Doing good business even at the end - going out of business - column

Nation's Business, Oct, 1988 by Carol K. Watts

Doing Good Business Even At The End

Volumes have been written to assist entrepreneurs in starting and maintaining their business. But almost nothing is in print to tell us how to disband a business profitably when circumstances force that step. Still, I managed to close my business successfully, relying on my own instincts and experience and word-of-mouth advice from other retailers who had gone the same route.

My career as the owner of a retail business had begun in 1980, when my husband and I purchased from my parents a specialty shop in the downtown business district of Camdenton, Mo., a city of 2,000 people in a business area with about 20,000 people. The store included men's and children's departments and a women's specialty section. My husband had his own career as a psychiatric social worker, and I ran the business.

I had run a branch of the business in Columbia, Mo., while finishing college in my late 20s. So when my parents, who had received a nice income from the store, decided to sell, my husband and I agreed to buy it.

The geography of this area had a lot to do with what happened. Camdenton is on the edge of the Lake of the Ozarks, which has hundreds of miles of shoreline and has traditionally been the center of a vast tourist industry with accompanying commercial development. But that development was accelerating about the same time I took over the store. Retailing in Osage Beach, just 10 miles from Camdenton, grew explosively.

As I began my new career as the full-time owner and manager of a retail store, I found intense competition. I dropped the men's and children's departments, making the store a women's specialty shop.

Competition came from many directions. Five malls were built in the area over a few years, the most recent containing 100,000 square feet with another 100,000 to be added in the fall of 1988. My store was a lucrative little business until 1987, when I really started feeling the competitive pressure.

As a working mother, I had a benchmark dollar figure at which the business was worth the effort, frustrations, sleepless nights and sense of missing out on a lot with my family. But I also had a dollar level at which the business was not worth it, and my income fell to that level.

I never even considered selling. The area had become over-retailed, and I could only show a prospective buyer declining gross figures. So the only alternative was to sell the merchandise and fixtures and go out of business. But we did not rush into this. We spent a year formulating a plan that would enable us to close up shop in an orderly manner: paying off the debt my parents were carrying from their sale to us and taking some money with us. To do this, I had to do more than just sell the remaining inventory at a cut prices. The final sale had to generate as much income as possible.

My first move was to join an off-price buying service, which saved me far more than it cost in monthly fees. I made several trips to New York to order first-quality merchandise at 25 t0 50 percent off wholesale.

The next major challenge was deciding what volume to anticipate so I could plan a budget. That's where the word-of-mouth advice came in. Through the buying service, I had met numerous retailers who had held going-out-of-business sales in the past. The consensus seemed to be that, for a two-month sale, you should plan on 2 1/2 times the normal gross the first month and twice the second month.

Actually, I missed the mark a bit on ordering. We kicked off the sale Memorial Day weekend and grossed in four days what we had grossed the previous May in the entire month. I was on the phone reordering immediately. Even with some restocking, our planned nine-week sale lasted only seven weeks before the cupboard was bare. I instead of doubling the norm, we were running at triple.

Timing was a critical element. Our location in a tourist area made Memorial Day ideal for launching the sale because the summer months had always been our strongest. If you are going to double or triple your sales volume, it's always good to work off the highest possible base.

In projecting cash flow for the final months, we built in higher operating expenses--three times normal to pay extra sales clerks, higher utility bills and advertising expenses.

Long-range planning and careful work with a calculator paid off. We netted in seven weeks what it had previously taken us three years to earn!

While the going-out-of-business sale was highly profitable, the response did not change the basic economic factors that prompted it.

I don't regret the years I put into the business, but I'm not sorry to be out of it. My children were shortchanged--I worked weekends, and was always the first to arrive at the store and the last to leave. My husband was very supportive. He did the things I would have been doing--the chauffeuring and the school activities and the rest of it. Now it's my turn to do them.