Phil Boyle, whose Coliseum of Comics and Games chain is the largest comics and games retailer in the southeast, begins a three-column series on building and selling a store. This first column in the series focuses on valuation.
As the Silver Tsunami overtakes the Boomer and Gen X store owners, I’m being approached by more stores seeking a buy-out or some plan so that the owner doesn’t die in his or her store and gets buried in a long white box. There are some harsh realities that come into play when selling a store, especially if it has been the culmination of your life’s work. To date, I’ve bought more than 20 stores, including some distressed situations. The recent acquisition of Generation X in Bedford, Texas (see “Coliseum Acquires Generation X“), was a true exception.
People usually sell a business due to one of six reasons: one of the five “D”’s – death, divorce, disease, disagreement or disability, and the sixth reason, becoming more common in our field, retirement.
In the past several years, I’ve looked at a lot of stores. The primary question is “How much is my business worth?” As we’ve all bought collections, we’ll start with the elements that we all know hold zero value: how much you love something, how long it took to build, or how much you think it’s worth. Passion has infinite non-monetary value, especially when opening a new business, but it has no line on the balance sheet.
If you’re interested, let’s look at how I value stores. Buyer and seller must first acknowledge that this is a niche business that requires a specific skill set to make the weekly nut. That’s important because it limits who is interested in buying a comic store as more than a passing “wouldn’t it be cool” thing.
The key elements I use when evaluating a business’ worth are:
How much inventory do you have?
This one isn’t as simple as looking at the POS system (more on that in a bit) and seeing the bottom-line cost. When was the last time POS was purged of old product? A new issue of a completed mini-series still on the inventory at 50% of cover price a year later means an inflated inventory reporting an unrealistic number. How much of the inventory is ghosts of dead products? We assign A-D grades to inventory.
A-list inventory is made up of items you sell every week: sealed CCG product, some board games, prime trade paperbacks, and ancillary items like the Gallery figures (or a comparable item) that all sold well and with regularity. These have a value of +/-50%.
The B-list items are items you sell monthly. These will be slower but known trades, some statues, supplies, and anything new that has an immediate shelf life. These we value at 30-40% of retail.
C-list items are items you sell once a quarter. The easiest way to figure out this grouping is “It’s not A or B, but it’s not junk.” Much of this is worth 25% as it’s sunk cost with slow return.
The D-list isn’t pretty. It’s the dusty action figures, the shelf-worn trades, the anime statue of a tertiary character from a canceled series, or a statue with a broken finger or lasso. These should have been blown out long ago, yet they linger, especially in stores that are having a hard time keeping the shelves stocked with relevant product. The value is 5-10% tops.
Back issues & CCG singles: These are a separate category to themselves. We look at the entire collection as if we were making a customer an offer as in this case, the store owner IS the customer.
Profit.
Inventory is tangible so now we’re looking at the non-tangibles and this is always the first look. Profit isn’t how much the owner takes home in salary, it’s what the store brings in AFTER paying the owner for his/her labor. If the store made $50,000 in each of the previous 3 years AFTER a reasonable owner salary, the business is a business, not just a job for the owner. Here’s a big takeaway from this: as the owner, how much will it cost to replace the hours you put in? If you’re putting in 60 hours a week, that’s a full-time manager plus a part-timer. Are you paying yourself at least that much?
Transactions & subscribers.
A store doing a robust customer count but lacking in dollars-per-transaction is much more attractive than a store doing 50 transactions of $200 each a week as there is more potential with higher traffic. How many comic subscribers (captured audience) do you have? Are they up to date or are 50% of them deadbeats costing the store money in dead product?
Discounts.
If you’ve been offering 25% off new comics (dumb dumb dumb), if I buy your store and cut out those discounts, I’ll lose a lot of those customers or burn the goodwill. Is your traffic discount-based? How many “special” deals do you have with customers for larger discounts because they spend a lot of money? Whale money isn’t whale money if you’re losing money on the deal. The higher the discount, the more it impacts the value of your operation.
Goodwill.
We’re in the world of online reviews. What do your reviews say about your operation? Do customers love the store? Is there an alternate website formed by customers you’ve screwed over (unfortunately, one store had this)? How long have you been in business? How long have you been in the same location?
How much debt do you have?
This may seem odd but it’s an indicator of how well the store is operating as a business. If you’re behind terms with multiple distributors, it can impact the store’s value but also create a negotiating point for both buyer and seller.
How’s your bookkeeping?
