For many investors, the idea of purchasing an established bookstore is intriguing. The hourly flexibility, the positive and clean atmosphere within the store, and the ability to work with sophisticated customers all combine for an excellent opportunity, despite the recent industry decline due to rising competition via e-commerce sites. This review discusses how to value and sell a bookstore (new, used and rare, and/or religious bookstores, specifically).
About The Bookstore Industry
It is no secret that online competition (i.e. Amazon) has led to a decreased demand for bookstores. Nevertheless, much like other brick-and-mortar stores, there are still growth opportunities and in-person sales are likely to increase as we continue to move further from the peak of the COVID pandemic. Here are the most recent bookstore industry numbers.
- There are approximately 18,000 bookstores in the U.S.
- There was a -4.4% annual growth for the bookstore industry from 2018 to 2023
- The bookstore industry generates $9.9 billion in annual revenue
- The annual profit for the bookstore industry was -$59.2 million
- Experts predict a decrease in annual growth (-1.1%) from 2023 to 2028
How to Value a Bookstore
Business brokers use a market approach to determine the fair market value your company has on the market. If you are planning your exit strategy, your broker will need to determine your seller’s discretionary earnings (SDE) and may consider non-financial factors such as your unique advantage, location, and reason for selling. Below is a review of the industry multiples (rule of thumb data) for the various types of bookstores.
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Rule of Thumb Data for New Book Bookstores
New bookstores have the most data as it pertains to mergers and acquisitions. Subsequently, the rule of thumb data (industry multiples) are largely reliable and provide a fair idea of your value before factoring in other factors outside of your SDE and EBITDA. Here is the data:
- New Book Bookstores sold between 3.11 and 3.41 times the Seller’s Discretionary Earnings (SDE)
- New Book Bookstores sold between 3.68 and 4.20 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- New Book Bookstores sold between 0.14 and 0.81 times the annual net sales
Rule of Thumb Data for Rare and Used Bookstores
Rare and used bookstores are an intriguing niche. Certain enthusiasts and entrepreneurs are willing to pay more than 3 times SDE for the right rare and used bookstore, whereas many others sell for less than 2 SDE. Here is the rule of thumb data:
- Rare and Used Bookstores sold between 1.74 and 3.76 times the Seller’s Discretionary Earnings (SDE)
- Rare and Used Bookstores sold between 2.87 and 3.08 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Rare and Used Bookstores sold between 0.35 and 0.47 times the annual net sales
Rule of Thumb Data Religious Bookstores
The data for religious bookstores is highly similar to the rule of thumb data for new bookstores. In many ways, there is overlap between the two industries, although with notable differences. Here is the rule of thumb data (acquisition multiples) for religious bookstores:
- Religious Bookstores sold between 3.11 and 3.41 times the Seller’s Discretionary Earnings (SDE)
- Religious Bookstores sold between 3.68 and 4.20 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Religious Bookstores sold between 0.14 and 0.81 times the annual net sales
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How to Sell a Bookstore for Fair Market Value (FMV)
The sales process may seem stressful, but you can ensure the process is simple and easy by working with a business broker who helps you throughout every stage, from determining your value to closing the sale. Here are the steps of the sales process that you can expect:
- Select a business broker
- Determine your sales goals and strategy
- Arrange your paperwork and documentation
- Find a qualified buyer or your bookstore
- Provide the buyer with access to company records (due diligence)
- Complete the sale by signing the purchase agreement
Of course, you may have a different experience (all companies do). However, to help you prepare, we have provided an overview of each step below.
Select a Business Broker
It is highly challenging to sell a bookstore without professional assistance. Business brokers understand how to sell your bookstore discretely and negotiate effectively to ensure you maximize the sale price and reach your non-financial goals. We also recommend choosing a broker who understands your industry and is willing to look deeper than your financials alone to determine the value of your bookstore.
Determine Your Sales Goals and Strategy
Your goals are largely dependent upon your valuation. Your valuation determines how much prospective buyers are likely to offer for your bookstore. If you are unable to sell for the optimal price, then your broker may recommend working on your value before listing it for sale. Of course, you may have non-financial goals as well, such as ensuring the new buyer keeps your current employees or is from your local area and will continue your involvement within the community.
Arrange Your Paperwork and Documentation
You also need to arrange your paperwork and documents before the sale process begins. This includes your tax returns, profit and loss (P&L) statements, a list of your books and other inventory (plus the overall inventory value), insurance policy, and employee list. This helps save time and reduces stress and the risk of setbacks later in the sales process.
Find a Qualified Buyer for Your Bookstore
Your broker will help you find a buyer in a confidential manner so that news of a possible sale does not leak and affect your business operations or the value of your bookstore. Your broker will screen offers as they arrive, negotiate with prospective buyers, and help you select the buyer that best allows you to reach your exit strategy goals and timeline.
Provide The Buyer With Access to Company Records (Due Diligence)
After the buyer signs a letter of intent (LOI), they are provided an opportunity to review the details of your bookstore, verify financial information, and conduct their tasks to ensure they are comfortable with the transaction. If there are inconsistencies between what is agreed upon and what is verified during due diligence, then it could lead to setbacks. To ensure a smooth process, you should have already prepared your company’s information (tax returns, etc.). Your broker can also help ensure a smooth process that does not last longer than necessary.
Complete The Sale by Signing The Purchase Agreement
The final step is closing the sale, which involves attaining the final signatures of the purchase agreement, confirming the payment has been delivered, and transferring ownership of the company to the buyer. After the sale, you are free to pursue whatever lies next in your life journey (retirement, starting a new business, etc.) Keep in mind, the buyer may ask for you to include a non-compete clause.
Plan Your Exit Strategy With Sigma Mergers and Acquisitions
Sigma Mergers and Acquisitions helps business owners who are planning their exit strategy sell with confidence. From determining your fair market value (and providing insights on how you can improve it) to finding you a qualified buyer, you can trust us to be there for you every step of the way. If you are planning your exit strategy with your bookstore, schedule a consultation with us 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!