Privately owned and operated florists are a major part of the retail industry. Classified under the SIC code 5992 and NAICS 453110, there are around 35,650 such establishments in the US alone. The industry as a whole generates an impressive $6.6B in annual revenues and employs over 135,000 people.
Yet an average flower shop is a classical small business: producing around $200,000 in annual sales with a staff of 4.The industry is highly fragmented with the top 5 companies accounting for less than 2.5% of the total industry revenues.
Key value drivers for retail florists
The product for flower shops is arranged cut flowers that usually account for over 50% of a store’s revenues. Florists with significant commercial accounts that tend to result in stable recurring revenues are valued above the average.
Another key value driver is an attractive store location with the rent expenses below 6% of the shop’s gross revenue. The highest valued flower shops are located away from the major “big box” competitors such as do-it-yourself home improvement or grocery chain stores.
The florists that focus on the special event and gift market segments tend to command higher business valuations. Essentially, such flower shops differentiate on superior service that leads to customer loyalty, higher profitability and, not surprisingly higher business value.
Sales from an online presence or phone orders tend to be more cost-effective ways to generate sales. Some of the most valuable flower shops achieve close to 80% of their revenues through these channels.
Business valuation methods for flower shops
Florists with a track record of highly stable, above average earnings are very desirable and sell often. If you study such business sale comparables, you can develop a very good idea of what your business is worth.
The typical tools to estimate your business value is to use the valuation multiples derived from such business sales. The multiples relate the actual flower shop selling prices to their financial performance.
Thus, you can calculate your business value in relation to its revenues, profits, EBIT, EBITDA, cash flow, assets or owners equity.
Here are the typical valuation multiples used to estimate the value of a flower shop:
- Business value based on gross revenue or net sales.
- Business value based on net income.
- Business value based on EBIT and EBITDA earnings.
- Business value based on the seller’s discretionary cash flow.
- Business value based on the furniture, fixtures and equipment assets.
Flower Shop Valuation using Business Sale Comps
Example: valuing a flower shop using valuation multiples
To demonstrate the idea, let’s pick a typical retail florist business with the following financials:
- Business gross revenue: $250,000.
- Business net sales: $225,000.
- Net income: $35,553.
- EBIT: $36,000.
- EBITDA: $39,500.
- Seller’s discretionary cash flow: $154,247.
- Furniture, fixtures and equipment assets: $25,307.
- Inventory: $4,601.
We pick a set of reasonable valuation multiples to calculate the value of the business as follows:
|Multiple||Multiple value||Business value|
|Price to gross revenue||0.4||$104,601|
|Price to net sales||0.41||$92,250|
|Price to net income||3.5||$124,437|
|Price to EBIT||3.1||$111,600|
|Price to EBITDA||2.8||$110,600|
|Price to SDCF||3||$467,342|
|Price to FF&E assets||8.1||$209,586|
|Average Business Value||$174,345|
Other methods to use for valuing a florist business
You can value an established owner-operator run flower shop by the well-known Multiple of Discretionary Earnings method. This income-based business valuation technique lets you determine the value of the business based on its earnings outlook and a set of key financial and operational performance factors.
Since many privately owned florists are lifestyle businesses, the Multiple of Discretionary Earnings is particularly well suited for their business valuation.
For a florist that has created an solid reputation in its market, the value of business goodwill can be considerable. To appraise such a business, consider using the Capitalized Excess Earnings method, known as the Treasury Method. This technique is specifically intended to help you determine the value of business goodwill and total business value.