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LEGAL ISSUES

Roll Out the Fine Carpet
 

Business for Sale: A rug and furniture retailer in Bozeman, Montana, for $1.64 million.
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Mark DeFalco never meant to get into the rug business. Forty years ago, when he lived in Colorado, he learned to cut and polish turquoise. He traded stones on a nearby Navajo reservation for rugs, and when he found out how valuable some of the rugs were, he sold them. Today DeFalco owns Montana Rugs & Furniture in Bozeman, Montana. The business has grown about 30 percent a year since it opened, in 2003.

Sales of antique Turkish tribal rugs and contemporary hand-knotted wool Orientals account for 60 percent of revenue. Navajo replicas and Western-style rugs bring in 20 percent of sales, and fine antiques and home furnishings make up the rest. Rug prices average $7,500 and go as high as $30,000. Interior designers working on multimillion-dollar vacation homes are the business's best customers. DeFalco "provides really great customer service," says local designer Elizabeth Robb. "He understands the design business."

Why sell now? DeFalco moved to Montana to retire. To keep active, he opened a small shop. But Montana Rugs grew faster than he expected, leading him to staff up and find a larger location in 2005. "I'm 60, and I've done this," he says. "I'd really like to see someone younger and smarter than me take over."

Company Financials 2005 2006 2007*
Gross Revenue $724,000 $832,000 $1.3 million
EBITDA** $16,000 $148,000 $257,000
Gross Margin 31 percent 49 percent 64 percent
THE ASKING PRICE:

$1.64 million. DeFalco pegs the value of his inventory at $1.2 million. The price factors in $175,000 in hard assets, including three vehicles and trade fixtures. A $7,600-a-month lease is transferable. DeFalco will finance up to $500,000 of the sale price, consult to a buyer for two years, and sign a noncompete.

PRICE RATIONALE:

The rule of thumb for valuing businesses in the rug industry is 20 percent of revenue plus inventory. That formula suggests a price of $1.46 million. Jon Patterson, the company's broker, argues that the business's $175,000 in hard assets and its antiques business combine to justify the higher asking price.

THE PROS:

Benjamin Soleimani, a fourth-generation rug retailer with stores in Los Angeles and London, says sales of high-priced rugs are strong despite the economy. And even with a weak real estate market, sales of pricey second homes in Bozeman have been steady, says Sally Uhlmann, a local agent.

THE CONS:

Fine rugs are a specialty business akin to antique furniture or art, says Soleimani. Success depends on the owner's expertise and personal relationships with customers. And this business, opened in Big Sky Country only a few years ago, is still building its reputation in the state.

THE BOTTOM LINE:

The ideal buyer for Montana Rugs will have experience in the interior design trade or in selling fine rugs or antiques. Keep in mind that the rugs' value accounts for a big chunk of the asking price. A buyer should bring in an independent appraiser to vet the company's inventory.

*Projected year-end numbers. **Earnings before interest, taxes, depreciation, and amortization.

Inc. has no stake in the sale of the business featured. The magazine does not certify the accuracy of financial or other information provided by the seller. Inquiries should be directed to Jon Patterson at 406-600-8707 or jwpat75@yahoo.com. Inc. also publishes paid business listings in the back of the magazine.

Last updated: Apr 1, 2008




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