Archive for October, 2012

If you are considering valuation of a retail shoe store, here are some interesting industry stats to bear in mind:

In the US alone there are over 28,000 shoe store businesses classified under SIC code 5661 and NAICS 44821. Together they generate a combined revenue of $26.9B annually. The industry employs 3,233,000 staff. The average independently owned shoe store is small business with sales of $944,000 and a staff of between 7 and 8.

Business valuation for shoe stores

Profitable footwear retailers with a strong presence in their market are often sought after by business buyers. If you need to determine the value of a shoe store, recent selling prices of similar businesses offer you a great comparison basis.

You can use the prices from closed business sales divided by the companies’ key financials. This gives you what is known as valuation multiples to calculate the value of any other shoe store.

The most useful valuation multiple for this retail industry sector is based on the business yearly gross revenues or net sales.

Example: Shoe store business valuation based on its revenue

Consider an average shoe store with annual gross revenue of $1,000,000 and inventory of $250,000. Let’s pick a set of valuation multiples to use in valuing this company as follows:

Multiple Multiple value Business value
Low 0.64 $894,700
High 1.93 $2,181,700
Average 1.04 $1,288,600
Median 1.08 $1,327,900
Average Business Value $1,423,225

Note that the value of inventory is added on top of the business value determined using the valuation multiples. This is a convention used in valuing retail companies. One reason for valuing a company in this way is that retail inventories tend to fluctuate with time as business people build up or deplete the stock of products offered for sale.

Shoe Store Valuation

Current shoe store business sales offer you one key way to determine the value of any shoe store operation. You can explore this further by repeating the calculations using other financial figures such as net profits, EBITDA, cash flow and assets.

See Example »

When you value a business the result is valid for the present time. As business conditions changes so does the value of a company.

One way to use this idea is to track how business value changes over time. If you run a number of business valuations over a number of years, you can see both what factors affect business worth and by how much.

You can turn this subtle concept into a strategic business decision making tool. Say you decide to invest in business expansion and would like to see just how much the business value is affected. Using forward looking business valuation methods, such as the discounted cash flow technique, you can forecast business earnings to reflect a number of anticipated scenarios.

You can then select the business strategy that leads to the highest business value. As time passes, you can repeat business valuation to validate your assumptions. A number of business valuation results taken over time can help you see how your decisions translate into increased business value.