There is a relatively high demand for art galleries despite a recent decline in the industry’s size. If you are considering selling your art gallery as a part of an exit strategy, now may be the time to sell. This guide discusses how to determine your art gallery’s worth and what to expect throughout the sale.
About The Art industry
The art industry is one of the most established industries in the U.S. It involves retailing and displaying artwork (both limited edition and original). Here are the most recent numbers for the art industry:
- There are approximately 21,500 art galleries in the U.S.
- There was a -1.3% annual growth for the art industry from 2018 to 2023
- The art industry generates $11.4 billion in annual revenue
- The annual profit for the art industry is $1.0 billion
- Experts predict a sizable increase in annual growth (1.8%) from 2023 to 2028
The art industry suffered a blow in revenue and profit in recent years. This is because art galleries primarily require in-person attendance, so it was naturally more affected by the pandemic. However, valuations remain generous, and the demand for art galleries remains high as prospective buyers understand the recent decline is not likely to continue. In fact, many predict a recovery for the industry between 2023 and 2028. Many experts also predict the industry to massively expand its digital space (Business Reference Guide).
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Stage One: Determine Your Art Gallery’s Worth
Of course, you want to know your business’ worth before you try to sell it. Otherwise, you risk selling for below market value or not selling at all due to overpricing. You can determine your company’s worth by receiving a professional business valuation from an experienced business broker.
Your business broker will consider your financial records, the rule of thumb data for the art gallery industry (see below), the value of your merchandise, and your unique advantage within your industry. In some cases, the reason for selling plays a role as well. Keep in mind, the goal for a valuation as part of an exit strategy is to determine the amount a buyer would be willing to pay (fair market value). Due to this, your finances will come first. The best way to quickly get a sense of your art gallery’s worth is by using acquisition multiples. For the art gallery industry, here are the acquisition multiples (rule of thumb data):
- Art galleries sold between 1.75 and 2.93 times the Seller’s Discretionary Earnings (SDE)
- Art galleries sold for approximately 0.43 times the annual net sales
- Art galleries sold between 3.65 and 4.35 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
Stage Two: Prepare and Plan Your Sales Strategy
You will need to collect all of your financial and legal documents before you sell your art gallery. This includes at least three years of tax returns and profit and loss (P&L) statements. You will also need to create a list of the memorabilia (i.e. paintings, etc.) inside your art gallery and their value. If you own your property, then you will need an appraisal as well. If you rent, then you will need a copy of your lease. You will also need to prepare a copy of your insurance as insurance can be a big factor in the financial security of an art gallery. Among other documents you may need, you should also prepare all licenses and contracts.
Stage Three: Find a Buyer With a Confidential Marketing Process
There are many ways your business broker may find a buyer that allows you to reach your exit strategy goals. Business brokers have connections, networks, databases, and other tools available to them to ensure your business is shown to hundreds (if not thousands) of prospective buyers.
Also, all of this work the business broker does to find you a buyer is done confidentially (in private), so news of your sale is not made public throughout the marketing process. This stage involves negotiations and contingency planning as well. It should ideally end with the signing of a letter of intent (LOI).
Stage Four: Complete The Due Diligence Process
Above we discuss the importance of preparation before you begin the sales process. This is where your preparation really helps. During due diligence, the buyer will request various documents to verify all business details (financial, legal, etc.). An inability to produce the requested documents in a timely manner could lead to the buyer backing out of the deal, attempting to renegotiate, or the deal falling through due to unforeseen circumstances.
Consequently, we recommend a structured due diligence map. This ensures the due diligence process does not drag on for an extended amount of time, while still ensuring the buyer has full access to all information they need to proceed to closing.
Stage Five: Close The Sale and Transfer The Business
Closing the sale involves the final signing of the purchase agreement, the transfer of the business, and the confirmation of payment for the business. Much of the work is done before closing begins, but a detailed final review of all information usually takes place at the closing table as well. Subsequently, you can expect both your attorney and the seller’s attorney to attend; the business broker of the deal may attend as well. After the sale is complete and your art gallery is entirely transferred over to the buyer, you can move to the next chapter of your life.
Are You Ready to Sell Your Art Gallery?
Here at Sigma Mergers and Acquisitions, we understand the sales process. Moreover, we have been in your shoes. Sigma Mergers and Acquisitions was started to provide a better way of determining a business’s value and finding buyers who also see that value. We understand that sometimes value is not entirely found in a financial report, and we look at your story as well. To learn more and get started with your sales journey, 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!