ValuAdder Business Valuation Blog

Business valuation tips, updates and advice. Pick up a few suggestions on how to value a business. Feel free to browse the contents or share your thoughts by leaving a comment.

Do you need to value a retail pet store? Here are some industry statistics to consider first:

Pet stores are classified under the retail industry SIC code 5999 and NAICS 453910. Pet retail establishments make up a large portion of the miscellaneous retail industry. In the US there are just under 169,000 such operations.

This retail sector creates a total of $58.8B in annual revenues, and employs some 732,900 people. However, a typical pet store is small business: producing an average of $400,000 in sales per year with 4 staff.

In fact, 97.7% of pet retail businesses have 24 or fewer employees. Together these small, local businesses generate about 68.7% of the industry total annual revenues.

Well-established, successful pet retail businesses develop loyal customer following. The result is highly stable earnings year after year. Such cash cow operations are attractive acquisition targets.

Hence, an excellent way to estimate the fair market value of your pet retail store is to study the recent sales of similar businesses.

Pet store valuation using multiples

You can choose a number of valuation multiples for your business valuation. The multiples are ratios that relate the selling prices to some measure of sold companies’ financial performance. Here are the typical valuation multiples used in pet store appraisals:

  • Price to net annual sales
  • Price to gross profit
  • Price to net income
  • Price to EBIT and EBITDA
  • Price to seller’s discretionary earnings
  • Price to total practice assets
  • Price to owners’ equity

Consider using several of such valuation multiples for increase the accuracy of your business valuation.

Each multiple gives you a business value estimate that may differ depending on how your pet store compares to its industry peers. The result can be a range of values, from low to high. Alternatively, you can calculate an average of all the business value estimates together.

Example: pet store valuation using multiples

To illustrate, let’s take a typical privately owned pet supplies store with the following financial details:

  • Annual net sales: $400,000
  • Gross profit: $180,250
  • Net income: $30,000
  • EBITDA: $32,750
  • Discretionary earnings (SDE): $85,000
  • Inventory: $55,000
  • Furniture, fixtures and equipment assets valued at: $40,000

We next select a set of reasonable valuation multiples and apply them to the financial figures above. The practice value results are then:

Multiple Multiple value Business value
Price to net sales 0.33 $132,000
Price to gross profit 0.88 $158,620
Price to net income 3.67 $110,100
Price to EBITDA 4.79 $156,873
Price to discretionary earnings 2.10 $178,500
Price to FF&E assets 3.84 $208,600
Average Business Value $157,449

Note the result spread. This depends on how our example pet store compares to its peers across the financial performance parameters.

Other pet store valuation methods

As with other types of businesses, a properly done business valuation should include several business valuation methods.

Established pet store businesses can build up significant business goodwill. The Capitalized Excess Earnings valuation method is a good choice when valuing such companies.

Direct capitalization methods, especially the Multiple of Discretionary Earnings valuation method are an excellent choice for valuation of privately owned pet stores. This method offers you a very systematic yet intuitive way to calculate the business value based on its earnings and a set of key financial and operational performance factors.

Pet Store Valuation using all Three Approaches

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