How to Value a Convenience Store

How to Value a Convenience Store

Convenience stores are one of the most popular businesses to own. There are two main classifications of convenience stores. These convenience stores are either connected to a gas station or standalone stores. Convenience stores have been profitable businesses for years. Recently, we have seen an upwards trend in the number of convenience store transactions. Knowing the fair market value is key to selling or buying a convenience store. Peak Business Valuation, business appraiser Utah, is here to help you understand how to value a convenience store. 

First, there are many internal and external factors that impact the value of a convenience store. As a certified business appraiser, Peak Business Valuation helps many individuals who are looking to buy or sell a business. The first step to buying or selling a business is to obtain a business valuation. A business valuation engagement discusses key metrics an expert uses when valuing convenience stores. Below are some of the common metrics we see when valuing a convenience store.  For more information about valuing a convenience store, schedule your free consultation with Peak Business Valuation, business appraiser Utah.

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Market Multiples for a Convenience Store

  • EBITDA Multiple Average: 3.67x – 4.38x
  • SDE Multiple Average: 2.21x – 3.30x
  • REV Multiple Average: 0.27x – 0.45x
** Disclaimer: These multiples are for educational purposes only. Multiples are based on companies with revenues between $1-$10 million. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article. 

There are several approaches a valuation expert uses to value a business including the use of valuation multiples. Most commonly, convenience stores trade and transact on a cash flow multiple. The reason for this is that most hypothetical buyers or investors are primarily concerned with the cash flow ability of the company. They want to make a certain return on their investment. EBITDA is a measure of financial performance. It is widely considered to be the most reliable multiple for convenience stores. The convenience store industry tends to transact primarily on cash flow multiples, such as EBITDA and SDE. 

The key to increasing the value of a convenience store route is to better understand what drives its value. Once you understand how to value a convenience store, you can begin taking steps to increase its value. If you are searching for an in-depth business valuation for a convenience store, schedule a free consultation with Peak Business Valuation, business appraiser Utah.

Key Success Factors

There are various approaches a valuation expert uses to determine the value of a convenience store. A business is not valued based purely on a multiple such as an EBITDA, SDE, or REV multiple. Instead, there are many qualitative and quantitative factors to consider. Some of these aspects include what Peak Business Valuation refers to as “Key Success Factors.” A key success factor is a metric that significantly impacts the value of a business. Below we mention some of the key success factors that impact the value of a convenience store. 

Gas Station

Is your convenience store connected to a gas station? If so, your convenience store might be worth more. Diesel and gasoline stations are a necessity in today’s world. Given the amount of traveling that is done both personally and professionally, it feels like filling up can be an almost daily routine. Whether you are stopping to fill up your tank before going on a long road trip, or just getting some gas before work, both people need to fuel up. If you own a convenience store connected to a gas station, you have a captive customer just outside your door, literally! Because of this, it increases the number of potential customers you can reach and the value of your convenience store.

Profitability Margins

Next, there are three profitability margins to analyze when purchasing a convenience store. These margins are the gross profit margin, operating profit margin, and net profit margin. Convenience stores have a history of low profitability. If you own a convenience store with higher margins than the industry average, your convenience store will be worth more.

As a business appraiser, Peak Business Valuation has access to thousands of convenience store transactions. We look at these transactions when performing a business valuation. Peak Business Valuation also has access to industry averages that we use and can share with you when we perform the business valuation for the convenience store. 

Differentiation

Lastly, convenience stores typically sell snacks, treats, beverages, and sometimes alcohol or tobacco. If you are able to differentiate yourself by adding additional options, that will help attract more customers and increase sales. For example, we worked with a convenience store recently that partnered with a local bakery to sell fresh donuts every day. In turn, they increased the sales of their other products! Adding different food options, coffee, or some other variety can help increase the value of your convenience store.

Summary

In conclusion, within every industry, there are certain factors that impact the value of a business. An individual can gain an idea of what their business is worth by using multiples. However, there are many other considerations when valuing a convenience store. If you are looking to buy, sell, or grow a business, you have come to the right place. Let Peak Business Valuation, business appraiser, help you to understand the value of a convenience store.

Peak Business Valuation, business appraiser Utah, values convenience stores across the country. We would love to answer any questions you have about valuing a convenience store. You can reach out to us at any time via email or by scheduling your free consultation call below. We look forward to hearing from you! 

 

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