Retail Business Valuation
The valuation of retail businesses depends upon many factors:
1. Inventory investment. Need to determine inventory turnover standard for business being considered and discount any slow inventory. Some inventory may be considered worthless if not readily marketable.
2. Accounts Receivable. Need to discount valuation of receivables older than typical collection period (usually 30 days).
3. Assets Investment. Essentially all assets should be discounted to cash value at time of expected sale. This may require determining cost to dispose or otherwise utilize asset under consideration.
4. Distribution channel (selling from brick & mortar location vs.
internet distribution and low cost facilities).
5. Lease terms. Are you facing lease payments too high for volume of business).
7. Customer mix.
8. Availability of historical financial information.
Employee turnover should be reviewed to make sure you are buying a business with a stable work force and not immediately subjected to staffing issues.
For a buyer the aspect of seller financing is always considered beneficial.
The rule of thumb for retail business valuations is typically one of two methods:
A. Inventory Method. 20% to 45% of annual sales plus inventory
B. Non-inventory Method. 50% annual sales with no adjustment for inventory.
Retail Valuation Rule of Thumb
Model
For more information about this valuation method please email
Mike Fendley at info@robinsonfendley.com
or call 561-795-9815.
Robinson Fendley