Selling your shop: what is it worth, and how do you sell it at a good price?

You've been running the shop for twelve years. You know the regulars, you know which supplier is late and when, and you can say off the top of your head how much bread sells on a rainy Tuesday. But now you want to sell: retirement, a move, or you've simply had enough. The first question that comes to mind is: how much can I ask for it? And the first number that comes to mind is probably too high.

Not because the shop isn't worth much, but because you see it through your own eyes: the years you've put in, the weekends, the refit you did with your own hands. The buyer looks at something else. They ask how much money will be left for them each year if they're the one behind the counter, and how far that can be proven on paper. The gap between the two decides whether there'll be a deal.

In this article we go through selling a shop from the seller's side: how to estimate its value with a worked example you can check, what raises and what lowers the price, how to prepare months in advance, who to tell and what to hand over, how to negotiate, and what to watch at handover. The buyer's side — what a good buyer will look at in your shop — is covered in Buying an existing shop: what it's worth and what to check before you buy. It's worth reading, because those are exactly the questions you need to be ready for.

What does the buyer actually get when they buy your shop?

When a small shop is sold, the buyer isn't buying the walls and the shelves, but a working money-making machine: a place customers already come to of their own accord, a circle of suppliers who deliver, a team who know what they're doing, and turnover that will still be there tomorrow. That's why a working shop is worth more than the empty premises, the shelves and the goods put together.

Three things follow from this. First: the shop's value isn't what you've put into it, but what it will bring in in the future. Second: the buyer estimates the future from the past, so the shop is worth as much as you can prove from its past figures. Third: anything that only works in your head or because of you personally can't be bought by the buyer, and they won't pay for it either.

• The customers and the location. The regulars and the footfall of the site are why a working shop is worth buying.
• The right to the lease. If the premises are rented, the lease is often the shop's biggest asset: if it expires or can't be transferred, the buyer is essentially buying nothing.
• Turnover and profit that can be proven on paper. What can't be evidenced, the buyer won't pay for.
• The stock and the fittings. These are tangible items, but they need to be counted separately, and not at the price you paid.
• The team and the routines. A trained assistant who stays and a written-down opening and closing routine are worth a lot to the new owner.

How to estimate what your shop is worth

In practice a small shop is usually valued with a simple formula. It isn't perfect, but it's what the buyer, their accountant and the business broker will use, so it's worth thinking along the same lines:

• Adjusted annual profit. One year of the shop's profit, after deducting the market wage for the owner's work and filtering out one-off items.
• The multiple. It expresses how many years of adjusted profit the buyer pays up front. For small shops it is low in many places, often between 1 and 3, because the risk is high and the profit depends heavily on who is behind the counter. What is realistic for you is shown by a local accountant, a business broker or the actual prices of similar shops for sale — don't start from a general figure.
• Stock at cost price. Based on a stocktake, as a separate item, and only the saleable goods: without anything out of date, damaged or that has sat there for years.
• Fittings at second-hand value. Fridges, shelving, counter, machines — at what they are worth second-hand today, not what you paid for them.

The multiple isn't a magic number, nor is it a market fact. A shop with a long lease, steady turnover and a team that stays can land in the upper part of the range; a shop with an expiring lease and falling turnover at the bottom, or below it. Count the fittings once too: in some places the multiplied price is understood to include working fittings, in others they're counted as a separate item. It doesn't matter which you choose, as long as they only appear once.

The owner's work: part of the profit is really a wage

This is where most sellers get their sums wrong. If you stand behind the counter 60 hours a week and don't pay yourself a wage, the shop's book profit also includes the value of your work. The new owner, though, has to pay for those 60 hours: either they hire someone for them, or they work them themselves, and then they expect a wage for it too. This part of the ‘profit’ is really a wage, and the buyer will deduct it.

Let's look at an example in neutral units. The shop's annual turnover is 400,000 units and its average margin is 22 per cent, so the gross profit is 88,000 units. Rent, utilities, one employee's wages and the other costs come to 46,000 units together, so the book profit is 42,000 units. The owner works 60 hours a week without a wage, for 50 weeks a year: that's 3,000 hours. If an assistant's hourly wage cost including contributions is 8 units, the market price of this work is 3,000 × 8 = 24,000 units. The adjusted profit is therefore 42,000 − 24,000 = 18,000 units.

You can work out the range too. With a multiple of 1 the business value is 18,000 units, with 3 it is 54,000; adding the stock and fittings (26,000 + 8,000 = 34,000 units), the estimated price ranges from 52,000 to 88,000 units. Where you sit within that is decided by the factors in the next section. How much a small shop and its owner typically make, and what the profit is made up of, is covered in How much does a small shop (and its owner) make? Turnover, margin and what is really left.

