Value of a gun shop

mjbskwim · Jun 28, 2012

I was talking with a friend today, about how to value a gun shop.
In the construction,and I suppose a few other industries,the company can be valued with the contracts and some accounts that the business has.
And all the business licenses
Inventory and property also.
An established construction business can be worth more than just it's assets.

How about a gun shop?
Does it have accounts it can transfer? Or are most dealings done "as you go". Cash on the barrel head. Seems most distributors want to get paid immediately for the guns,of course.
I'm sure some accessory distributors deal with some credit.

The buyer would have to qualify for the FFL,himself and the business license may be worth a little if it includes some "grandfather" clauses for the local municipality.

So a guy I know was thinking of selling.Asked me if I wanted to buy his store.
He does not own the property
He had/has about ,say $20k? in inventory.Maybe 15k?

How would he justify the shop being worth $100k?

It seems to me,with a business like this,the shop name would carry a little,the inventory would be the bulk,if no property was involved,and the licenses wouldn't be worth very much at all.Gotta get your own anyway.

Am I missing something?
Please enlighten me,so I can go buy a store.
Maybe.

Mike

jbett98 · Jun 28, 2012

Ask to look at his books. What is the monthly / annual income. Does he have a business plan and did he stick to it. Any profit last year.
How long has he been in this business and why is he getting out of it. Whats the monthly overhead. Have you owned / run a business.
I can think of hundred other questions.

Dan-Dee Sales Inc · Jun 28, 2012

sorry, but the name means everything. An established business is worth every dollar. Try go out and start a new "no name" business. it may take years to get a customer base. We are the only clothing/sporting store in our town and every week someone tells me that I am lucky not to have any competition. LOL only millions of online stores and every box store on the planet. If that business has a good customer base, it is worth every penny.

jbett98 · Jun 28, 2012

GI Joe's had a name. Larry's had a name.

PDXSparky · Jun 28, 2012

Dan-Dee Sales said:
sorry, but the name means everything. An established business is worth every dollar.

This ^^^^^

jbett98 · Jun 28, 2012

Hows this for a name " The Gun Room 2"

Dan-Dee Sales Inc · Jun 28, 2012

jbett98 said:
GI Joe's had a name. Larry's had a name.

and GI Joes was an excellent business until the next owner trashed it. It is such a bad name, someone bought the domain name.

<broken link removed>

Here is good reason that they fell. http://www.gryphon-inv.com/index.php
They were only in it for the investment. They suk

jbett98 · Jun 28, 2012

I don't know a lot about Squim WA, but I see a lot of empty building for lease, rent and sale around Portland.
The only guy I know who has all the business he can handle is the sign painter who makes those large building ads (for rent, out of business, for lease, etc.)
I have been self employed for over thirty years, and what saved me more than once in bad economic times is having a low overhead, money in the bank and
a work ethic that put the Amish to shame.
I would be very cautious in assuming that just a name will guarantee success these days.

ATCclears · Jun 28, 2012

If you get serious about this, you want to pay a CA or CPA to do some detective work with his books and tax returns. Is the cash flow as he says? How does it compare year-over-year for the past 2-4 years? Has he paid his taxes?

What is the status with his lease on the property? Perhaps he cannot renew it, he will lose the location, and some of the customer base?

Zoning regulations? Would you have to reapply as the new owner and be subject to new rules (and not grandfathered in to old rules)?

Does he have unpaid debt that he might be trying to throw on you?

Is there litigation pending against the business, such that it might damage the name or customer base?

As another poster mentioned, I can think of a million questions...

...and what does your gut tell you? Is this a good business that is typically busy?

Peter

Misterbill · Jun 29, 2012

15-20k in inventory? Seriously? That's like MAYBE 40 guns, no ammo, no holsters, no optics, no nothing.

We seriously investigated opening up a shop here an our MINIMUM opening inventory was going to be 75k plus 10k for fixtures and remodel, and another 10k for leases, licensing,permits and misc. And we wouldn't be counting on the shop to MAKE money for a year or two.

Asking 100k with 20k in inventory, that's 80k in location (depending on the lease) goodwill and contracts (if any).

I wouldn't even think about that kind of lop-sided deal. His business is probably worth closer to 50k at most. A look at the books will tell you. -HIRE A CPA before you spend a nickel or agree to anything.

My FiL just sold a business that he could have held onto and made 400k a year+ for 300k. And that's WITH some gold-plated contracts that will last a couple of years past the sale. People think their reputation etc is worth a lot more than it is in practice.

Unless he has a multi-year contract with local LE or something, he's smoking crack if he thinks he's going to get 100k for it.

madcratebuilder · Jun 29, 2012

How would he justify the shop being worth $100k?

