Selling a retail store or boutique in Canada

A boutique, gift shop or specialty store is a location, a set of brands and a group of loyal customers, with a lot of stock on the shelves. Buyers pay for the sales they can count on and the inventory they can sell, so most of the work in selling is showing that both are real. Here is what to expect and how to prepare.

What buyers look at first

Most retail buyers ask the same questions early. Have clear answers ready before you list:

• The lease and the location. How many years are left, including renewal options, the rent and costs, foot traffic, parking and whether the landlord will consent to an assignment.
• Sales. Monthly sales for the last two or three years, so a buyer can see the busy and slow seasons and the trend.
• Gross margin. What you pay for stock compared with what you sell it for, by category if you can.
• Inventory. How much stock you carry at cost, how fast it sells and how much is old or marked down.
• Brands and suppliers. Which lines sell best and whether those suppliers will open an account for a new owner.
• You. How many hours you work in the store, and whether regulars come in because of you.

Buyers will check these during due diligence, so it helps to gather them now. Our list of documents needed to sell a business is a good start.

Clean, matching numbers

Your point of sale system is your best record. Pull sales reports by month, by category and by payment type, and make sure they match your bank deposits and the sales on your tax and GST/HST returns. Cash sales that never reach the books cannot be shown, so a buyer generally will not pay for them. If you pay yourself a wage or run personal costs through the store, list them clearly as add-backs with proof.

Retail is seasonal, and buyers know it. Show full years rather than your best months, and explain one off events such as a road closure or a big order from a single customer. If sales have slipped, say so and show what you are doing about it. Our guide to selling when sales are down may help.

Inventory and the closing day count

Stock is often the biggest single item in a retail sale, and the most common source of last minute arguments. Agree early whether inventory is included in the price or added on top, and how it will be valued. Many deals add stock at the seller's cost, counted together on closing day, with lower values or exclusions for items that are old, damaged, out of season or on clearance.

A few habits make the count easier. Keep your point of sale stock levels accurate, do a trial count a month or two before closing, and avoid placing large orders for the next season without the buyer's agreement. Write the counting method, the valuation and who does the count into the purchase agreement. Our guide to selling a business with inventory covers this in more detail, and working capital explains how stock affects the final price.

Consignment goods

If you sell items on consignment, such as local artisan work or resale clothing, those goods still belong to the consignors. They are not yours to sell to the buyer, so leave them out of the inventory count and the price. Give the buyer a list of consignors, the agreements and what is owed to each, and agree whether each arrangement carries on with the new owner, is paid out at closing or ends with the goods returned.

Gift cards, store credit and layaways

Retail stores are often holding money for goods not yet delivered: gift cards, store credit from returns, layaways, deposits on special orders and loyalty points. In most sales the buyer agrees to honour them, and because the buyer will hand over goods you were paid for, you agree a price credit on closing for the outstanding balance. Run a report from your point of sale on closing day and write the method into the agreement.

Old cards still count. In British Columbia, the Prepaid Purchase Cards Regulation generally does not allow expiry dates on gift cards with a dollar value. Alberta's Gift Card Regulation says no supplier may sell a prepaid purchase card that has an expiry date. Other provinces have their own rules, so check before you assume a balance has lapsed.

Brands, suppliers and online accounts

A boutique is often only as good as the lines it carries. Some brands give stores an exclusive area or a dealer account that does not transfer automatically, and some will want to approve the new owner. Make a list of your main suppliers, the terms you have, any minimum orders and any open orders or prepayments, and ask the important ones early, once the buyer is serious, whether they will keep selling. Our guide to telling customers and suppliers covers timing and wording.

Also list the accounts that keep the store running: the point of sale system and payment terminal, any online store, the website and domain, social accounts, the phone number, email list, loyalty program, alarm and security, and insurance. Our guide to transferring contracts, licences and permits has a checklist. If your store is a franchise, the franchisor's approval comes first; see selling a franchise business. Selling a salon or barbershop instead? See selling a hair salon or barbershop.

Customer data

Your customer list, email subscribers and purchase history are personal information. In British Columbia, section 20 of the Personal Information Protection Act lets a business share personal information about customers and employees with a prospective buyer without consent, but only if it is needed to decide whether to go ahead and the buyer has signed an agreement to use it only for the deal. After closing, the information can pass to the buyer if it is used for the same purposes and customers are told the sale happened. Many sellers share totals and anonymous reports first, under a confidentiality agreement, and the full list only near closing.

Staff

A buyer will want to know who works in the store, their pay and hours, and who is likely to stay. Employment law is provincial. In British Columbia, section 97 of the Employment Standards Act says that if all or part of a business is disposed of, an employee's employment is deemed continuous for the purposes of the Act, which can affect vacation and length of service for staff who stay on. Ask your lawyer what you owe on closing, and plan when and how to tell the team. See what to tell employees.

The lease

For most stores the location is a large part of the value, so the lease is central to the sale. Read it for the assignment clause, renewal options, any limits on what you can sell, and whether you stay liable after assigning. Landlords often ask for the buyer's financial information and sometimes a personal guarantee. Talk to the landlord early, with your lawyer. Our guide to the commercial lease when selling covers this step by step.

Tax on the sale

How the sale is taxed depends on whether you sell assets or shares and how the price is split between goodwill, fixtures and inventory. See asset sale vs share sale, goodwill when selling and taxes when selling a business.

For GST/HST, the CRA explains that you and the buyer may be able to jointly elect under section 167 of the Excise Tax Act, using Form GST44, so that no GST/HST is payable on the sale. This generally needs the buyer to get at least 90% of the property needed to carry on the business, and if you are a registrant, the buyer must be one too. In British Columbia, PST generally applies to taxable goods in the sale such as fixtures, furniture and equipment, but not to inventory bought for resale or to goodwill, and the Province says a buyer should get a PST clearance certificate before buying a business. Alberta has no PST. See GST and PST when selling a business.

A simple worked example

These numbers are made up and rounded for illustration only. Your own deal, timing and tax will differ.

Questions to take to your lawyer and accountant

• Will my landlord consent to an assignment, and will I stay liable after it?
• How should we count and value inventory, including old and clearance stock?
• How should consignment goods be handled at closing?
• How should we credit outstanding gift cards, store credit and layaways?
• Do any brand or supplier agreements need consent to transfer?
• What customer information can I share before closing, and what must the buyer agree to?
• How should we split the price between goodwill, fixtures and inventory?
• Can we use the section 167 election for GST/HST, and how is PST handled?

For more, read what your lawyer and accountant do. Selling an online store instead? See selling an online store in Canada. Running a corner store? See selling a convenience store in Canada. Selling a private liquor store? See selling a liquor store in Canada. Running a pharmacy? See selling a pharmacy in Canada. This guide is general information, not legal or tax advice for your situation. Questions about listing with us go to hello@sellmybusinessdirect.com.