As part of its continuing coverage of succession planning issues, Bookselling This Week spoke to six bookstore owners who recently and successfully purchased independent bookstores. Last week, BTW covered "Succession II," a session from BookExpo America moderated by Ivan Barkhorn, a consultant to ABA on strategic matters, and provided a link to Barkhorn's PowerPoint presentation.
Succession can often be a thorny issue for both the seller and buyer of a bookstore (hand-wringing thrown in free of charge). In talking to a number of new owners about what makes for a winning transition, two words kept popping up: trust and passion. In each changeover, the former and new owners either had, or developed, a sense of trust with one another, and each new owner had the kind of zeal necessary to follow their bliss -- to buy a business not solely for profits, but for love.
While a passion for books helps initiate the sale and the succession process, the act of buying the store itself can be complicated and wrought with worry. Almost all the new owners hired lawyers and Certified Public Accountants to help them with the paperwork and/or valuation. Additionally, they all found financial institutions hesitant to loan money to fund their desire to own an independent bookstore, and one owner joked that even her trusted CPA tried to talk her out of buying the bookstore.
Still, all the new store owner were ebullient about their decision to buy a bookstore, not because they saw it as a way to get rich -- they didn't -- but because they simply loved books.
Park Road Books in Charlotte, North Carolina
Trust between buyer and seller was an important factor when Sally Brewster purchased Park Road Books in Charlotte, North Carolina. Brewster was good friends with the former owner, John Barringer -- she had known him when she was a sales rep for Random House and had worked at the store during the holiday season. Then, three-and-a-half years ago, Barringer asked her if she would run the store for him. A year later, he asked her if she wanted to buy the store, and she officially became the new owner on March 20, 2003.
At Park Road Books, Brewster said the toughest part of the succession process -- which took about two years -- was finding the fair market value for the store, not to mention finding a lender. "[Banks] do not want to lend to bookstores," she reported. "I didn't think [the process] would take this long. Finding a lender was much harder due to the state of the book industry, and banks don't want to loan money at [low] interest rates."
Brewster ultimately hired a CPA to help calculate the store's value. "They did a nice report," she said. "The CPA did three different formulas [to calculate the value]. Each one had tax implications." Using the report, she and Barringer agreed on a selling price. She added that her friendship with Barringer was beneficial to the transaction, and, if had they not trusted each other, "I would have gone about it a different way."
Hobbit Hall Children's Bookstore in Roswell, Georgia
Kim Dickie became a new store owner on March 20, 2003, as well, when she officially took over Hobbit Hall Children's Bookstore, a popular independent located in Roswell, Georgia, a suburb of Atlanta.
Dickie spent two-plus years researching the children's book market with the goal of purchasing a children's bookstore. She never expected to buy Hobbit Hall, though she had visited the store and had formed a relationship with its owner. "The store was just as I had envisioned [a children's bookstore should be]," Dickie said. She sought advice from then-owner Anne Ginkle, explaining her interest in starting a children's bookstore. "She gave me her take and told me to e-mail questions," Dickie said.
Ultimately, however, Dickie decided to put her dream of owning a store on hold until, in September 2002, she received a surprising phone call from Ginkle, who asked her if she was interested in buying Hobbit Hall.
"I said I was very interested, and we got together to talk financials and the offer," Dickie explained. "I did my analysis [of the bookstore] on my own and decided the store had great opportunities for growth," especially with school book fairs.
Dickie, who used to work for a telecommunications company, said that there were three key challenges with the succession process: the bank process; getting through all the paperwork and documentation; and changing over all the accounts, from utility bills to vendor and publisher accounts.
To help her through the sale, Dickie "sat down with an accountant/financial analyst and my attorney." The main question was whether she could make it a profitable business. "I came up with a business case" that included a financial proforma, a marketing plan, and a business objective, she said.
Though Dickie looked into getting a bank loan, she ended up paying for half of the store with her own money. The other half was through owner financing. "Each of us had a lawyer and we came to an agreement," she said. During the sale process, she and Ginkle got to know each other, which made it easier to come up with a contract. "We felt each other's intentions were good. She still helps with the transition process, the book buying, and book fairs."
Bookworks in Aptos, California
Traci Fishburn and Diana Mejia became the new co-owners of Bookworks in Aptos, California, on May 1. Mejia, a retired high school English teacher, told BTW that, a couple of years ago, former owner Lee Duffus came to them and offered them the bookstore. Both had worked there for some time -- Mejia part-time since 1994 and Fishburn for 18 years. "We just loved the store," Mejia said. "Lee offered it to us, and we couldn't say no. He wanted someone from the community to buy it."
