BUYING A SMALL BUSINESS

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THE BUSINESS: Thinking of closing the chapter on your corporate past? This minichain of used-book stores, based in the metro Washington, D.C., area, could offer a book lover the appealing combination of a change in lifestyle plus a business with growth potential. The current owner, who opened the bookstores in the mid 1970s with help from her sister, has built up an inventory worth $83,000 and a loyal customer base. (Repeat business accounts for about 70% of sales.) Bookmark this: both stores are located in leased space in heavily trafficked strip malls. But Amazon.com they're not! The present owner's business-management techniques are even more historic than some of her inventory. The owner doesn't use a Web site or a fax machine, nor does she employ a computer to track the stores' 170,000-book collection. She began accepting credit cards only a year ago. Yet the shops' old-world practices have their advantages: book-acquisition costs are minimal to nonexistent, as the stores acquire titles either inexpensively or in the form of donations (even though the business is not a nonprofit). While the owner is ready to turn the page on this portion of her career, her staff of six part-timers and one full-time store manager would prefer not to be shelved.

PRICE: $140,000

OUTLOOK: If you can read this business's bottom-line priorities as well as the current owner understands her customers' yen for books, then your tenure at this retailer could be a classic. After all, this little chain's sales have remained firm despite the ongoing onslaught from the Internet and book megastores. Steal a page from large competitors' business plans and you could boost revenues by hosting book-related events and reading groups, or launching a used-book Web site. To broaden your customer base further, consider marketing your most desirable items through Amazon .com's zShops. But don't count on adding cappuccino and sandwiches to your product mix: the 1,110 and 1,500 square feet of floor space in these two stores are already filled to near capacity.

PRICE RATIONALE: Since this is a business in which books sell for 50% of their original price or less, it's no surprise that this deal feels right. There are currently two valuation methods worth considering for bookstores: on the low end, rely on 15% of annual sales plus the value of inventory (in this case, that suggests a $120,200 price tag). Using the other method, the price for this company is much higher, at 1.6 times the seller's discretionary cash (or, roughly, EBITDA) plus inventory, adding up to $215,800. A savvy buyer would stick to the lower end of that price range, since the competitive environment has gotten so tough for bookstores that, in the overall marketplace, their failure rate now outpaces that of all retailers and U.S. businesses in general.

PROS: For a book lover with entrepreneurial instincts, the only things more enticing than those well-stocked shelves are all those loyal customers!

CONS: Books age well, but management practices seldom do, especially in a rapidly changing industry such as this one. If you can't bring this company into the 21st century, sign up for a library card instead.

Jill Andresky Fraser

East Coast Used-Book Stores
Owner's
revenues
EBITDA** Compensation***
1999 $236,000 $83,000 $83,000
2000 $242,000 $83,000 $83,000
2001* $248,000 $86,000 $86,000

*Projected. **Earnings before interest, taxes, depreciation, and amortization. ***Owner takes no salary but instead compensates herself with the stores' full EBITDA each year. (If EBITDA were restated so as to not include the owner's compensation, it would be zero.)


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 Chuck Boughan, at VR Business Brokers, 301-596-1506.


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Last updated: Nov 1, 2001




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