Why valuing on turnover is misleading

Many people have heard a rule of thumb that a shop is worth some percentage of its annual turnover. It's quick and fine for a first look, but it can easily mislead, because turnover doesn't tell you how much of it is left. Two shops can sell the same amount and still be worth quite different sums if their margins or costs differ.

If the turnover-based figure favours you, the buyer will convert it into profit anyway, and from then on your credibility is in question too. If it works against you, you leave money on the table. Either way it's better to start from profit and know where your margin comes from. The difference between margin and markup is covered in What is your margin really? Markup, margin and a shop's true profit.

What raises and what lowers the price of a shop?

The formula gives you a starting point, but the multiple depends on how certain it is that the profit will stay with the new owner. Anything that reduces the risk pushes the price up; anything that increases it pushes the price down. The buyer will go through these points one by one.

The most delicate point is undocumented takings. Many sellers say the shop actually brings in more than the paperwork shows. The buyer won't pay for that, and can't: what can't be evidenced, no bank will finance and no accountant will take into account. On top of that, the buyer rightly asks themselves what else isn't quite the way you say. When you're preparing to sell, the only good strategy is for all takings to be visible.

The lease is why you should act earliest of all. If your lease ends in two years, or the landlord's consent is needed to transfer it, you need to clear that up now, not when the buyer is already at the door. An extended, transferable lease often adds more to a shop's price than any refit.

Preparing: 6–12 months before the sale

You can sell a shop quickly, but that rarely brings a good price. If you have time, start preparing six months to a year beforehand. That's how long it takes to have at least one full, clean year in the figures, and to sort out expiring contracts, the old fridge and the excess stock. The order of the steps below matters too: first the figures and the lease, because they decide whether it's worth selling now at all.

1. 11. Get your figures in orderHave at least 12, preferably 24, months of turnover and profit you can evidence, broken down by month and by category. Ask your accountant to make sure the accounts and the figures recorded at the counter match each other, and separate the shop's spending from your personal spending.
2. 22. Clear up the leaseCheck how long the lease runs, whether it can be transferred, and whether the landlord's consent is needed. If you can, extend it before the sale, because a long, transferable lease is one of the strongest arguments with a buyer.
3. 33. Slim down the stockClear out lines that have sat there for years, and don't order beyond your current turnover. The buyer pays for stock at cost price, but only for the saleable part — stuck stock is money to you and a burden to them.
4. 44. Fix what's brokenA dripping fridge, a door that won't close, a dead light are small things, but the buyer will ask for a discount for every such fault, and more than the repair would cost.
5. 55. Write down the routinesOpening, closing, ordering days, the supplier list with contact details, fridge maintenance, seasonal jobs. What is only in your head, the buyer can't buy.
6. 66. Keep the teamA trained, reliable assistant who stays after the sale is worth a lot. This isn't the time to save on their wages, or to let your best people go.
7. 77. Stay discreetUntil there's a serious buyer, keep your intention to sell within a small circle. If the team, the suppliers or the customers find out too early, turnover and morale can suffer — and that is exactly what lowers the shop's value.

Finding a buyer and staying discreet

The buyer for a small shop is often closer than you think. The best buyers are frequently people who already know the shop or the area, because for them the risk is lower and they decide faster. Who you tell also depends on how discreet you need to be.

• Suppliers and sales reps. They know a lot of shops and know who's looking right now. Ask them in confidence, one to one.
• Competitors and neighbouring shopkeepers. It may be worth it for another shop to expand or take over your customers. They'll also understand the figures quickly.
• Your employee. A long-standing, reliable assistant could be a buyer themselves, perhaps paying in instalments. They know the shop best — but only tell them when you're serious.
• A business broker. They work on commission, but they have buyers, know local prices and filter out the merely curious. They can also give you a realistic idea of the multiple.
• An advert. The widest reach, but the least discreet. If you advertise, start with a general description, not the shop's name and address.

You don't have to hand everything over straight away. For someone who's interested, a short summary is enough at first, a serious buyer gets the detailed figures, and the contracts and trial days only come in the final stage. That way the merely curious don't get everything, and a serious buyer sees more and more step by step.

Don't tell the team or the customers too early. If the assistants find out the shop is for sale, the best ones start looking for a new job, and the very people who make the shop worth more are the ones who leave. If the customers hear about it, some of them will already start going elsewhere, because they don't know what will happen. Suppliers will also become more cautious about payment terms. Tell the team when there's already a serious buyer and you can tell them what lies ahead.

Negotiating: asking price, bottom line, payment

Before you negotiate with anyone, have two numbers in mind. The asking price is where you start: it should be justifiable and leave some room for bargaining. The bottom line is the figure below which you'd rather not sell: you'd be better off carrying on or looking for another buyer. Don't tell anyone that number, and don't go below it in the heat of negotiation.