Do you have P&Ls and balance sheets? Do you have bank records to back it up? I look at this as an IRS auditor would. Many (most) stores I purchased didn’t have very good bookkeeping so, erring on the side of caution, everything gets reduced in value. A good POS system and investing in a bookkeeper who knows their way around Quickbooks is a minimal standard for a business.
Where is your store?
A going concern facing a main street is far more favorable than a going concern in a warehouse district. Is your store in a good or bad neighborhood? How long is left on your lease, what are the terms, and is it assumable? Most landlords are open to a new owner with proper proof of financials.
Employees.
All the above can align with a “Go!” sign but this one can make or break the deal. Many (okay, most) employees don’t like change. I’ve bought stores and either lost or had to replace the entire team within a few months. On the flipside, I bought Generation X in Bedford, Texas and kept every person throughout the transition and to date. One store I looked at was run full-time by a single employee, who was almost the only face for more than four years. If he wasn’t happy with the transition, he’d either quit or have to go and likely take the majority of the customer base with him. Not a good scenario for a buyer.
These apply to all stores but now I’ll throw out a few caveats that further impact the value.
Stores fall into several categories.
The Financial Trainwreck
We’ve all walked into a store and wondered, “where’s the product?” It’s clear there have been few restocks coming in. One sale after another in an attempt to pay last week’s bill or this week’s COD shipment have led to an inventory that’s incapable of sustaining the store financially. Many stores wait until the buzzards are circling before trying to find a buyer. As the stock dwindles and promises of more inventory coming go unfulfilled, the customers find a new home for their collecting habits. What inventory is left is usually C&D-list stock, the A&B inventory was slaughtered months ago to pay for that week’s emergency. This is the largest category of stores for sale as they’ll be out of business in short order without a buyer or major cash infusion. The main problem here is that the inventory has nominal value, the goodwill has been spent, and the customer counts dwindled, leaving none of the metrics listed above in a positive light.
Who to sell to: The trainwreck is sold usually after all other avenues have been exhausted. The value is minimal as there’s not much to buy. The owner is often looking to get out, hand over the lease to get them off the hook and get a few bucks to throw at the maxed credit cards. This isn’t a happy ending. We’ve bought several of these for either the location (a known watering hole) or just to remove a competitor who was souring the local market.
The Project
This one isn’t a financial trainwreck but as a store, it’s not good. Disorganized, dirty, mismatched or broken fixtures, piles of “stuff” cluttering shelves and walkways: ADA is some foreign language acronym to the owner. Most of these are run mostly by the owner, usually with a few part-timers to fill the off hours. Oddly, many of the dedicated customers love the store and enjoy the hunt. If you change it, you’ll lose them; if you don’t, you’ve got a problem that can’t be dealt with. Assuming the numbers work AND you can make changes without killing the customer base, the downward adjustment in price will be tied to how much it will cost to refixture, organize (labor isn’t free), and clean the store.
Who to sell to: So many factors in this one but it often comes down to making a deal with an employee or a known customer. Many employees would continue running the store as is without making changes that would send the customers elsewhere. I can’t make the numbers work for me to make an offer in most of these cases.
The Job
Many (most?) stores that fall into this category. These are one owner operations run by the owner who makes an okay living via a weekly paycheck or stipend. There’s no profit above the owner’s draw, so it negates that portion of the figures above. As we tend to be passionate about our stores, we tend to work hours that we couldn’t reasonably expect someone else to work without compensation above what the owner is taking, further undermining the value of the business.
Who to sell to: Many of these stores feature burned out owners who would be happy to see the store continue, just not under them anymore. I’ve bought a bunch of these as they’re viable stores but with some fresh paint and better ordering practices could be better business ventures.
The Business Venture
This was Generation X, owned by Wayne & Tabitha McNeil. The owners were taking a respectable annual salary and taking quarterly bonuses that more than doubled that salary. No distress, not a project, and more than a job. Retirement was the goal. I paid more for this single business venture than I did any store in the past several years because the numbers were there. The inventory was good. The staff was engaged. The goodwill was terrific.
Who to sell to: People like me, some of the other chains, or a customer with deep pockets. One aspect that some owners value is seeing their baby of 30 years make it to 35 and beyond. Those sold to customers without any business acumen often end up being resold a few years later.
A final word of advice
If you’re selling to a customer or employee, get the money up front. Someone who hasn’t run this type of business could run it into the ground in short order and leave you with nothing.
Phil Boyle is the Founder and President of Coliseum of Comics, a chain of 12 stores in Florida and Texas launched in 1983.
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Source: ICv2
