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Workroom Operations

Buying (or Selling) a Business
Purchasing an existing workroom may—or may not—bring the rewards you seek.

by Kitty Stein, WCAA, CWP

Today, I spoke with a lovely lady from Africa. She is an interior designer and so displeased with the workroom she has been using that she wants to purchase an existing workroom. She has no knowledge of sewing. Does this sound familiar?

Over the last few years, I have talked with more and more people who want to purchase an existing workroom. This group includes frustrated designers, retail decorators/workrooms and workroom owners who want to expand. In most cases, it’s a situation of going from a one-person business to one with many employees.

While you may not be thinking of buying a workroom, you might some day be thinking of selling one. In reality, we all should be running our businesses as if we were planning to sell them so they would be complete turnkey operations—businesses to turnover to someone else when we are ready to move on or to retire.

The questions I am asking here are presented from a buyer’s point of view. However, these questions also will enable a seller to better prepare a sales presentation.

TWO MAJOR QUESTIONS

BIG QUESTION #1: Do you know how to sew? The answer could make you or break you.

Those who don’t know how to sew or do know but don’t enjoy it, and therefore plan not to sew, are headed for a major “blip in the chart.” As owner of your business, you must know how to do everything within that business. Many say they already have someone lined up to supervise the workroom. Suppose that person leaves one day and never comes back? You must be able to do what that person did—as well as do what everyone else does!

BIG QUESTION #2: Do you love managing more than sewing or selling? Anywhere from three to four employees will turn you into a full-time manager.

FROM WHENCE YOU COME

1. Do you like training? What about retraining?

2. Are you diplomatic? Can you keep the peace among employees?

3. Can you effectively convince employees to take their jobs seriously and stay focused on work and not on socializing?

4. Can you easily delegate?

5. What is the value of this purchase to your existing company? To get to a point of retiring but with money still coming in, or to sell the business when you have a retirement nest egg to support you?

6. Do you have a clear picture of where you want this company to go in five years?

7. Do you have a road map, i.e. a business plan, to achieve what you picture?

8. How much salary do you plan or need to make?

9. How much profit do you need?

10. Are you willing to start over as if you were a new business that requires the same personal attention and working hours as a start-up business?

11. Besides sweat equity, what are you bringing to the business?

12. Will you need additional equipment or staff?

13. Do you have working capital?

EMPLOYEE MANAGEMENT QUESTIONS

1. Are you ready to manage more employees? Envision yourself managing the number of employees you will inherit with the purchase of an existing business.

2. Will all the employees stay with the business?

3. Can you work with the existing employees?

4. Do you even want them all to stay?

5. How will you handle firing the dead wood?

6. Are you a good enough people-person to easily win their trust?

7. Do you speak their language? The largest minority group in our country and the largest pool of sewers speak Spanish. Do you?

8. Will employees be willing to learn new methods?

9. What employee benefits will you offer, and can you afford them? Once employees have been given something, it is difficult to take it away.

10. What has been the employee turnover? Why have they stayed? Why have they left?

WORKROOM EVALUATION

Spend a day or two in the workroom to evaluate what is happening.

1. Are the workers producing a quality product?

2. Are their techniques efficient?

3. Evaluate the equipment. Is it in good working order? Will you need to add equipment?

4. Are the techniques and equipment set up to obtain good ergonomic working conditions, i.e. are they using an electric rotary knife like the Eastman Chickadee B?

5. Is the working environment safe?

6. Can this workroom pass an inspection by the Occupational Safety and Health Administration (OSHA)?

7. Will retraining be absolutely necessary, and can it be done slowly? Bad habits are hard to break. The longer one has a habit, the harder it is to change even if one wants to.

QUESTIONS TO ASK THE SELLER

1. If the building is not for sale, will you have to move? If so, where?

2. If the building is part of the sale, how soon can you have a building inspector go over it?

3. Have a trusted accountant go over all the books for the past few years. How profitable is the business now? What has been the profit margin in the recent past years?

4. Ask your accountant to appraise the value of the business now and with the plans you have for the future.

5. Why is the business being sold?

6. Are all systems and procedures documented, e.g. are there written directions for the fabrication of all products? Is there a company policy manual? Are all job descriptions written down? Are the procedures for all operations documented: ordering, receiving orders, billing, etc.?

7. Does the current owner use standardized and customized paperwork, e.g. forms such as “Order in the Workroom?”

8. Has computer technology and software been put into place? Are the hardware and software current?

9. How often have the labor prices been raised?

10. What made the current owner successful?

11. What caused her or him to lose money?

12. Who are the business’s clients? Can you work with them? Are they the market you plan to reach?

13. How has she or he marketed and advertised the business? What was successful and what wasn’t?

14. What is the current owner’s management style? Is it similar to yours? If not, new owners may bring additional anxiety to the employees.

15. What is the management/employee relationship?

16. What insurance does the current owner have on the company? Is it adequate?

INCREASING VALUE NO MATTER WHAT YOUR PLANS ARE

After you have gone through all the above questions and you still plan to go forward with the purchase, hire a business consultant as a totally objective evaluation tool to also review the business practices. Such a professional is likely to turn up many areas that someone close to the industry may not see, potential problem areas such as management practices and efficiency, marketing efforts and employees’ attitudes. This person also would outline a business plan and objective and make suggestions that should be more profitable for you as the new owner.

You might have noticed that this entire article assumes you will be getting employees included with the purchase. There is a reason for that. A one-person business has assets in inventory, equipment, samples and personal relationships. The latter cannot convey to the new owner. Yes, the seller could stay on for a period of time to help in the transition and introduce the new owner to existing clients. However, the new owner must sell herself to the clients. Only in a larger business with less personal client relationships might the personal relationships have value.

Have you realized the hidden value of what you have just read? Most of you have no plans to buy a business, but how many questions could you answer if you were going to sell your business? Wouldn’t it make sense to start working on the answers now? You have the opportunity to make your business not only more valuable in resale terms, but much more streamlined and profitable.

Turn on that computer and start writing out your company procedures and policies. You can start with your job description: 1. President . . .