For the example shop, with an estimated price of 70,000 units, a realistic asking price is roughly a tenth above it: 70,000 × 1.1 = 77,000 units. You could work out the bottom line with a multiple of 1.5, for example: 18,000 × 1.5 = 27,000 units of business value, plus 26,000 units of stock and 8,000 units of fittings, 61,000 units in total. If the negotiation moves between these two numbers, you're in the right place; if it were to drop below 61,000 units, you know that's where you have to stop.

The buyer will argue with what they found on the buyer's checklist: the turnover you can evidence, the length of the lease, the old fridges, the out-of-date stock, the customers counted on the trial days. If you've prepared for these in advance, the negotiation isn't about concessions, but about your figures standing up. If you're weak on one point, it's better to say so up front and price it in than to let the buyer find it.

• A single payment. The simplest and the safest, but fewer buyers can afford it, so in return they often ask for a lower price.
• Payment in instalments. Part of the price on handover, the rest in monthly or quarterly instalments. It reaches more buyers and lets you ask a higher price, but you take on the risk that the buyer doesn't pay — so have a lawyer write the safeguards.
• A handover period with training. For a few weeks you're still behind the counter, introducing the buyer to suppliers and regulars. This gives the buyer security, and gives you an argument for a better price.
• Stock separately. The price of the business and the fittings is fixed, but the buyer pays for the stock at cost price, based on the joint stocktake on handover day.

One possible arrangement in the example: the business value and the fittings together come to 36,000 + 8,000 = 44,000 units. The buyer pays 32,000 units of this on handover, and the remaining 12,000 units in 12 monthly instalments of 1,000 units. You do the stocktake on handover day, and if the saleable stock at cost price is then, say, 24,500 units, the buyer pays that for it, not the 26,000 units from months earlier.

„You don't get back what you put into your shop, but what the buyer can read back out of your paperwork.”

Handover: stocktake, contracts, training

Handover isn't a day, it's a few weeks. After the contract is signed comes the practical part: counting the stock, transferring the contracts, telling suppliers and customers, and the period when the buyer is already behind the counter but you're still beside them. The more carefully you plan it, the fewer disputes there will be afterwards.

• A stocktake on handover day. Count the stock together, with the buyer or their representative, and both sign the count sheet. List out-of-date and damaged goods separately, and don't include them. The steps of a stocktake are covered in The year-end stocktake in a shop, step by step — with a checklist.
• Contracts. Transferring the lease or signing the new one, moving over the utility suppliers, maintenance and other contracts. For each one, check what's needed and how long it takes.
• Telling suppliers. Introduce the buyer to the important suppliers in person, and settle your open invoices so they don't land on the buyer.
• A training period. A few weeks of working together: you show them the ordering days, the seasonal tricks, the regulars' habits.
• Telling the customers. A short, friendly announcement at the counter or in the window, and if you can, introduce the new owner to the regulars in person during the first few days.

During the training period, the most important thing is for the buyer to see that the shop works without you. Let them stand at the counter, let them talk to the suppliers, and just be there beside them. If everyone comes to you with every question, the buyer learns that the shop's value lies in you personally — and with payment in instalments that can be a risk too.

Common mistakes

• Too high a price, set on emotion. The shop isn't worth the work you've put into it, but the profit it brings the buyer. An asking price that's too high scares off serious buyers, and the shop sits on the market for months — which is suspicious in itself.
• Disorganised figures. If you can't show turnover and profit month by month for at least a year back, the buyer assumes the worst and prices their offer accordingly.
• Telling the team too early. The best assistants leave, the customers find out, turnover drops — right in the middle of negotiations.
• Forgetting the lease. An expiring or non-transferable lease can sink the whole deal at the last minute.
• Leaving out the owner's work. If you don't deduct the hours worked without a wage, in the example you overestimate the shop's price by 48,000 units.
• Double counting the stock. If you include the value of the stock in the multiplied price and also have it paid for separately, you're asking for the same thing twice. The buyer will notice.
• Pointing to undocumented takings. What you can't evidence, the buyer won't pay for, but it does damage your credibility.
• Handing everything over at once. Detailed figures, contracts and the supplier list are only for a serious buyer, after a confidentiality agreement.

Summary

• The shop's value: adjusted annual profit × a multiple + stock at cost price + fittings at second-hand value.
• Deduct the market wage for the owner's work: in the example this leaves 18,000 units of the 42,000 units of profit, and with a multiple of 2, stock and fittings the estimated price is 70,000 units.
• For small shops the multiple is low in many places, often between 1 and 3; a local accountant or business broker will tell you what's realistic.
• Valuing on turnover can mislead: with the same turnover, the shop with the higher margin is worth much more.
• A long, transferable lease, figures you can evidence, a team that stays and written-down routines raise the price.
• Start preparing 6–12 months ahead, only hand over detailed figures after a confidentiality agreement, and don't tell the team too early.
• Have an asking price and a bottom line, do the stocktake on handover day, and bring in an accountant and a lawyer for the legal and tax questions.

Frequently asked questions