How to Figure the Selling Price for a Retail Store
When you're ready to sell your retail business, whether its to retire, to recoup your investment or simply to get out of the business, you'll need to choose a selling price. Many business owners have an idea in their heads of what their business is worth, but if you want to attract buyers, you need to base your valuation on the business' tangible assets.
Add up the total value of your current inventory. In retail, your inventory is one of your most important assets and it will have a large effect on the value of your business.
Add up the total value of any equipment the business owns, such as shelving, cash registers and signage.
Multiply your annual net profit by a multiplier. According to Julian Roche, author of "The Value of Nothing: Mastering Business Valuations," your multiplier should be between 0.75 and 1.5. The exact multiplier you use will depend on market conditions and your eagerness to sell. For instance, in a buyer's market when you're eager to sell, you should use a lower multiplier. If it is a seller's market, your multiplier should be on the high end. If you used a multiplier of 1.5, for example, and your annual net profits were $100,000, you would get a product of $150,000.
Add your inventory and equipment value to the product of your net profit and your chosen multiplier. For example, if the product of your multiplier and your net profit is $150,000, and your inventory and equipment are worth $60,000 and $20,000 respectively, an appropriate selling price would be $230,000.
When selecting a multiplier, err on the higher end of the spectrum. Choosing a higher multiplier gives you room to negotiate the price down, but if you choose a low multiplier, it is difficult to negotiate back up.
Remember that your selling price is just a starting price for negotiations. You will need to negotiate a final price with the buyer that will reflect the value of the business and market conditions.