The Business Your bible is Race Pages. So why are you still living your business life at 55 miles per hour? Here's an alternative: a four-year-old purveyor of safety harnesses, helmet blowers, and flameproof underwear for race-car drivers. Seventy percent of revenues come from direct-mail sales, the rest from walk-in business at a 1,200-square-foot showroom and weekend sales at local tracks. The owner wants to focus on another venture.

Financial Summary 1993 1994 1995
Gross revenues $180,000 $350,000 $406,500
Recast earnings before depreciation, interest,taxes, and owner's compensation $390 $55,000 $81,000

Price $230,000. The owner will finance $100,000.

Outlook Think of this industry as Rodeo Drive on wheels. Safety-equipment retailers sell to a clearly defined market: 385,000 active racers with money to burn on items like safety underwear ($140) and flameproof driving suits ($500-plus). Plus, you could be the beneficiary of industry consolidation among the United States' 6,000 or so tiny race-track outlets (called "speed shops").

Price Rationale Since this retail niche is so fragmented, there are no good sources of data on revenues for an "average" shop. One expert suggests using a "street-level-deal valuation," or picking apart the asking price till you reach a level worth paying. Here's how: Start with the $230,000 asking price (which includes inventory), figure in another $70,000 in expansion capital, and then set a goal of a 25% to 40% return on capital (appropriate given the venture's risk profile). You'd have to generate a $75,000 to $125,000 return, plus enough cash to service the $100,000 financing note and pay a manager's salary. That's about as likely as winning the Indy 500. A $100,000 deal makes more sense: $30,000 for inventory and another $70,000 ($30,000 in cash, $40,000 in owner financing) for the business. At that price, if 1995 earnings hold steady, a new owner can cover debt service, earn out an adequate return on capital, and still hire a manager.

Pros Potential for explosive growth if you sell at local tracks, expand from road races to tap drag and circle-track events, and launch a full-scale direct-mail campaign.

Cons If you can't rev up sales mighty fast, you could crash and burn. -- Jill Andresky Fraser

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 Turim/Winter/Associates Ltd. at 708-480-0900.

Published on: May 1, 1996