One key element to successful bookstore succession planning is to know your ideal buyer and terms. Experts attest that the process of selling a store is complicated enough without having to negotiate with a buyer who is, at best, an unknown quantity.
At Green Apple Books in San Francisco, trust between the three buyers and the store's seller played a huge role in a successful transition -- that's because the owner was selling the store to long-term employees, said Peter Mulvihill, a Green Apple employee, who, along with colleagues Kevin Ryan and Kevin Hunsanger, has a long-term deal to buy the store from the store's founder, Richard Savoy. "We came at it with two sets of lawyers," said Mulvihill. "But eventually we just decided to use Richard's lawyers to draft the agreement because we trusted each other."
Savoy first approached his three employees in 1996 to see if they were interested in purchasing Green Apple Books. Mulvihill explained that Savoy, who had first opened the store in 1967, was ready to move onto other things. "But he wanted the business to continue and the best way for that was with people who worked there and knew it well," Mulvihill said. "[Savoy] had bought some property up north 10 years ago and planted grapes, so he has started to sell grapes to wineries now."
The very day that Savoy approached Hunsanger, Mulvihill, and Ryan, the four went out to dinner, and there they agreed to buy the store. "We would have been crazy not to jump at the chance to work at a place we love," Mulvihill told BTW. "Not many people can do that. We felt extremely lucky to have been asked. It's the difference between buying a house and renting -- no one had to think twice."
He noted that Savoy wanted three people to purchase the store so that ownership would not rest on one person. "That way, say, if I got flighty, the business wouldn't be [affected]," he said. "And each of us has different strengths."
Aside from the decision to purchase the bookstore, there was little about the succession process that was simple, said Mulvihill. At the same time, the trust that Savoy and his three employees had for each other was crucial to the kind of deal that was structured.
The four agreed on a 10-year-plan, in which the bookstore would be gradually purchased from Savoy. Each year, Hunsanger, Mulvihill, and Ryan purchase 10 percent of the value of the bookstore, Mulvihill explained. Additionally, Savoy earns a salary in a consultancy role and remains the CEO of Green Apple Books.
Drafting the legal agreement was complicated, said Mulvihill. The four had a verbal agreement from September 1, 1998 (the start of Green Apple's fiscal year), with the three making their first 10 percent payment on September 1, 1999. They hired lawyers three years ago, but did not sign a legal agreement until February of last year, Mulvihill noted, and stressed, "It didn't have to take that long. It was three years of one meeting every two months." Still, he referred to the process as a "nightmare legally."
Drafted in the agreement are contingency plans in case the three buyers cannot make payments or are hurting the store, by letting stock dwindle, for instance, Mulvihill said. "This was one of the harder things to define," he said. In an instance where the purchase agreement is not met, "we'd get a warning, and Richard would watch the store more carefully than he does now." The second time, "we wouldn't purchase shares. Instead, the 10 percent would be placed in a holding account." If conditions did not improve after the second warning, "he could seize the store and we would only get part of our principle back." Fortunately, Green Apple Books is doing very well, he reported.
Savoy owns the Green Apple Books building, said Mulvihill, and they signed a 10-year lease with two five-year options a few years ago -- another key ingredient to a successful agreement. "[A long-term lease] is crucial in San Francisco," he said, and explained that most retail spaces in San Francisco are offered only on very short term leases. "Our lease here is very secure," Mulvihill concluded.--David Grogan