There are two types of dog grooming business: Grooming parlors and mobile dog groomers. Mobile groomers don't have premises to pay for, but can't see as many clients in a day as a parlor. Grooming parlors have higher fixed overheads. Determining the value of a dog grooming business is not an exact science. The value is influenced by factors such as client list, inventory and liquid assets. The value varies depending on economic conditions and the potential buyer’s expectations. There are three main ways to determine the value of a dog grooming business: Income valuation, asset valuation and market valuation.
Measure the value of the business assets. Assets are items owned by the company that have a residual value. For example, if you are valuing a mobile dog grooming business you would take into account the value of the van, the grooming tools and the products owned outright by the company. A grooming parlour is likely to lease its premises, so you would not consider the value of the property itself when determining the value. When making these assessments, take into account depreciation and re-sale value. Often the re-sale price of an asset, such as a van, is lower than the value it has to the owner. For example, the van may have a low re-sale price, but the business would be unable to operate without it. Therefore the value is actually higher to the owner than to the buyer.
Asses the profitability of the business. Examine the accounts for the business you are looking at. Make a list of regular clients and work out their average spend per visit. Pay close attention to the fixed overheads such as rent and insurance. Explore ways that you could lower costs, as this will influence the value that the business has to you. For example, look for a better deal from a new shampoo supplier. Pay particular attention to gross annual profits and determine in your own mind what fixed price you would be prepared to pay for that profitability.
Determine the market value. When looking at a new business, you must consider its market value. The business may not be making a large profit or have any valuable assets, but it could have huge potential. Consider growth potential and new markets. If a grooming parlour is located in an area where high quality housing has recently been built, that could represent a potential, unexploited market. This factor will influence the market value. If a grooming business has recently invested in advertising or marketing, this may take time to pay off but you may benefit in future. If a veterinary surgery has opened nearby, explore ways of having them refer you to increase your client list. This may be a way of adding market value.
Combine your three separate valuations. The asset value of the business represents the risk mitigation. For example, if you know you could sell the assets for $20,000 then this is the minimum return on investment you can expect should the business fail after your purchase. Take account of the age of your grooming tools. New grooming tools and products come to market regularly and you may need to update yours soon. Use the profitability as a guide but always ask yourself why someone is selling. For example, if a store like Pet Smart has opened in the area, it might be absorbing customers from the business causing the owners to seek a way out. If the profits have been decreasing year on year, plot the trend and work out what the profits will be in five years based on that trend. Consider the market value when planning for the future.
Consult an accountant. He will be able to advise you when you are determining the overall value of a dog grooming business.
Be cautious when approaching business. A business owner may increase his asking price if he knows your budget.
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