A question submitted by one of our readers, Dick Baines. He would love some help from our community in finding out the proper valuation of a used bookshop. Any comments on the question are very much appreciated (just click on the Title of the article to get to the comment section). – Bruce
I recently retired after 42 years in the accounting field. For various reasons, I neither want nor can afford to retire. An acquaintance who has owned a used bookstore for about 25 years needs to retire and I am considering purchasing his shop. I understand no one gets rich in this particular business, which isn’t my goal, but a reasonable return is necessary. His accounting records are less than stellar,as his operation is a typical “mom and pop” operation, but I have an idea of what his gross sales and net income are based on a proforma I prepared. I realize e-books and mass marketers such as Amazon are causing problems in the bookselling business, but, I don’t see printed books going away anytime soon, nor should they have a major impact on a used store, except to effect the inventory availble. If at ll possible, I would like to justify the purchase with an eye to modernize the operations to some extent, including computerizing the inventory and possibly creating an online presence.
The shop is 100% used books, the great majority being paperbacks. There are approximately 50,000 books on the shelves. The owner has a good number of loyal customers he has had for years. The business policies include taking books in trade at 25% of cover price and selling them for 50% of the cover. Half of any purchase price can be paid through use of such customer credit with the balance in cash, or per a recent change, by credit card. I plan to discuss my questions relating to accounting and legal issues with a local small business accounting firm and attorney. However, there are some issues to which I doubt they will have an answer.
My primary question is, what metrics are used in determining a purchase price for a used paperback store? Is it normally based on a multiple of annual sales, bottom line, assets such as inventory or some other parameter? An answer to this particular question and any other advice anyone in the community is willing to offer would be greatly appreciated. I really would like to find a way to make the purchase of the store work for both the seller and me, especially considering the current state of the economy.
Thanks for any help you may be able to provide.