Valuation Multiples for a Convenience Store
The convenience store industry includes convenience stores or food marts open during extended hours at convenient locations. This does not include gas stations, gas stations with convenience stores, supermarkets, or grocery stores. Convenience stores generally retail a limited number of goods including food, beverages, and tobacco products. In the United States, there are over 42,000 convenience stores. These generate $32 billion in revenue. Throughout the pandemic, convenience stores decreased in revenue as travel became limited. However, since then, convenience stores are recovering but may continue to be impacted as interest rates rise and costs increase. Each year there are dozens of transactions of convenience stores. Valuing a convenience store is an essential part of selling or buying a convenience store. Often valuation multiples for a convenience store are used when determining the value of a convenience store.
Valuing a Convenience Store
There are many important aspects that impact the value of a convenience store. Some of these include the product and service mix, whether the convenience store is connected to a gas station, the location of the convenience store, image and appearance, among other factors. A business appraiser will consider these and more when valuing a convenience store.
Understanding the value of a convenience store is essential if you are buying or selling a convenience store. Obtaining a business appraisal or business valuation will determine a fair market value. Knowing this value, you can determine a fair listing price if you are selling a convenience store. If you are buying a convenience store understanding the value and what drives it will help you negotiate a fair purchase price.
In either case, a business appraisal will help you feel confident in your business transaction. A business valuation report gives you an in-depth look at the convenience store, its strengths, and weaknesses, and determines a fair value. A valuation expert will determine the value of the convenience store using a variety of methods. This can include using valuation multiples for a convenience store. Below is an overview of average valuation multiples for a convenience store. For questions or to start a business valuation for a convenience store, give Peak Business Valuation, business appraiser, a call. We are happy to help. Schedule your free consultation today!
Be sure to also check out How to Value a Convenience Store.
Valuation Multiples for a Convenience Store
Below we show average market multiples for a convenience store. Keep in mind these numbers are only a guide. For specific information about a convenience store you are buying or selling, schedule a free consultation. Peak Business Valuation, business appraiser, has the expertise to answer any questions you have about valuing a convenience 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 for a convenience store are a common method a valuation expert uses to determine the value of a convenience store. A valuation multiple is like a ratio. These ratios compare two factors to each other. One of the most common ratios or valuation multiples in business valuation is the SDE multiple. The SDE multiple for a convenience store compares the seller’s discretionary earnings with the implied value of the convenience store.
When using valuation multiples for a convenience store, the valuation expert will analyze your convenience store and compare it to recently sold convenience stores. This comparison helps them determine an applicable market multiple for your convenience store. Using a variety of business valuation approaches, the valuation expert determines a range of value for the convenience store.
For example, a convenience store makes $190,000 in seller’s discretionary earnings. If you were to use a 2.81x SDE multiple, the implied value of the convenience store is $533,900. ($190,000 times 2.81x) Where if a 3.05x SDE multiple is applicable, the convenience store would be worth approximately $579,500. ($190,000 times 3.05x)
As a business appraiser, Peak Business Valuation provides business appraisals for convenience stores across the country. We work with individuals buying a convenience store or selling a convenience store. To get started with a business appraisal, schedule your free consultation today.
Below we show average valuation multiples for a convenience store. Convenience stores generally transact and are valued between these multiples. Keep in mind each convenience store is different and as such the range of value can be significant. Therefore, it is important to obtain a business valuation for your convenience store. Below we discuss EBITDA, REV, and SDE multiples for a convenience store.
SDE Multiples for a Convenience Store
Average SDE Multiple range: 2.21x – 3.30x
According to our data, convenience stores generally transact and are valued between a 2.21x – 3.30x SDE multiple. To determine the implied value of the convenience store, use the seller’s discretionary earnings and multiply them by the applicable SDE multiple. Below is the calculation.
SDE X Multiple = Value of the Business
For instance, a convenience store generates $136,000 in seller’s discretionary earnings. Using a 2.73x SDE multiple, the convenience store has an implied value of $371,280.
$136,000 X 2.73x = $371,280
Small businesses commonly transact on an SDE multiple. The seller’s discretionary earnings is a cash flow multiple a valuation expert will use to value the convenience store. To determine the seller’s discretionary earnings, take the company’s operating profit and add back any expenses a new owner may not incur. These common add-backs can include a fair owner’s compensation, personal expenses ran through the business, and any other non-recurring or non-related business expenses.
EBITDA Multiples for a Convenience Store
Average EBITDA Multiple range: 3.67x – 4.38x
In our numbers, the average EBITDA multiple for a convenience store falls between 3.67x – 4.38x. Apply the multiple to EBITDA to derive an implied value of the convenience store. The calculation follows.
EBITDA X Multiple = Value of the Business
For example, the EBITDA of a convenience store is $140,000. It transacts at a 4.08x EBITDA multiple. Using the above calculation, the convenience store is worth approximately $571,200.
$140,000 X 4.08x = $571,200
The EBITDA multiple measures a company’s return on investment or ROI. A valuation expert may prefer this multiple as it uses normalized ratios. Normalized ratios allow the valuation expert to compare similar businesses. It includes normalizing differences in capital structure, taxation, and fixed assets. Normalized ratios can more accurately represent the future earnings a buyer expects from the business.
REV Multiples for a Convenience Store
Average REV Multiple range: 0.27x – 0.45x
According to our data, convenience stores sell for an average of 0.27x – 0.45x of revenue. While the revenue multiple for a convenience store is less common to rely on, in some transactions it is very applicable. To calculate the implied value of the convenience store, use the most recent 12-month period of revenue or sales the business makes and multiply it by the applicable multiple.
Revenue X Multiple = Value of the Business
For instance, a convenience store generates $1.5 million in revenue. Using a 0.38x multiple, the convenience store has an implied value of approximately $570,000.
$1,500,000 X 0.38x = $570,000
When valuing a convenience store, the valuation expert will determine what multiples are most applicable for the business valuation and its stated purpose. Often small businesses transact on cash flow multiples – SDE and EBITDA multiples. This is because cash flow multiples consider expenses such as COGS, salaries, and rent, among others.
When viewing valuation multiples for a convenience store, understand that many important factors impact the business and the multiple that is applicable. The valuation expert will analyze the company’s financials and key value drivers. They will compare the company being valued to other similar companies. Using their expertise, they will determine what multiples and valuation methods are most applicable for your convenience store. As such, Peak Business Valuation, business appraiser, would love to talk with you more about valuing a convenience store.
Peak Business Valuation, business appraiser, values convenience stores across the country. We are happy to answer your questions and help you understand the value of a convenience store you are buying or selling. Get started with your business appraisal today by scheduling a free consultation using the link below.
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