It seems to me,with a business like this,the shop name would carry a little,the inventory would be the bulk,if no property was involved,and the licenses wouldn't be worth very much at all.Gotta get your own anyway.

Name and location. Is it a well known gun shop in a prominent location? Or a hole in the wall in some out of the way place?

You need people coming in the door, lots of people. 70K inventory is very little. Many collectors have 2-3X that amount in personal collections.

Grunwald · Jun 29, 2012

ATCclears said:
If you get serious about this, you want to pay a CA or CPA to do some detective work with his books and tax returns. Is the cash flow as he says? How does it compare year-over-year for the past 2-4 years? Has he paid his taxes?

What is the status with his lease on the property? Perhaps he cannot renew it, he will lose the location, and some of the customer base?

Zoning regulations? Would you have to reapply as the new owner and be subject to new rules (and not grandfathered in to old rules)?

Does he have unpaid debt that he might be trying to throw on you?

Is there litigation pending against the business, such that it might damage the name or customer base?

As another poster mentioned, I can think of a million questions...

...and what does your gut tell you? Is this a good business that is typically busy?

Peter

The above advice is very important. If you buy a business, you are buying all of that business' liabilities. This is why in some cases when you see a business sold, the new owner structures the deal as buying the inventory/lease and not the actual business - so the name changes>.....because lawyrs are so much fun.

nwwoodsman · Jun 29, 2012

jbett98 said:
GI Joe's had a name. Larry's had a name.

Don't go getting all sentimental.......Man I miss those days

mjbskwim · Jun 29, 2012

Well ,it seems to me that a gun shop's name is only worth the guy behind the counter. Just because you bought Jonny Doe's Famous Gun shop,doesn't mean the customers will like you.Or that they will come back.
You have to establish your own customer base and gain their trust.
Maybe Jonny D was brilliant with military arms and you know newer stuff.
Changes your customer base right away.
This is looking at it from a consumer's point of view and a gun shop. Now if you were an employee and knew the customers and they liked you,then the name would make a difference,to me at least.

A guy over in PA was trying to sell his shop.Well established shop ON THE 101,across from a Safeway and a boat shop with a saw shop.Plenty of sportsmen and hunters driving about.
Couldn't sell it.Had a few people trying but nobody would (sorry) pull the trigger. The landlord did want the building back for his own store,but he just never got anybody real serious.

So aside from the first month's customers,you would have to make your own name in the established shop,before I would be your regular,like I was for the last guy.
Maybe I'm low on the inventory,making some guesses here,but I have talked to others that asked the same question,where did he get that number?

This isn't so much about that one shop,but about how a guy would value any gun shop and how much different would it be from any other business?
To me it seems the gun shop value,aside from the inventory,comes with the owner,not so much the name on the door.

And I do understand the CPA outlook of this. That was another part of the question.Do the distributors carry much credit or would the shop mostly be up to date because the distributors are COD?

And thanks for all the responses

mjbskwim · Jun 29, 2012

One point I was trying to make on the PA shop.

Why would you buy a shop instead of starting another shop?
Again from my point of view,the name relates to who owns the shop

If I buy a store,I would have to earn the trust of my customers,just as I would if I started my new store.

Again,tell me if y'all look at it this way.I just look at gun shops way different than I do any other store
Kinda like a motorcycle,well any repair shop.New owner needs new trust.

coop44 · Jun 29, 2012

3 times annual profit would be a good baseline, just for the entity. then factor in negatives and positives, like inventory, lease requirements, et cetera. The name (to me) is virtually meaningless, change it and in six months most folks won't remember what it was. In fact a name change will probably generate more curious shoppers. Owning a business is a difficult way to try to make a living.

Spitpatch · Jun 29, 2012

Don't forget to factor in "hidden expenses", such as all the coffee that is drank by all the "hangers-on" who have nothing better to do than come in your shop and stand around shooting the bull. Also the ventilation system required to purge all that hot air.

Just a couple things I noticed at my local gun store. Not to say I ever participated or anything...well, not much...well, not all that much.

jbett98 · Jun 29, 2012

Will the previous owner sign a non-competition clause. Not good for you if he starts up a new business close by.

DieselScout · Jun 29, 2012

nwwoodsman said:
Don't go getting all sentimental.......Man I miss those days

I remember being a little kid and watching Larry's TV show on fishing. Then going to the store and actually talking to him. I felt like I was meeting a TV star!

As far as valuing a gun shop. Having an established name is one thing, but are your purchasing the name? Also, can you maintain the level of service the previous owner had? The bigger question, why is he selling?