Looking to get a valuation for a bakery business? First, some industry stats to ponder:
Retail bakery industry – top statistics
The bakery industry has deep roots in the economy with a number of established players. Some 9,600 bakeries classified under SIC 5149 and NAICS code 311811 compete in the US alone, And together they generate just under $28B in annual revenues.
Just a few big competitors dominate the market. Moreover, the top 5 rake in almost 50% of the total sales volume. On the other hand, some 7,000 small, privately owned bakeries compete successfully.
Large bakeries may employ over 100 employees and do some $50M in business each year. Yet a typical retail baker is a small business with just one location, an average staff of 11, and $5,500,000 in annual revenues.
Business value drivers for a retail bakery
To be successful and increase their business value, bakery owners pay special attention to a number of key factors:
- Equipment. Good automation helps reduce direct costs including labor. However, new equipment can be very expensive, which deters new competitors.
- Labor costs. Bakers often work during early hours. This tends to increase labor costs due to small available labor pool and higher health insurance costs.
- Product differentiation. A growing trend is toward production of specialty baked goods such as artisan breads, and products for the health conscious consumer. Small bakers can excel in this market place which tends to be less price sensitive.
- Cost-effective materials procurement. Successful bakers manage their material costs to within 20% of gross sales.
- Effective distribution. Making your products available on time through the right outlets to the target market is essential for success.
Valuation multiples that work best for valuing a bakery business
Many small bakeries are family owned with business ownership passing from one generation to the next. Nevertheless, bakeries do sell so there are business sale comparables you can use to estimate the market value of these businesses.
Typical valuation multiples used to assess the value of a small bakery are these:
- Business selling price to gross revenues plus inventory.
- Selling price to seller’s discretionary cash flow. Again, the inventory is extra.
Need come up with the most accurate estimate of business value possible? You should certainly consider using a number of valuation multiples based on business revenues, gross and net profits, EBITDA, cash flow and assets values.
Valuation multiples with the smallest spread offer reliable business value estimates
You can use any number of valuation multiples to estimate the potential business selling price or market value. However, the best estimates come from the valuation multiples that tend to “cluster” around the average value.
What this means is that business owners and buyers in your industry rely on these valuation multiples more often when pricing a deal. But the market is seen by many as the ultimate arbiter of business value. So you should pay attention to these valuation multiples when calculating your business worth.
Other business valuation methods for bakery appraisal
For family owned and run bakery businesses, the Multiple of Discretionary Cash Flow method is the most common way to assess business value. The power of this income-based business valuation method is in its ability to account for a number of key financial and operational business performance factors that affect directly what the business is worth.
For larger, multi-site bakeries, the Discounted Cash Flow business valuation method is the preferred choice. This well known method lets you treat bakery valuation as an investment project, factoring in the business earnings and risk in your calculations.
To get an accurate, defensible bakery appraisal, your business valuation model should include a number of different methods.