Many bicycle shops are selling for fair market value or higher. If you would like to learn more about how to value and sell your bicycle shop, then this guide is for you. We discuss the process for selling your bicycle shop, the role your broker should play in the process, and much more.
About Bicycle Shops and The Cycling Industry
Bicycle shops, and the cycling industry as a whole, generate profit by selling bicycles and cycling gear (helmets, seat covers, knee pads, etc.). They sell to individuals of all ages, from bikes with training wheels for children to advanced mountain bikes for experienced cyclists. Although there is a fair amount of competition, many cycling shops are thriving, particularly those that have found a reliable local customer base of cycling enthusiasts and have developed a strong presence online.
How to Value a Bicycle Shop
A business valuation for a bicycle shop involves an analysis of your financials, a close look at recent sales data within your industry (including rule of thumb data analysis), and a review of the non-financial aspects of your bicycle shop that may offer value.
Non-financial factors may include but are not limited to your location, the diversity of your customer base, the quality of your bikes and other equipment, your unique competitive advantage, the strength of your online presence, your local reputation, and your reason for selling. As mentioned, rule of thumb data (also known as industry multiples) plays a vital role in determining your bicycle shop’s value. Here is the bicycle shop industry data:
- Bicycle shops sold between 2.56 and 3.27 times the Seller’s Discretionary Earnings (SDE)
- Bicycle shops sold between 3.62 and 4.68 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Bicycle shops sold between 0.42 and 0.49 times the annual net sales
Sell Your Bicycle Shop in 10 Steps
Below is a guide to selling your bicycle shop, including clear steps and instructions for each. Of course, since no two bicycle shops are the same, we strongly recommend working with a broker to develop a personalized strategy. However, this guide provides a basic overview to help you gain a general understanding so you can get started. Here are the 10 steps:
- Choose an experienced business broker
- Determine your bicycle shop’s fair market value (FMV)
- Establish your sales goals and strategy
- Prepare your legal and financial documents
- Bring your bicycle shop to market in a confidential manner
- Negotiate a deal and establish contingencies
- Choose a qualified buyer and have them sign a letter of intent (LOI)
- Complete the due diligence process
- Close the sale
- Transfer ownership of your bicycle shop
Choose an Experienced Business Broker
First and foremost, you should find a business broker who understands your industry and whom you can trust to get the most value out of your company during the sale. A broker makes the entire process easier, and selling a business in a confidential manner is very difficult without one. Take the hiring process seriously and find a broker you can trust. You may also need an attorney and a certified public accountant (CPA) depending on the specifics of your shop.
Determine Your Bicycle Shop’s Fair Market Value (FMV)
As discussed, the first thing your business broker will do is determine the value of your company on the market, also known as your fair market value or FMV. This is an important step as it helps you establish a sound sales strategy, including determining when you sell and your asking price. A professional valuation also helps your leverage in negotiations as well.
Establish Your Sales Goals and Strategy
Next, you will establish your sales goals and overall strategy. In addition to maximizing the sale price, you may also have the desire to sell to someone who is willing to continue your long-term vision for the company and keep your employees.
Prepare Your Legal and Financial Documents
You may already have collected the documents you need for the sale, such as your tax returns, balance sheets, P&L statements, inventory lists, and a copy of your insurance policy. You will collect additional documents you need for marketing, negotiations, due diligence, and closing during this stage.
Bring Your Bicycle Shop to Market in a Confidential Manner
You must sell your bicycle shop in a confidential manner so as to not allow news of your sale to become public. This could cause disruptions to business operations and dissuade trust among potential buyers. Your broker should have in-depth knowledge of how to leverage private channels to sell your bicycle shop, such as private connections, networks, and databases.
Negotiate a Deal and Establish Contingencies
Your broker should also assist with screening offers for your bicycle shop, handling negotiations, and planning contingencies. This is often a complex process that requires professional knowledge and assistance to ensure you receive fair market value.
Choose a Qualified Buyer and Have Them Sign a Letter of Intent (LOI)
You will then choose a buyer who helps you reach your goals the best. While this might be the highest bidder, you may have other goals that are equally important or more important. Your broker should assist with explaining the details of each offer and helping you make the most informed decision possible. The buyer you choose will then sign a letter of intent (LOI).
Complete The Due Diligence Process
After the buyer signs a letter of intent (LOI) that establishes the accepted offer price and purchase conditions, they begin due diligence. This must be conducted before any contracts are signed. It involves a review of your legal and financial information, among other due diligence tasks such as visiting your bicycle shop(s).
Close The Sale
Once the buyer feels comfortable and has completed the due diligence map, you and the buyer can proceed to schedule a time to close the sale. Both your respective attorneys are present and may closely examine the purchase agreement before you sign. You will also confirm the payment has been sent at the closing table as well.
Transfer Ownership of Your Bicycle Shop
Much or all of the ownership transfer takes place at the closing table. However, some tasks may take longer. Notably, you will need to notify employees and customers, update insurance and lease information, and update legal documents, along with providing the buyer with access to the shop and all online systems.
Schedule a Consultation With an Experienced Business Broker
Here at Sigma Mergers and Acquisitions, we understand the importance of determining the proper value of your bicycle shop and finding a buyer who also sees the same value, which may go beyond financial reports. We offer free valuations as well as providing brokerage and consultancy services. To learn more and get started, schedule a consultation with our experienced broker today.
Scot Cockroft is the Owner & President of the #1 ranked Business Brokerage, Business sales and M&A firm in Texas. Scot has been named Named Deal Maker of the Year by Dallas Business Journal.
He is committed to a “different” type of business brokerage firm, one that is NOT about a sales pitch but, rather, results! In short, a business brokerage firm that is committed to performance-based compensation. Scot believes in these principles as well as a candid honesty with clients. His candid style often takes buyers and sellers by surprise, but is often what assures successful connections between the two.
Feel free to reach out!
