant transition, as several longstanding and iconic retailers have ceased operations or announced impending closures. For instance, Summit Hut in Arizona permanently shut its doors in September, while Next Adventure in Oregon plans to wrap up business later this year. Store owners are closing their businesses due to a variety of factors, including financial challenges or the desire to retire or pursue other interests.  

Whether a family-run business decides to close due to a challenging retail environment or a long-time owner wants to retire or do something different, every store owner must confront the critical topic of succession planning.  

According to Pete Mohr, a business coach and footwear retailer, a solid succession plan provides business owners a path to freedom and improves the chances that the business will survive, whether through a sale, a family transfer, or a structured wind-down. 

However, many retail businesses don’t have a succession plan, says Mohr, adding, “Some owners haven’t even thought about it.” 

According to PwC’s 2021 Global Family Business Survey, only 34% of family-held businesses in the U.S. have “a robust, documented and communicated succession plan in place.” 

We asked Mohr to share some of his top tips for succession planning, including the financial, operational, and psychological aspects of exiting a business. 

1. Establish a Realistic Timeline

Traditionally, retailers have closed their businesses due to one of the “Five Ds”: death, divorce, disagreement, distress, and disability, says Mohr. However, he urges business owners to be proactive, plan their exit, and prepare the business for the next phase, rather than just reacting to an unforeseen event.  

“Your business should always be exit-ready, no matter the situation,” he says, adding that succession planning takes more time than most business owners realize.   

“The average business isn’t ready to sell for two to five years,” says Mohr. “Sometimes owners think they can sell the business as quickly as their house. But businesses don’t sell as quickly as your house. It takes time to prepare them for sale because you want to maximize your value, right?”

2. Clean Up Your Financials

To make your business attractive to buyers, you first need to clean up the financials, says Mohr. “Most small business owners have never been through due diligence, and they don’t know what’s coming,” he says, explaining that prospective buyers will “rip apart” the last three to five years of your financials. “That means you need to have three to five years of solid financial bookwork in your bank before you’re going to maximize your exit.” 

Mohr notes that buyers demand clean, accrual-based (not cash-based) bookkeeping. As you clean up your financials, ensure that you’re using transparent, professional financial reporting that has been audited. 

3. Pass the Sabbatical Test

Before you exit your shop, ensure that the business can operate efficiently without the owner’s constant presence.  

While store owners have traditionally worked 70 hours or more in a week, many modern buyers are reluctant to purchase a business that monopolizes their time.  “They don’t want to buy a business that they have to be at seven days a week, 10 hours a day,” says Mohr.  

Additionally, young people these days prefer not to be tied to their jobs, so your children and young staff members might not want to inherit the shop if it requires all of their time.  

“You need to have sound processes, clear accountability, clear communication, and structure, so that decisions are being made without the owner,” says Mohr. “The best thing an owner can do is take a sabbatical for a month. Literally, can you leave your business for a month?” If the business can thrive while you’re away, you’ve passed the sabbatical test.

4. Mitigate the 5 Ds: Always Be Exit-Ready 

An unexpected exit from a business often stems from the “Five D’s”: death, divorce, disagreement (such as a partner dispute), disability, or distress (such as unfavorable market conditions). Because these unforeseen events can happen to anyone, succession planning can’t be a one-time task; it must be a constant process to keep the business in top financial and operational shape. As Mohr says, “Your business should always be exit-ready, no matter the situation.” 

To be “exit-ready,” you must ensure that certain legal safeguards are in place. “Do you have a proper buy-sell agreement if one partner wants out, if one person dies, or if one person gets divorced?” says Mohr. 

Additionally, you must keep the business on sound financial footing. “There are lead indicators to tell you how you’re doing in your business,” says Mohr, emphasizing the importance of monitoring those indicators regularly and making managerial decisions to correct the pain points. Clean financials keep the business in a strong position, whether you need to sell it or face a rough patch requiring a bank loan. “If your financials aren’t good when you show the banker, the banker’s not going to give you any money,” says Mohr.

5. Transfer Your Knowledge

After running a store for many years, owners carry significant “institutional knowledge” that contributes to the success of the business, says Mohr. Over the years, an owner will form unique relationships with vendors, develop deep product expertise, and know the habits and quirks of particular customers. It’s critical to document this knowledge and implement systems that will allow the next business owner to access the information. If the entire business’s brainpower resides in the owner, the business’s legacy is at risk, says Mohr. 

If you plan to pass the business to a family member or someone on staff, identify the next leader and begin training that person. Mohr recommends that you allow prospective leaders access to vendors and financial decisions. For instance, when attending trade shows, consider introducing team members to key vendor contacts.

6. Prepare Yourself Mentally

After dedicating years of energy to a business, letting go is often a profoundly emotional experience,” says Mohr. To ensure a smooth sale, an owner must be mentally prepared for the next phase of life. According to Mohr, many owners are so emotionally attached that they inadvertently jeopardize the sale.  

Mohr explains that owners may worry about what they’ll do next or question if they’re financially ready. Also, an owner may have a subconscious fear that leaving the business will create a void in their life. Due to these uncertainties, an owner might cause delays in preparing key documents or implementing necessary structural changes, ultimately slowing or derailing the transition. 

Your Freedom and Legacy 

While succession planning involves financial and legal decisions, it also entails emotional considerations, requiring time to develop a clear vision for your personal future and the future of the business. The significant transition happening in the outdoor industry, marked by the closure of iconic retailers, makes it clear that owners must proactively prepare for what’s ahead. 

By following Mohr’s advice, you create an “exit-ready” business that can thrive without your constant presence.  By addressing both the operational hurdles and your emotional attachment, you’ll not only maximize your business’s value but also secure your personal freedom and lasting legacy.