Mejia said the succession took "a couple of years. Lee is carrying part of our loan. We just simply took on a long-range loan from Lee, and he gave us a low interest rate -- it's an eight-year plan. We also went to the bank, but it's difficult to get as much as you like."
There was little haggling on price, Mejia noted, because, since they had worked in the store, "we knew what was fair." More importantly, they each trusted one another. "I can't tell you -- he is just a man of integrity," she explained. "We loved working for him."
The two new owners hired a lawyer to look over their partnership agreement, met with a small business consultant at the local college, and hired a CPA to look over the paperwork involved in the sale. "[The CPA] gave us a lot of advice, but we didn't follow it!" Mejia said with a laugh. "We knew we were going to buy the store! She felt our heart was there, but the numbers were not."
To help them with the transition, Mejia and Fishburn attended Paz & Associate's "Opening a Bookstore: The Business Essentials," which was held in Portland, Oregon, from September 9 - 15, in conjunction with the Pacific Northwest Booksellers Association convention and trade show. "We went for a week and learned everything we could," Mejia said. "[W]e met a lot of great people."
Paulina Springs Book Company in Sisters, Oregon
Brad Smith told BTW that he and his wife were looking to purchase a business or a service in the small tourist town of Sisters, Oregon, and Paulina Springs Book Company was the "first thing that came along that got me excited," he said. Prior to moving to Sisters, Smith and his wife lived in Portland where they had managed a food co-op for 25 years. They moved to be near family and to purchase a business that Smith would run (his wife works full-time in Sisters).
In March 2003, he heard that Paulina Springs was for sale. "I very much liked the store and the book industry -- it's an industry with a lot of integrity, and it's a product I felt very good about. I was looking for something that meshed with my beliefs."
Once the store became available, Smith acted fast. Remarkably, the succession took only a month, and he did not hire anybody to help with process. "I don't recommend that to anybody, but it worked for me," he said. "And it keeps costs down." He incorporated to purchase the business, and he read a fair number of books about buying a business, he said.
Regarding negotiating a buying price, Smith said, "I felt the owners deserved what they were asking, and I offered not much less. I've run a grocery store for the last 25 years, so I have a lot of business and financial experience." He signed an agreement on April 7 and took over the store on June 2. "It was the first thing that really excited me, and I would have liked to have done [the sale] quicker!" he noted.
One reason Smith was able to move quickly is that he capitalized a high percentage of the purchase price with his own money, and then funded the rest with a bank loan. "I didn't have any issues with the bank because [the loan] was not a high percentage of the purchase price."
Green Apple Books in San Francisco
Long-term employees Peter Mulvihill, Kevin Ryan, and Kevin Hunsanger bought Green Apple Books in San Francisco because "we would have been crazy not to jump at the chance to work at a place we love," Mulvihill told BTW in a February 2003 interview.
Founder and owner Richard 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 pursue other interests. The very day that the former owner approached Hunsanger, Mulvihill, and Ryan, the four went out to dinner, and there they agreed to buy the store.
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 purchased gradually from Savoy. 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 payments on September 1, 1999. They hired lawyers three years ago, but did not sign a legal agreement until February 2002, he noted, and he 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. 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."
Butterfly Books in De Pere, Wisconsin
Nine years ago, Karen Gaston, then co-owner of Butterfly Books in De Pere, Wisconsin, asked her friend Barbara Wilson to help out at her children's bookstore for a few hours during the holiday season. Wilson enjoyed it so much she stayed on as a part-time staff member, and, last January, she bought the bookstore.
The sale came about because Gaston and her husband, Bud, wanted to retire. Wilson didn't think to buy the bookstore initially, but she knew that the Gastons "put too much effort into creating a literacy center for teaching professionals to sell to just anyone," she said. She didn't want to see Butterfly Books close, so she and her husband, Greg, offered to buy it, and the Gastons were thrilled. "They knew I shared their philosophy," she added.
For Prospective Bookstore Buyers
Overall, the succession process has been a learning process, the new owners said. For those planning to buy a bookstore, these new owners each gave prospective booksellers some advice.
"Work at the bookstore first," stressed Park Road's Brewster. "Know what you're getting into" so you have realistic expectations when you take over.
Paulina Springs' Smith echoed Brewster's sentiments, and noted he would have preferred an opportunity to know the bookselling business better. Also, "I have the same employees that were working here [for the former owner]," he said. "That is a huge benefit -- these are people with some history."
Be creative, said Dickie. "There are so many niches and needs for children that can be capitalized on to get them away from TV. There are great opportunities to enrich the lives of children with creative thinking." -- David Grogan with reporting from Karen Schechner