Valuation Multiples for a Clothing Store

Valuation Multiples for a Clothing Store

The clothing store industry includes several smaller industries. These include women’s clothing, men’s clothing, children and infant clothing, used clothing, and boutique stores. These industries include approximately 274,000 businesses throughout the United States. The clothing store industries generate over $166 billion in revenue. These industries are extremely competitive especially with the rise of online retail. With increased competition and the high concentration of clothing stores, there are thousands of clothing store transactions throughout the U.S. every year. As such, you may be interested in buying a clothing store or selling a clothing store. If so, one of the first items to understand is how to value a clothing store.

Valuing a Clothing Store

The value of a clothing store can vary significantly depending on a number of factors. Some of these include the size, type of clothing store, economic conditions, among others. Calculating the value of a clothing store can be complex. A wise practice is to obtain a business valuation. A business valuation can help determine a fair purchase price if you are looking to buy a clothing store. If you are looking to sell your clothing store, a business valuation helps determine an attractive listing price. It can also help when you negotiate with a potential buyer. A business valuation can also help grow your clothing store if you are seeking to maximize the value. To see if a business valuation Is the right thing for you, schedule your free consultation! Peak Business Valuation is happy to answer any questions you might have about valuing a clothing store.

A valuation expert uses a variety of methods to determine the value of a clothing store. These methods often use market multiples or valuation multiples. Here is a brief overview of what valuation multiples for clothing stores look like. Keep in mind these numbers are only a guide. For more extensive information, schedule a free consultation. Be sure to also check out our articles on Valuing a Clothing Store. For online clothing stores, read Valuing an eCommerce Business.

 

Valuation Multiples For A Clothing Store

Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. One should not act on it as such. These multiples do not represent the valuation opinion of Peak Business Valuation or any of its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional.

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What is a Valuation Multiple?

One of the ways a valuation expert values a clothing store is by using valuation multiples. A valuation multiple or market multiple is like a ratio. It compares two factors to each other. For instance, a common valuation multiple is an SDE multiple. This multiple compares the seller’s discretionary earnings with the implied value of the company. A business valuation expert uses valuation multiples of similar businesses and applies them to your business to get a range of value.

For instance, a clothing boutique generates $111,000 in seller’s discretionary earnings. The valuation analyst applies a 2.65x SDE multiple to the business. Using this method, the business is worth approximately $294,150. ($11,000 times 2.65) If the valuation expert uses a 2.42x SDE multiple, then the value of the company would be $268,620. ($111,000 times 2.42)

Peak Business Valuation appraises dozens of clothing stores and clothing boutiques. As a business appraiser, we have come to recognize an average range of valuation multiples most clothing stores transact and are valued at. Every clothing store is unique and as such the range of value can vary. Below we discuss SDE, EBITDA, and REV multiples for a clothing store.

SDE Multiple

Average SDE Multiple range: 2.20x – 2.95x

According to our data, clothing stores transact between a 2.20x – 2.95x average SDE multiple.  To derive an implied value of a clothing store, apply the multiple by the most recent 12-month period of revenue. The calculation is as follows:

SDE X Multiple = Value of the Business

For instance, a clothing store generates $178,000 in sellers’ discretionary earnings. It transacts at a 2.34x multiple. In this case, the business value is approximately $416,520.

$178,000 X 2.34x = $416,520

Seller’s discretionary earnings is a common cash flow multiple a valuation expert uses to value small businesses. It is especially helpful in determining a fair market value for a clothing store. It starts by calculating the company’s operating profit and adding back potential expenses that a new owner may not incur. These expenses may include the owner’s compensation or personal expenses, and other expenses that are non-recurring or non-related business items.

EBITDA Multiple

Average EBITDA Multiple range: 2.92x – 4.56x

The average EBITDA multiple for a clothing store ranges between 2.92x – 4.56x. A valuation expert applies this multiple to EBITDA to derive an implied value of the business. The calculation is as follows:

EBITDA X Multiple = Value of the Business

For instance, a clothing boutique has an EBITDA of $97,000. The clothing store transacts at an EBITDA multiple of 4.09x. Using the above metrics, the clothing store is worth approximately $396,730.

$97,000 X 4.09x = $396,730

An EBITDA multiple measures a company’s return on investment (ROI). This multiple is preferred as it is normalized for differences in capital structure, taxation, and fixed assets. Normalized ratios allow for comparisons to similar businesses. Normalized ratios more accurately represent the future earnings a buyer can expect from the business.

REV Multiple

Average REV Multiple range: 0.36x – 0.51x

According to our data, clothing stores sell for an average of 0.36x – 0.51x revenue multiple. A valuation expert calculates the implied value of the business by multiplying the amount of revenue or sales a clothing store makes by the valuation multiple.

Revenue X Multiple = Value of the Business

For example, a clothing store makes $1,010,000 in revenue. The clothing store transacts at a 0.49x REV multiples. In this case, the business is worth $494,900.

$1,010,000 X 0.49x = $494,900

A valuation expert considers SDE, REV, and EBITDA multiples. They then determine which valuation multiples are most appropriate for the specific clothing store they are valuing.

Summary

When using valuation multiples, it is important to seek the advice of a credentialed business appraiser. Valuation multiples for a clothing store are impacted by many factors. These factors will impact the value of a business. Peak Business Valuation, business appraiser, loves talking with individuals about factors that may impact the value of a clothing store.

Understanding the value of a clothing store can help you not leave money on the table if you are selling your clothing store. If you are buying a clothing store, receiving a business valuation can help ensure you are paying a fair price for the business. For more information, see Valuing a Clothing Store.

Peak Business Valuation would love to help you understand the value of a clothing store. Whether you are looking to grow, sell, or buy a clothing store, a business appraisal can be helpful. Questions are always welcome! Get started today by scheduling your free consultation below!

 

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