Market Multiples for a Hardware Store
Businesses in the hardware store industry sell a broad range of home improvement equipment. This includes hardware, paint, plumbing, and electrical supplies and tools. According to IBIS World, there are about 10,000 hardware stores throughout the United States. This industry has faced extreme competition from large internal players as well as businesses in the home improvement industry. As such, we can expect a decline in revenue, profit, and businesses moving forward. However, the hardware store industry receives steady demand from businesses, contractors, and households. With proper guidance, success is still achievable in this competitive industry. Whether you are looking to buy, grow, or sell, it is important to understand the value of a hardware store. This includes learning about market multiples for a hardware store.
Valuing a Hardware Store
There are many benefits that come with learning how to value a hardware store. The best way to learn the principles of valuing a hardware store is to receive a business valuation. If you are buying or selling a hardware store, consider receiving a business valuation. For buyers, receiving a business valuation can help you determine a fair purchase price. You may also learn about effective negotiation strategies during an appraisal. If you are selling a hardware store, a business appraisal may help you decide on an asking price. Ultimately, receiving a business appraisal can help you know how to increase the value of a hardware store.
When valuing a hardware store, business appraisers may use various valuation approaches. Often, business appraisers use the market approach which utilizes valuation multiples. This article highlights market multiples for a hardware store. It is important to note that this article is only a guide. For more accurate information, receive a business valuation. Peak Business Valuation is happy to help! We work with many hardware stores across the country. Peak can provide you with a business valuation for a hardware store. We can also answer any questions you may have about the value of a hardware store. Schedule a free consultation with Peak Business Valuation today!
Market Multiples for a Hardware Store
The following diagram displays average market multiples for a hardware store. However, these values are only a guide. To learn the valuation multiples for your hardware store, receive a business valuation. Peak Business Valuation is happy to provide you with a business valuation for a hardware store. Schedule a free consultation with Peak Business Valuation, business appraiser, today. Be sure to also check out Valuing a Hardware Store.
Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.
What is a Valuation Multiple?
Valuation multiples are ratios that compare a hardware store’s value to a financial metric. These metrics often include cash flow, earnings, and sales. For example, the SDE multiple is often used when valuing a hardware store. The SDE multiple compares the seller’s discretionary earnings of a hardware store to its estimated value. To get a range of fair market value, business appraisers use the multiples of similar hardware stores that recently sold on the market.
For instance, a hardware store has $265,000 in SDE. If it receives a 3.25x SDE multiple, then the business is worth about $861,250. ($265,000 times 3.25x) However, if it receives a 3.87x multiple, the value of the company would be $1,025,550. ($265,000 times 3.87x).
Peak Business Valuation, business appraiser, works with hardware stores on a regular basis. We are proficient in valuing hardware stores with valuation multiples. In the following paragraphs, we discuss the basics of common market multiples for a hardware store. These multiples represent the range of values that hardware stores often transact at. Below, we highlight SDE, EBITDA, and REV multiples for a hardware store.
SDE Multiples for Hardware Stores
Average SDE Multiple range: 3.22x – 3.93x
According to Peak’s data, hardware stores transact between a 3.22x – 3.93x average SDE multiple. To determine the value of a hardware store, apply the multiple by the hardware store’s seller’s discretionary earnings. See the equation below.
SDE X Multiple = Value of the Business
In this example, a hardware store generates $380,000 in SDE and transacts at a 3.58x multiple. As such, the hardware store’s value is approximately $1,360,400.
$380,000 X 3.58x = $1,360,400
SDE multiples are popular when valuing a hardware store. When using the SDE multiples, valuation analysts add back any expenses the new owner may not incur to the operating profit of the hardware store. Some common add-backs include personal expenses, the owner’s compensation, and non-recurring or non-related business items. This allows the valuation expert to determine the cash flow potential of a hardware store.
EBITDA Multiples for a Hardware Store
Average EBITDA Multiple range: 4.20x – 4.74x
On average, the EBITDA multiple range for a hardware store is 4.20x – 4.74x. Apply this multiple to a hardware store’s EBITDA to derive an implied value of the business. Refer to the following calculation.
EBITDA X Multiple = Value of the Business
For instance, a hardware store has an EBITDA of $314,000 and transacts at an EBITDA multiple of 4.44x. In this example, the hardware store is worth about $1,394,160.
$314,000 X 4.44x = $1,394,160
EBITDA multiples measure a hardware store’s return on investment (ROI). Business appraisers may consider this multiple since it helps normalize differences. Normalized differences allow for comparisons to be made between similar hardware stores. These ratios provide an accurate projection of the future earnings a buyer can expect from a hardware store.
REV Multiples for Hardware Stores
Average REV Multiple range: 0.37x – 0.74x
According to our data, hardware stores sell an average of 0.37x – 0.74x in revenue. At Peak, valuation experts may calculate the implied value of the store by multiplying its revenue or sales by the REV multiples. The calculation is as follows.
Revenue X Multiple = Value of the Business
For example, a hardware store generates $2,700,000 in revenue and transacts at a 0.54x multiple. With the above metrics, the hardware store is worth approximately $1,458,000.
$2,700,000 X 0.54x = $1,458,000
The REV multiple measures the amount of revenue the hardware store generates. Keep in mind, business appraisers typically use cash flow multiples – SDE and EBITDA to value a hardware store. However, they will use their knowledge and expertise to determine which multiples are best for your hardware store.
Business appraisers often use valuation multiples for a hardware store during the valuation process. If you are looking to buy, grow, or sell a hardware store, it is important to know the applicable multiples for your hardware store. You can start by receiving a business valuation. During a business valuation, an expert will help you understand the fair market value of a hardware store. In addition, you will learn how to increase the value of a hardware store.
Peak Business Valuation, business appraiser, is passionate about helping hardware stores succeed. We are happy to provide you with a business valuation for a hardware store. If you have any questions about market multiples for a hardware store, reach out to Peak. Get started by scheduling a free consultation with Peak Business Valuation below!