Ok haven’t posted for a VERY long time. Looking at buying an LBS. anybody who has bought, sold or has thought about buying or selling a shop, how did you determine value? Overall stable business extensive history of many years, I shopped there 35 years ago when I was a child but horrible book keeping for me to evaluate.
I know the 2.4 times EBITDA plus inventory formula but is that only inventory that is paid off? So if it has 200K in inventory but owes 100K on that inventory am I adding in the 100K paid off or the 200K figuring with normal financing of 30-45 days I will pay a good portion of that off? Current owners in bad shape with his other businesses, manager quit and staff is walking out the door on him in 2 weeks… He has a mess on his hands. I have dealt with a similar situation while managing a tri store before. Had to clean house with staff and start from scratch so that doesn’t scare me, I just don’t know how to figure the value in this case… Any help or recommendations of people to contact on business valuation is much appreciated!!!
Thanks and if this belongs in the lavender room I apologize…
To me it is not worth more than than 100k unless they own the building and also if they have good lines locked up.
What I mean by this is top tier bike lines that you wouldn’t be able to get on your own.
There is a low barrier to entry in the bike business- I wouldn’t pay a premium for a shop if I could easily open my own across the street.
Work from a free cash flow model as well and you will incorporate expenditures, holdings (including inventory), among others into the calculation. It should generate a little more clarity of what the business is actually doing (or capable of doing) and what are its’ burdens or fruits for that matter. You should also try to get or model at least a 5 year projection to go along with your snapshot and that will need to be supported with data as well as historics. Ex. If they are running flat or trending negative, that needs to be discounted off the valuation. If this year is down as well the multiple goes down. Sounds like a fire sale to me; be cautious of any debt tied to the business.
When I bought one of my stores last year I left it up to my accountant and business advisors to come up with the value after they analyzed 5+ Years of financials.
I scoured the reports looking for opportunities for growth but I wasn’t going to pay for any of that as that’s my hard work not the previous owners
We set a high and a low value we felt good about, we offered low, they wanted high we settled on a number.
We paid for the value of the business plus inventory. Any debts or unpaid invoices were the previous owners responsibilities.
We negotiated the value of inventory. Current inline we paid cost, 1 season old was discounted a set amount, 2 seasons or older was discounted a larger amount.
I dont know if I’d ever buy an established store again, transitioning ownership was not fun.
What sort of lease do they have (I’m assuming they lease their space)? How prime (or not) is the location? What are market rents in the area? You should factor in the value of the lease as well.
A buddy of mine bought 1/2 a bike store about 18 months ago. He did a 6 month due diligence/review of everything. He only bought in because the store was debt free and ALL stock was owned. The shop had a long track record of always paying for any stock, by the end of each month. That meant suppliers loved the store and shipped his orders first, so he could provide great service to his clients.
After a year, the partner wanted out so sold my buddy the other half.
He is so happy to be a bike store owner. He has lived and breathed bikes since a teenager. He loves everything about them. He personally leads the 3 shop bike rides every week.
Me? I love bikes and have more of them than TriSpouse would like. I do virtually all my own wrenching. I would never consider buying a bike store. The idea of being a business owner, and all the hours and heartache that comes with it, scares me. I like my engineering job, my regular pay checks and my ability to ride when I like to ride. Thankfully we are all different. Owning a bike store might be just what you need.
Trek dealership as well as a couple exclusive smaller brand fat tire companies. How much does this add to the value? If the store is only grossing 800 K per year does the Trek deal become a sort of liability? I can’t get the details of a Trek contract from the current owner… He is very evasive about a lot and wants a premium for what really appears to be worth not a whole lot. If I make him a very low offer I want ammunition as to why I’m so low. Thank you!
For what he is asking for the store (close to 600K) I know I could start my own and not worry about any of his left over headaches… Location is just ok but the building is remodeled in the last couple of years and very nice looking shop. Realistically what is a range for opening a new Tri/bike shop? We are in a very underserved area that is in need of a running store also. If we buy this shop we will transition into making the lower level of this store Tri/running would be our plan to hike using the existing bike business to help finance this growth. But if I am negotiating at or near a range of opening a new shop I would rather do that in a better location… Thank you!
Long term lease, rent is at market values for it’s OK location. Bike shop in this same location for around 50 years. Many different owners but this one has had it for 10 years. The building owner is a friend and is actually committed to keeping the rent the same and possibly selling me the building in the future. He is also willing to do anything I want to the interior/exterior of the building old building in a historic downtown area. So with that would that increase slightly what I am thinking of offering?
This is also what I have thought… A lot of positives with this shop but may be to many negatives with the current owner… Maybe best to start from scratch…
Honestly this is a discussion to have with an accountant or such. There are a few store owners but not that many on here. If you overpay by 200k or more, you are pretty screwed.
I caution from the overall tone of your posts you are super excited and want to go forward. Excitement is good, but that is no way to do a business deal. You have to be willing to walk away. If owner is not answering a serious buyers questions, you cannot make any offer. You need to see 5 years of paperwork and learn everything about the business before you can even hope to put a price on it. What are the 5 year trends, both on income and expenses?
