Valuation Multiples for a Furniture Store
The furniture store industry includes businesses that retail new furniture including household, office, and outdoor furniture, among others. It can also include furniture sold in combination with major household appliances, electronics, furnishings, or floor coverings. In the United States, there are nearly 28,000 furniture stores. These furniture stores generate over $68 billion in revenue. The furniture store industry is supported by the strong residential construction market. As such, over the last five years, it has seen an increase in revenue. However, as interest rates climb, discretionary spending on new furniture may decrease. Corporate profit falling may also result in a decline in business/office furniture spending. Despite these factors, growth in this industry is expected to stay steady. As such, there are many individuals looking to buy a furniture store or sell a furniture store. Part of this process includes understanding the value of a furniture store. Valuing a furniture store often includes using valuation multiples for a furniture store.
Valuing a Furniture Store
Understanding the value of a furniture store is key to buying or selling a furniture store. A valuation expert determines the fair market value of a furniture store using a variety of valuation methods. This can include the use of valuation multiples for a furniture store. Below is a brief overview of what average valuation multiples for a furniture store look like. Keep in mind that these numbers are only a guide. For specific information about a furniture store you are buying or selling, schedule a free consultation. Peak Business Valuation, business appraiser, is happy to answer any questions you have about valuing a furniture store.
A business valuation is important in determining a fair market value. Knowing this can help you negotiate a fair purchase price. If you plan on selling a business, a business appraisal can help you decide on a listing price. Otaining a business valuation when preparing to sell your business can also help you understand how to maximize the value.
If you plan on buying a furniture store, obtaining a business appraisal can help you feel confident in the purchase price. It will also give you an in-depth look at the strengths and weaknesses of the company.
Whether you plan on selling a furniture store or buying a furniture store, it is important to obtain a business valuation. Get started today by scheduling a free consultation with Peak Business Valuation, business appraiser.
Be sure to also check out Valuing a Furniture Store, Value Drivers for a Furniture Store, and How to Value a Furniture Store.
Valuation Multiples for a Furniture Store
The below visual contains average market multiples for a furniture 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?
One of the ways a valuation expert values a furniture store is by using valuation multiples. A valuation multiple is a ratio. These ratios compare two factors to each other. For example, a common ratio in business valuation is an SDE multiple. An SDE multiple compares the seller’s discretionary earnings of the business with the implied value of the business. When using multiples, the valuation expert looks at similar furniture stores that have recently sold on the open market. They analyze company financials and look at key value drivers to determine an applicable multiple for your furniture store. Using a variety of valuation methods, they will determine a range of value for your furniture store.
For example, a furniture store makes $435,000 in seller’s discretionary earnings. The expert uses a 3.28x SDE multiple. In this scenario, the furniture store has an implied value of $1,426,800. ($435,000 times 3.28x) Whereas if a 2.89x SDE multiple is applicable, the business is worth approximately $1,257,150. ($435,000 times 2.89x)
As a business appraiser, Peak Business Valuation works with many individuals who are buying, expanding, or selling a furniture store. The below market multiples for a furniture store are what furniture stores commonly transact and are valued between. Each furniture store is unique and as such the range of value can be significant. Below we discuss EBITDA, REV, and SDE multiples for a furniture store.
SDE Multiples for a Furniture Store
Average SDE Multiple range: 2.83x – 3.55x
According to Peak’s data, furniture stores transact between a 2.83x – 3.55x average SDE multiple. To derive an implied value of the furniture store, apply the multiple to the seller’s discretionary earnings. The calculation is below.
SDE X Multiple = Value of the Business
For instance, a furniture store generates $506,000 in seller’s discretionary earnings. If the valuation analyst applies a 3.46x multiple, then the business value is approximately $1,750,760.
$506,000 X 3.46x = $1,750,760
The seller’s discretionary earnings multiple is a common cash flow multiple that experts use when valuing a small business. It is often very applicable to furniture stores. The seller’s discretionary earnings are calculated by taking the company’s operating profit and adding back any expenses a new owner may not incur. These expenses can include a fair owner’s compensation, any personal expenses by the owner, and other non-recurring or non-business-related expenses ran through the business.
EBITDA Multiples for a Furniture Store
Average EBITDA Multiple range: 3.62x – 4.19x
On average, EBITDA multiples for a furniture store range between 3.62x – 4.19x. Applying this multiple to EBITDA derives an implied value of the business. The calculation is as follows:
EBITDA X Multiple = Value of the Business
For example, the EBITDA of a furniture store is $354,000. It transacts at a 4.02x EBITDA multiple. Using the above calculation, the furniture store is worth approximately $1,423,080.
$354,000 X 4.02x = $1,423,080
The EBITDA multiple measures a company’s return on investment or ROI. A valuation expert may use this multiple as it normalizes 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 Multiples for a Furniture Store
Average REV Multiple range: 0.35x – 0.67x
According to our data, furniture stores sell for an average of 0.35x – 0.67x of revenue. The revenue multiple is less frequently relied on, but in some cases is applicable. To calculate the implied value of the furniture store, multiply the valuation multiple by the most recent 12-month period of revenue or sales. (12 months prior to the valuation date)
Revenue X Multiple = Value of the Business
For instance, a furniture store makes $3,000,000 in revenue. The valuation expert determines a 0.50x revenue multiple is applicable to the said furniture store. In this case, the business would have a fair market value of approximately $1,500,000.
$3,000,000 X 0.50x = $1,500,000
When valuing a furniture store, the valuation expert will determine what multiples are most applicable for the valuation. Often small businesses transact on cash flow multiples. This is because cash flow multiples – SDE and EBITDA – consider expenses such as COGS, salaries, rent, and other expenses that impact the cash flow.
Summary
When you look at valuation multiples for a furniture store, keep in mind many factors impact them. The financials of the company and key value drivers will impact what multiples and methods the valuation expert uses to value the furniture store. As such, Peak Business Valuation, a business appraiser, would love to talk with you more about how to value a furniture store.
Peak Business Valuation, business appraiser, values furniture stores across the nation. Whether you are looking to buy a furniture store or sell a furniture store, understanding the value of a furniture store is key. Get started by scheduling your free consultation today! We are happy to answer any questions you have about valuing a furniture store.
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