Whether you own a franchise store such as Ace Hardware or a local independent shop, now is a great time to consider selling. We recommend speaking with a professional business broker to determine your value and the best process to sell your company. This review offers a guide to the hardware industry, business valuations for hardware stores, and the process you can expect when selling your hardware store. This guide is also highly relevant for home improvement and barbeque supply stores as well.
About The Hardware Industry
Ace Hardware is the most popular hardware store in the United States. Their headquarter is in Illinois, but they have stores in more than 60 countries and in all 50 states inside the U.S. Due to their name recognition and international reputation, they have more value than the average hardware store. However, many independently-owned and operated hardware stores have great value as well. Here are key stats related to Ace Hardware and the hardware industry as a whole:
- There are approximately 15,000 hardware stores in the U.S.
- There are 4,500+ Ace Hardware stores in the U.S.
- Ace Hardware operates in all 50 states and more than 60 countries in the U.S.
- Ace Hardware generated $8.6 billion in revenue in 2021 ($1.73 billion in profit)
How to Determine Your Hardware Store’s Value
If you are considering selling your hardware store, ACE franchise store, home improvement store, and/or barbeque supply store, the first thing to do is determine how much it is worth. All too many store owners fail to sell their stores due to unrealistic ideas of their value. In other cases, many hardware stores sell for below market value due to not determining their value properly. The good news is you can ensure your hardware store or ACE franchise store sells for optimal value by working with a business broker that takes into consideration the financial information, acquisition multiples (see below), and the unique aspects of your business that make it valuable.
The Use of Rule Of Thumb Data to Determine Your Value
The data for the sale of Ace Hardware stores is more documented than independently owned hardware stores. However, a similar rule of thumb applies to both. The data for Ace Hardware store sales, in particular, includes:
- Hardware stores sold between 3.26 to 3.53 times the Seller’s Discretionary Earnings (SDE)
- Hardware stores sold between 0.39 and 0.54 times the net sales
- Hardware stores sold between 4.07 and 5.76 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
The application of valuation multiples to SDEs and EBITDA is the most widely used method for calculating the value of a hardware store. These multiples are certainly important and should not be understated. However, all too often, business brokers and sellers focus solely on these metrics, failing to consider the intrinsic worth of a company that may show up on a financial report. Consequently, many hardware stores sell for below their worth or find it difficult to sell as these overlooked value traits are not mentioned during the marketing phase.
We say all that to say this; there is much more to a quality business valuation than a company’s earnings and profit multiplied by the industry’s rule of thumbs. You (and your business broker should also consider the company’s unique competitive advantage, the diversity of your customer base, your growth potential, quality of the workforce within the company, the condition of your hardware equipment (i.e. rental equipment), and your reason for selling. This, along with your financials, creates a more comprehensive approach and helps you determine a more accurate valuation.
You should also check: How to Sell a Ben and Jerry’s Franchise Restaurant
A Step-by-Step Guide to Selling Your Hardware Store
The sale of your hardware store will look entirely different from others as no two companies are the same. Your business broker should provide you with a personalized plan. However, there are common steps that you can expect. Below is a general guide to the selling process for hardware stores.
Step 1: Determine Your Value
You can receive a professional valuation for your hardware store by contacting a business broker. Here at Sigma Mergers and Acquisitions, we offer free business valuations for hardware store owners who are considering selling their establishments. This includes owners of Ace Hardware stores as well as independently-owned stores. As discussed, a valuation is integral before planning and proceeding with the sale. Your valuation plays a role in when you bring your business to market, the price you list it for, and more.
Step 2: Prepare All of The Financial Documents You Will Need
Preparation is vital for a fast and successful sale of your hardware store. You should prepare all of your financial documents ahead of time (before the business is listed for sale). This may include:
- Profit and loss statements
- Corporate tax returns
- Balance sheets
- Insurance policies
- Copy of your lease (if applicable)
- Supplier or client contract information
For annual documents such as tax returns and profit and loss statements, you should collect at least two to three years worth of documentation. Any additional documentation that proves your company’s financial information is helpful as well.
Step 3: Work With Your Business Broker to Find a Buyer
Your business broker should have a process to sell your business for fair market value. So long as your business is properly valued and listed at the appropriate time, then the sales process should go relatively smoothly. Your business broker should also focus on confidentiality, and safeguards should be in place to help ensure rumors of your potential sale are not made public.
Step 4: Complete The Due Diligence Process
The due diligence process begins once a prospective buyer signs a letter of intent (LOI) and confidentiality agreement. Due diligence offers an opportunity for the buyer to ask questions, request documents, and verify all the information they need to complete the purchase confidently. Although this is a vital step in the process, it should follow a carefully laid-out schedule to ensure an efficient process.
Step 5: Prepare for Closing and Complete The Sale
Your business broker, lawyer, and CPA (if applicable) can help you prepare for closing. This includes document preparation and review, preparing your business partners, customers, employees, and more.
Step 6: Transfer Your Hardware Store
The last step of the sale is the transfer of the business to the buyer. This includes giving them full access to all they need to successfully run daily operations and make long-term planning decisions. More specifically, transferring your hardware store may involve:
- Transfer all business assets
- Notify and prepare employees
- Transfer business licenses and titles
- Update insurance policies
- Provide information for ongoing contracts
Step 7: Get Ready for The Next Chapter in Your Life
Once the sale is complete, then you can start the next chapter in your life. From spending more time with family to starting a new business venture (without violating any non-compete clauses), the opportunities are endless for you.
Are You Considering a Sale of Your Hardware Store?
Sigma Mergers and Acquisitions is a business brokerage that has helped more than 600 businesses sell for fair market value. We can help you plan your exit strategy and sell your hardware store. If you would like a free business valuation, then we encourage you to schedule a consultation with us.
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!