Succession Planning: Selling a flooring store – June 2025

By Terry Kelm

The decision to exit your business as a flooring dealer is very personal and requires careful thought. Only you, as an owner, know when the time is right. The decision can be based on one or several factors, including retirement, a new career path, health issues, partnership dissolution or just “taking some chips off the table.” The process of actually divesting your business requires proper planning. Once you have made the decision to leave the business, the next decision is how you will divest your company.

THE INS AND OUTS OF A THIRD-PARTY SALE
The top four strategies for divesting a small, privately held business are family, key employee, third-party sale and liquidation.

If you decide to go the route of a third-party sale, sellers must understand how to both value their business accurately and identify the right type of buyer to maximize their return. A proper valuation of your business is one of the keys to a successful sale. Overvaluing a business is fraught with many negative outcomes, while undervaluing leaves money on the table.

When it comes to valuing a small, privately held flooring company, many different methodologies exist, each with various pros and cons. Business brokers tend to start their price estimation with an owner-benefit based methodology called seller’s discretionary earnings (SDE). SDE is widely utilized because of the following factors:

• When the business is good (i.e., it makes the owner decent money), this methodology tends to maximize the value.

• SDE answers the buyer’s fundamental question of “How much money will I make?”

In addition, SDE is a critical component that a bank will analyze, as it contemplates lending money to a buyer to purchase a business. The methodology illustrates the business’ ability to generate not just profits but also total owner benefit. It involves re-casting financial statements to ascertain the true cash flow an owner receives from their business on an annual basis. SDE is not just net profits but includes other items such as salary, interest expense, depreciation, amortization and any other expenses paid through the business that are more personal in nature. Some examples include paying for health insurance, life insurance and personal car payments. Expenses must be provable to potential buyers via receipts, and even then, some addbacks are not always accepted by the lending bank. Thus, we recommend running the business with as few personal expenses as possible in the year or two leading up to your exit.

Once the SDE has been calculated, a multiple of SDE is then applied to estimate a market sale price. Multiples vary across the flooring industry, as each operation is unique. While the financial health of a business is a buyer’s number one concern, interested prospects will then dig deeper into several aspects of the business operation to determine if it is truly the right business for them to purchase and the price they will offer.

A profitable flooring store or contractor business with repeat customers, strong vendor relationships, and a good management team and systems will command a higher multiple in the open market. Databases of comparable resales are also utilized to assist in pricing a business, which is good for the seller and will attract buyer prospects. Flooring store SDE multiples range from two times SDE on the low end to more than four times on the high end.

COMMON TYPES OF BUYERS
When it comes to buyers of flooring stores, there are different categories of potential prospects. Understanding these categories can help you tailor your marketing and negotiation strategy. Primary buyers of flooring stores include,

• Individual entrepreneurs: These are often first-time business buyers, with or without experience in the flooring industry, seeking to own their own business. They are usually hands-on operators, which means they want everything a business offers-employees, systems, customers, vendors, etc. These buyers typically will look to leverage their money and finance the transaction.

• Strategic buyers: Entities both small and large that are already in the flooring or a closely related industry, such as construction or home improvement, and looking to expand their operation fall into this category. Strategic acquirers are typically looking to expand their market reach through acquisition to either add new product lines or increase their geographic footprint. These buyers are more interested in the customer base, hard assets and experienced staff. They also typically (but certainly not always) have more access to funds and thus can transact a deal quicker. But since they don’t need everything, they may pay less.

• Private equity or investment groups: Although typically not active in small, single-location operations, private equity firms or similar investor groups may be a prospect if a business is scalable, brings a new revenue stream to their current portfolio or is part of a larger roll-up strategy. These buyers typically look for high profits and even higher potential, and they gravitate toward opportunities where there are strong teams in place. They typically have the ability to fund the transaction but have a systematized due diligence process that could take several months.

Selling a flooring business is a process, not an event. It starts one to two years before you are ready to go to market, and the sales cycle once on the market can take another year. It can be complex with a lot of moving parts, and as Warren Buffett once wrote, “Mistakes made in the once-in-a-lifetime sale of your business are not reversible.” Relying on professionals to guide you through every step in the process can assist you in reaching your business transition goals.

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