How appraise a business to sell it?

Question

What is a basic way to find a rough estimate price for a small storefront retail gift business?

Answer 1

Infrastructure $ plus inventory $ plus avg yearly profit.

Answer 2

As a generality, most high street businesses that are profitable sell for a multiple of turnover (usually no more than one times turnover) or a multiple of net profit (between 5 times and ten times net profit).

Therefore, if the store is selling say £30,000 per year (net of VAT) then the price would be no more than £30,000 (on the turnover method). But the key is to establish that the business is profitable. To do this, you need to find out what all the costs are. Good retailers should be making a gross margin of at least 50% and a net profit in excess of 5% to 10% (both %ages are of turnover). This will enable you to calculate the price on the multiple of net profits basis.

A word of caution. 1. It is a competative market out there and good retail sites will sell at a premium (also other retailers may consider that there is more money to be made by converting the gift shop to a different type of store), and 2. watch out for business rates, you will be shocked at what you pay to the local council.

I hope this helps.