The Business The ideal bookstore: independent, established, and in a prime location -- a mile from the University of Washington, on a bohemian street with heavy foot traffic. No mass-market fluff here: the 1,260-square-foot store attracts a counterculture crowd covetous of its poetry volumes (the second-largest selection in Seattle).
Financial Summary 1989 1990 1991*
Gross revenues $83,983 $94,597 $100,257
Pretax profit ($9,230) ($3,447) $7,000
Outlook Last year Americans purchased more than $15 billion worth of books. And Seattle is a healthy yet competitive market -- the 10th largest in the nation. But making money from selling books anywhere is notoriously difficult. Net income before taxes typically runs a slim 3% of sales. Independents relinquish as much as 60% of their revenues to publishers. But success can be had. The key? Keep that inventory turning and overhead costs low.
Price Rationale The bulk of what you're buying is inventory -- 5,000 titles with a wholesale value of $33,000. Remaining assets -- a lease through 1994, furniture, fixtures -- add up to $22,000. Valuing bookstores is as idiosyncratic as the volumes stocked. But using one industry rule of thumb -- four times projected profits, plus asset value -- this store looks downright reasonable.
Pros This shop has generated goodwill in its neighborhood of devout literati. There's healthy potential, too: currently the inventory turns twice a year; if you have the willpower to shrink it by parting with slow-moving (albeit precious) titles, and turn it once more (industry average is three times a year), you can increase revenues by 33%. New markets to explore: mail order, supplying local schools.
Cons Running a successful bookstore is more mystery than romance. The store struggles to regain the popularity it enjoyed in the early 1970s. Sales volume has gradually increased and operation costs have decreased, but profits have yet to appear. And independence may give you control, but it doesn't give you a chain-store buyer's clout, nor the security of knowing that one store closed doesn't spell bankruptcy.
-- Alessandra Bianchi