Northern California Bike Shop
The Business An eight-year-old, 1,600-square-foot bicycle store in a coastal San Francisco bedroom community (population 38,450). Forty-three percent of revenues derive from the sale of a variety of midmarket foreign and U.S. brands of mountain and touring bikes; the rest comes from service and accessories (racks, helmets, clothes). The store employs three part-timers but relies on an owner who can make a bicycle sing. On the market because partners are breaking up.
1989 1990 1991
Gross revenues $360,000 $295,000 $217,000
Recast earnings $42,000 $38,000 $35,000
before interest, taxes,depreciation, and ownercompensation
Outlook Bicycling is the recreational sport in this country, a $4-billion industry serving more than 120 million consumers. While mass-merchandising chains account for 60% to 70% of retail bike sales, the nation's 7,500 small, individual shops (most of which are even smaller than this one) are fighting to hold their own by offering better ser-vice and selection. The recession has hurt this store's revenues, but the owner has managed to increase his profit margin by focusing on the higher-margin income sources. Accessory sales and bike repairs (which, combined, could conceivably generate margins of up to 100%) have risen over the past three years -- they now account for 60% of revenues, up from 40%.
Price Rationale The price includes $20,000 worth of inventory, $7,500 in hard assets, and a $30,000 Small Business Administration loan, for which the seller is leaving collateral. The seller is asking for $40,000 down and will finance the remaining $10,000 at 10% over two years ($461 per month). Experts peg earnings multiples for bike shops between three and five, making this store conservatively priced.
Pros What insiders call a "beyond great" profit margin (it's nearly double the industry average), and seemingly providential circumstances -- as the lone bike shop in this scenic community of young (median age is 33) and cash-blessed (average income is $50,000) inhabitants.
Cons Declining sales. (Have all those ideal customers switched to rollerblading?) A new owner had best enjoy tinkering, and not only with tools. Bringing in higher-priced lines might make servicing debt (and paying yourself a decent salary) less of an uphill climb.
-- Alessandra Bianchi
Inc . has no stake in the sale of the business featured. The magazine cannot confirm the accuracy of financial or other information offered by the seller. Inquiries should be directed to Tony Moran at Business Team Inc., 510-944-9009. n