It sounds like there’s some positives but without getting an honest opportunity to look at everything, there’s no way you can value it. If he’s being this cagey with you that’s a clear red flag to walk away. Heck, might be better off to let him go out of business, pickup his inventory at pennies not the dollar, and find a new location.
It would seem that if you are buying a Trek store, really what you are buying is the relationship with Trek. So, you need to know exactly what you are getting. And I doubt this guy can sell you his Trek relationship without Trek’s approval. I would think this would be closer to buying a franchise than just a building with some bikes in it at least in concept for analysis purposes .
A real business deal would have you signing a non disclosure agreement (probably with Trek’s involvement as well) and getting to see both his agreement and being about to get a good idea about what your deal with Trek will be if the deal goes forward (and don’t just assume it will be the same as his).
if he isn’t willing to share every detail of the financials you can assume they are worse then he is saying, much worse. The business I bought last year thought they were doing much better then they were, they just didn’t know how to look at their own books.
you are not guaranteed to get accounts with any of the vendors he is doing business with as you will have to reapply for an account. For all you know Trek is looking for a reason to close his shop so they can give an account to someone else in the area
If he wants $600,000 all in, the shop should be doing about $1.4 million with net profit in the 12-15% range. Either that or he is overstocked and the inventory is inflating the asking price and you are going to be stuck with a crap load of inventory. And trust me stores that are overstocked are never over in the good stuff, it is always with crap. I recently bought the inventory of a defunct shop, they had the same number of shoes in stock as my main store did even though they did 20% of the annual business, some stuff was 6-7 years old
very few bike shops have ever also been a good running store, just the way it is. Also a lot of the footwear brands are not opening new accounts right now so I wouldn’t bank on that
have you written your own business plan and had an advisor look it over? Not a list of what you would do to make the place amazing, a real business plan of how you will pay the bills, grow the biz and put food on the table
Long term lease, rent is at market values for it’s OK location. Bike shop in this same location for around 50 years. Many different owners but this one has had it for 10 years. The building owner is a friend and is actually committed to keeping the rent the same and possibly selling me the building in the future. He is also willing to do anything I want to the interior/exterior of the building old building in a historic downtown area. So with that would that increase slightly what I am thinking of offering?
I would’ve only increased my offer price if the lease was below market. That said, I’m not sure of how to value the build-out offer.
If area is underserved it will be easy to find a top tier bike line.
600k is way too expensive- that is saying that fixtures, tools, lease, good will, etc… are worth 500k- and that is assuming that the 100k of owned inventory is actually worth 100k.
You should just open a new shop-
Long term lease, rent is at market values for it’s OK location. Bike shop in this same location for around 50 years. Many different owners but this one has had it for 10 years. The building owner is a friend and is actually committed to keeping the rent the same and possibly selling me the building in the future. He is also willing to do anything I want to the interior/exterior of the building old building in a historic downtown area. So with that would that increase slightly what I am thinking of offering?
There is NO way I would give this guy $600k for his business. Agree with the others about him not being so forthright with the financials. I helped provide personal financing to a few local guys two years ago who wanted to open a bike shop. They needed about $220k to get started from the ground up. There was no real estate purchase involved. The money was needed to get inventory and make changes in the store to look like a bike shop (ie, work station, storage area, computers, etc…).
I don’t really know what you would be buying for $600k? If the agreement allowed you to purchase the real estate, that may justify this price (if the real estate appraisal was done), but otherwise nothing is there. The inventory number is mostly from the bikes. That is a deal between him and Trek. You would have to continue (or renew) with Trek. Most bike brands will do their due diligence and only allow you credit (for bikes) to a certain amount. If you are not paying down this debt (to the bike brand), in a timely manner, then it will greatly influence your ability to get new inventory the following year. Not sure how Trek operates but another bike shop owner told me his bike brand “would not come after me for the unpaid debt on the bikes, they just come get their inventory”. I have never checked on the validity of this but I would bet they want their interests paid. Check his debt and see how much is over 90 days due.
If area is underserved it will be easy to find a top tier bike line.
600k is way too expensive- that is saying that fixtures, tools, lease, good will, etc… are worth 500k- and that is assuming that the 100k of owned inventory is actually worth 100k.
You should just open a new shop-
My friends, who opened their shop two years ago did just this. They originally talked to the oldest bike store in town about buying him out. After seeing how much he wanted, and how much work would have to be done to the store, they decided to open a fresh new store with a different brand. Now, they are the region’s busiest shop. Something to be said from starting new when your other option is making an ugly dog pretty
This is a good point. A company like Trek is somewhat the company store.
If they are owed money- they will collect it. They will put you on credit hold so you can’t get new inventory.
They will count inventory and make you pay for anything sold.
Bottom line is they are a great partner when things go well- they will close you down and open someone else up if things are not going well.
You are likely better off starting a new relationship with a vendor like this than taking over someone’s existing relationship.