Valuation Multiples for a Retail Trade Business
The retail trade industry comprises all businesses that purchase goods and merchandise from suppliers and sell to consumers. This can include automotive stores, e-commerce retailers, food and beverage stores, and general merchandise stores. There are over 3 million retail trade businesses throughout the United States. Together, these businesses generate over $8 trillion dollars in revenue. Moving forward, we can continue to expect high revenue growth. This is ideal for those looking to buy, expand, or sell a retail trade business. Whether you are buying, expanding, or selling, it is important to understand valuation multiples for a retail trade business.
Valuing a Retail Trade Business
When purchasing, growing, or selling a retail trade business, it is important to understand the value of a retail trade business. The best way to start is by receiving a business appraisal. If you are buying a retail trade business, a business appraisal can help you determine a reasonable purchase price. You may also learn about effective negotiation strategies. If you are looking to sell, a business appraisal can help maximize the value of a retail trade business.
To determine the fair market value of a retail trade business, valuation experts may use various methods. A common approach is to use valuation multiples. In this article, we discuss what valuation multiples for a retail trade business look like. However, this article is only a guide. For more extensive guidance, receive a business appraisal for a retail trade business. Peak Business Valuation is happy to help! We can provide a business appraisal and answer any questions you have on valuing a retail trade business. Start today by scheduling a free consultation with Peak Business Valuation, business appraiser!
See also, Valuing a Retail Trade Business and Value Drivers for Retail Trade.
Valuation Multiples for a Retail Trade Business
The diagram below displays average market multiples for a retail trade business. When valuing a retail trade business, an expert at Peak Business Valuation often uses multiples. However, this diagram is only a guide. For multiples that are specific to your retail trade business, obtain a business appraisal. Peak Business Valuation is happy to provide a business appraisal for a retail trade business. Schedule a free consultation today to learn more.
Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.
What is a Valuation Multiple?
Valuation multiples are ratios that compare a business’s value to a financial metric. This can include cash flow, earnings, or sales. For example, an SDE multiple is a common ratio that compares the seller’s discretionary earnings of the business to the implied value of the company. To determine the fair market value of a retail trade business, a valuation expert assesses multiples of comparable retail trade businesses that have recently sold. Then, they determine appropriate multiples for your retail trade business and provide a range of fair market value.
For example, if a retail trade business has $145,000 in SDE, and receives a 2.59x SDE multiple, the business would have an implied value of $375,550. ($145,000 times 2.59x) On the contrary, a 3.06x multiple indicates that the value of the company would be $443,700. ($145,000 times 3.06x).
Peak Business Valuation, business appraiser, frequently works with individuals looking to buy, grow, or sell a retail trade business. The following paragraphs highlight valuation multiples for a retail trade business. These multiples indicate the range of values that retail trade businesses generally transact at. It is important to remember that each retail trade business is different. As such, the value range can vary. Below, we show SDE, EBITDA, and REV multiples for a retail trade business. For more information about the value of a retail trade business, schedule a free consultation with Peak Business Valuation, business appraiser!
SDE Multiples for a Retail Trade Business
Average SDE Multiple range: 2.51x – 3.19x
According to our data, retail trade businesses transact between a 2.51x – 3.19x average SDE multiple. To derive an implied value of a retail trade business, apply the multiple by the most recent 12-month period of revenue. The calculation is as follows.
SDE X Multiple = Value of the Business
For instance, a retail trade business generates $213,000 in seller’s discretionary earnings. It transacts at a 2.86x multiple. In this case, the retail trade business value is approximately $609,180.
$213,000 X 2.86x = $609,180
Seller’s Discretionary Earnings is a popular cash flow multiple an expert uses when valuing a retail trade business. To calculate SDE, a business appraiser takes the retail trade business’s profit and adds back expenses the new owner may not incur. These expenses may include the owner’s compensation, personal transactions, as well as non-recurring or non-related business items. Doing this allows the expert to determine the cash flow potential of the retail trade business. This is vital in determining the value of a retail trade business.
EBITDA Multiples for a Retail Trade Business
Average EBITDA Multiple range: 3.68x – 4.54x
The average EBITDA multiples for a retail trade business range between 3.68x – 4.54x. Apply this multiple to EBITDA to derive an implied value of the business. See the calculation below.
EBITDA X Multiple = Value of the Business
For example, a retail trade business has an EBITDA of $155,000. It transacts at an EBITDA multiple of 4.12x. Using the above metrics, the retail trade business is worth approximately $638,600.
$155,000 X 4.12x = $638,600
An EBITDA multiple represents a company’s return on investment (ROI). Business appraisers may prefer using this multiple because it helps to normalize differences. This allows comparisons to be made between similar businesses. Normalized ratios provide a more accurate representation of the future earnings that a buyer can expect from a retail trade business.
REV Multiples for a Retail Trade Business
Average REV Multiple range: 0.42x – 0.76x
According to our data, retail trade businesses sell between a 0.42x – 0.76x of revenue on average. A business appraiser can calculate the implied value of the business by multiplying the amount of revenue or sales a retail trade business makes by the valuation multiple. Refer to the equation below.
Revenue X Multiple = Value of the Business
For instance, a retail trade business makes $990,000 in revenue. It then transacts at a 0.62x multiple. In this case, the business is worth about $613,800.
$990,000 X 0.62x = $613,800
The REV multiple represents the total amount of revenue generated by the retail trade business. When valuing a retail trade business, business appraisers analyze REV multiples of similar retail trade businesses that have recently sold. This helps them determine an appropriate multiple for your retail trade business. REV multiples may vary depending on factors including location, competition, and industry trends and demands.
Summary
There are many factors that a business appraiser considers when using valuation multiples for a retail trade business. This can be a complicated process. As such, Peak Business Valuation, business appraiser, is happy to help! During a business appraisal, we discuss factors that influence the value of a retail trade business as well as the applicable multiples. To determine the multiples for a retail trade business, obtain a business valuation. During a business valuation, you will learn the value of a retail trade business and how to increase it.
Peak Business Valuation, business appraiser, values retail trade businesses frequently. At Peak, we focus on helping you buy, expand, or sell a retail trade business. We are happy to provide a business valuation for your retail trade business! We can also answer any questions you may have about multiples for a retail trade business or valuing a retail trade business. Start today by scheduling a free consultation with Peak Business Valuation below!
For more information about retail trade businesses, see Valuing a Retail Trade Business, How to Value a Retail Trade Business, and Value Drivers for Retail Trade.
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