I'm looking at a retail business in Leicester city centre. It's a small shop, been running for 12 years. Annual turnover £380k, net profit around £55k. Lease has 6 years left, rent is £18k per year. The owner is retiring and wants a quick sale. What would be a realistic asking price? I've seen multipliers online but they seem all over the place. Any insights from people who've actually sold or bought a shop like this?
Retail
What is a realistic asking price for a profitable Leicester retail business?
A common starting point for small retail is 2-3 times net profit. So somewhere between £110k and £165k. But that's just a rough guide. Location and lease terms matter a lot.
Leicester city centre retail has been hit hard by the closure of a few big names. Buyers will factor that in. I'd lean towards the lower end, maybe 2x profit plus stock at valuation. So around £110k plus whatever stock is in the shop.
Have you seen the actual accounts? Net profit of £55k on £380k turnover is about 14.5%. That's decent for retail. But is the owner taking a salary? If that £55k is before his wages, then the true profit is much lower. Ask for the last three years of accounts and add bvack any personal expenses.
Lease length is fine. Six years is enough for a buyer to get their investment back. Rent at £18k is about 4.7% of turnover, which is reasonable. If it were me, I'd offer £120k and see what happens.
Is the £55k net profit after the owner's salary? If so, that's good. If not, it's basically a job. Buyers don't pay a multiple for a job.
Also consider fixtures and fittings. A 12-year-old shop might need a refit soon. That could be £20k-£30k. Buyers will deduct that from what they're willing to pay.
I sold a similar shop in Leicester three years ago. Turnover was £300k, profit £45k. I got £95k. It took six months to sell. Most interest came from first-time buyers who wanted a lifestyle change. They didn't have much cash so I offered vendor finance. If you want a quick sale, be flexible on terms.
Vendor finance is a good point. A lot of buyers can't gget a bank loan for a retail business right now. If you're willing to take a deposit and then payments over a couple of years, you might get a higher price. But you're taking on risk.
What sector is the shop in? A convenience store will get a different multiple from a gift shop or a clothing boutique. Also, is there any online presence or is it purely bricks and mortar?
It's a homeware and gift shop. No real online sales, just a basic website. The £55k is after the owner's salary of £25k. There's no other staff apart from a part-timer on Saturdays. So it's very much owner-operated. I'm thinking around £130k might be fair given the lease and stock.
If the owner takes £25k salary and still clears £55k, then the business is generating £80k for an owner-manager. A buyer would have to replace that salary. So the true profit is £55k. A multiple of 2.5x gives £137.5k. £130k is in the right ballpark. But stock should be separate.
Don't forget about the cost of due diligence. Solicitor and accountant fees could be £5k-£10k. If you're selling, you'll pay those. That eats into your net proceeds. Also, the buyer will likely want a lock-out period where you can't start a competing business nearby.
One more thing: the part-time staff member. If they leave, will the buyer have to recruit? That's a hassle and a cost. Make sure there's a handover period. And get the lease checked for any dilapidations clause. At 12 years, the shop might need repairs that you're liable for.
Any outstanding debts or loans? Buyers will want those cleared before completion. Also, check if there are any personal guarantees on the lease. They can complicate a sale.
The asked price often ends up 10-20% below the initial listing. So if you want £130k, you might list at £150k to leave room for negotiation. But given the owner wants a quick sale, a realistic price from the start might attract more Serious buyers.