Valuing a store properly is the most critical step in selling it. A poor valuation will most certainly lead to either a store not selling or selling below a price is should have but for the poor valuation and preparation of the business for market.
Case in point - SellingStores was approached by a Seller whose store was just appraised by another broker at $250,000. In fact the same broker brought a full price offer to the Seller. The Seller thought the store was worth more and called us to perform a valuation analysis.
Our agents spent the time to listen to the Seller. A detailed and thorough analysis of the tax returns and income statements produced results far greater than the other broker. The other broker had found about $90,000 of owner discretionary cash flow while our analysis revealed closer to $120,000. We valued the store at $330,000, or $80,000 higher than the other broker. The store sold in a matter of weeks at $330,000.
In another similar case, a store owner's business was valued at $625,000 by a local business broker. The owner called us to have a valuation completed. Our analysis revealed a value of $795,000. We listed the store and had it sold in a matter of weeks at near full price. Again, the Seller netted $170,000 more than the other broker's quoted price.
These are typical examples of how our expertise makes the difference.
There is several value techniques used to determine the price of a store. First, there is the income valuation technique. This is the most favorable and trusted method used to value a business by nearly all buyers. If the store has solid profits on tax returns, it is likely a buyer can purchase the store with 20% down or less on an SBA loan. This significantly increases the number of buyers able to purchase the store and; hence commands the highest possible price. A SellingStores agent will take the time to dig into the tax returns to find those hidden nuggets of gold that most brokers will over look. Businesses with good tax returns command a higher multiple than businesses without tax returns.
Second, the annual gross sales valuation technique, although not relied upon by most buyers, uses a percentage of annual gross sales to determine the value. The percentage used depends on the lease, location, condition of store, and validity of the annual revenue number. The better these traits, the higher the percentage commanded. Stores with poor records and in poor shape will only command perhaps 15-20% of the gross sales. One with a good lease, location and verifiable numbers could command up to 40% of gross sales.
Finally, the replacement value technique assumes a buyer pays the seller a large premium over the income value and annual gross revenue techniques in order to benefit from the existing investment in the store facility, the lease and the location of the store. In other words, a buyer will pay for the right to avoid spending hundreds of thousands and even possibly a million+ dollars and to avoid all the city regulations and delays in building a new store. These are rare cases and don't happen very often. Perhaps 5% of our sales account for these type of sales.
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