How to Value a Furniture Store
Businesses in the furniture industry sell household, outdoor, and office furniture. In recent years, the furniture industry has experienced healthy growth. This is a result of growing consumer confidence as well as steady demand from the residential market. Moving forward, IBIS World predicts healthy revenue and profit growth in the furniture industry. In addition, we can expect consumer disposable income to increase and furniture production costs to decrease. This is ideal for individuals looking to buy, grow, or sell a furniture store. However, the furniture industry is extremely fragmented and competitive. To build a competitive furniture store, it is important to understand how to value a furniture store.
Learning the value of a furniture store is a crucial step in maximizing your success. The first step to learning how to value a furniture store is to receive a business appraisal. As a professional business appraiser, Peak Business Valuation works with furniture stores on a regular basis. We are happy to help you with a business appraisal for a furniture store! If you have any questions on valuing a furniture store, reach out to Peak! Schedule a free consultation today by clicking the following link.
How to Value a Furniture Store
At Peak Business Valuation, valuation experts often use the market approach and/or the income approach to value a furniture store. The method the business appraiser uses depends on various factors. They will use their training and expertise to determine which method is most suitable for valuing a furniture store. This often includes using a combination of valuation methods depending on the purpose of the business appraisal.
Valuing a Furniture Store Using the Market Approach
The market approach is a popular valuation method for valuing furniture stores. This approach is similar to the approach real estate appraisers use to value a property. Real estate appraisers consider comparable properties that recently sold on the open market. This helps them determine an accurate value of the property they are appraising. Similarly, a business appraiser compares similar furniture stores when valuing a furniture store with the market approach. For private furniture stores, the appraiser refers to private transaction databases.
Multiples for a Furniture Store
The market approach uses market multiples to determine the fair market value of a furniture store. To determine the valuation multiples for a furniture store, business appraisers use the applicable NAICS or SIC code. Below, we discuss the basic market multiples for valuing a furniture store.
REVENUE or SALES Multiples for a Furniture Store
- When using a revenue or sales multiple, the appraiser applies the multiple to a furniture store’s revenue.
EBITDA Multiples for a Furniture Store
- EBITDA multiples measure the return on investment one can expect to make from the furniture store.
SDE (Seller’s Discretionary Earnings) Multiple for a Furniture Store
- The SDE multiple is a common method for valuing a furniture store. This is because it assesses a store’s cash flow by multiplying its seller’s discretionary earnings by the multiple to estimate a fair market value.
There are various valuation multiples that may help determine the value of a furniture store. For additional information see Valuation Multiples for a Furniture Store. The multiple the business appraiser uses depends on various factors. To determine which multiple(s) are most applicable to your furniture store, receive a business appraisal with Peak Business Valuation. Schedule a free consultation by clicking the link below!
Valuing a Furniture Store Using the Income Approach
Another common valuation method to value a furniture store is the income approach. This approach assesses the risks associated with the furniture store. The following section describes a few common risks associated with buying or selling a furniture store.
- Competition. The furniture industry is extremely fragmented and competitive. It is crucial to take steps to set your furniture store apart from competitors.
- Location. The location of a furniture store has a significant impact on its value. To choose a prime location, consider the key markets for the furniture industry.
- Online Sales. The most successful furniture stores use the Internet to promote and sell their products. Online sales can generate a significant amount of revenue.
- Supplier Relationships. It is beneficial for furniture stores to develop strong supplier relationships. This can help reduce expenses as well as maximize profit at a furniture store.
Methods to Value a Furniture Store Using the Income Approach
There are two common methods that business appraisers use when determining how to value a furniture store under the income approach. They are the capitalization of cash flow method and the discounted cash flow method. We discuss these methods in the following paragraph.
Capitalization of Cash Flow Method
Most often, a business appraiser at Peak uses the capitalization of cash flow method to value a furniture store. This method is best for businesses that have a long and stable history. When using the capitalization of cash flow method, the analyst determines an appropriate measure of economic income for one period. Then, the appraiser divides this time frame by a suitable capitalization rate. The capitalization rate represents a reasonable rate of return a buyer can expect. In addition, this method analyzes any risks that may stop the buyer from meeting expected earnings. We discuss some of these risks above.
Discounted Cash Flow Method
The discounted cash flow method is best for furniture stores with strong financial histories and companies that have built reliable forecasts. This valuation method uses 3-5 years of projections to calculate the value of future cash flows. Then, the analyst discounts the future cash flows using a discount rate instead of a capitalization rate. This process helps them estimate the value of a furniture store. This method is less reliable science as it uses future cash flow estimates which can be inaccurate.
Summary
There are various valuation methods a business appraiser may use to value a furniture store. At Peak Business Valuation, business appraisers often use the market approach and/or the income approach. To understand which valuation method is most suitable for a furniture store, receive a business appraisal. During a business appraisal, a valuation expert helps you understand the fair market value of a furniture store. This is important whether you are buying, growing, or selling a furniture store.
Peak Business Valuation, business appraiser, is happy to help! At Peak, we work with many furniture stores across the nation. We are happy to provide you with a business valuation for a furniture store. Additionally, we can answer any questions you may have about valuing a furniture store or how to value a furniture store. Start by scheduling a free consultation with Peak Business Valuation today!
See also Valuing a Furniture Store, Value Drivers for a Furniture Store, and Valuation Multiples for a Furniture Store.
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