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American Business Brokers & Advisors Founder & President MERGERS & ACQUISITIONS BUSINESS VALUATIONS
AUGUST 2023
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What Is the Right Price to Pay for a Convenience Store?
Over the years, I have given presentations at state associations of convenience stores and at NACS around the country and spoken with hundreds of people who always want to know what is the right price to pay for a convenience store. The first thing everybody thinks about is EBITDA, which is an accounting term for earnings before interest taxes depreciation and amortization, aka net profit of the convenience store before you apply any outside expenses like supervisors or home office expenses. Then people take the EBITDA and multiply it by a number they think works for them, anywhere between 6 and 10, and they have the selling price of the store. The same principle works when you have a group of stores. Sounds simple but this doesn’t always work, and a lot of transactions don’t get done because either the seller or the buyer got hung up on this method of determining what the right price is for the stores. The correct way to value a convenience store involves applying multiple factors. EBITDA is always an important factor but so is the location of the store and the quality of the assets. Is the store located in the city or an urban area where there is growth due to people moving in (think of the suburbs of a large city), or is it a rural area where there is minimal growth? What is the condition of the store? Are there maintenance items that have been neglected over the years because the owner did not reinvest money into the store and, therefore, they look tired and run down? Sometimes, an owner knows they will be selling the store in a few years, so they stop spending money on the upkeep of the store, trying to save some money in hopes of making more money when they sell the store, but they are wrong. This type of thinking will lose every time, and you will pay the price of not reinvesting in the store when the buyer applies a discount to
the purchase price because they must spend the money to repair the items the owner neglected to maintain. This is what we call “pay me now or pay me later,” meaning you are going to write a check either at the beginning or the end to address the deferred maintenance issues. Having sold hundreds of convenience stores, I know there is a process that needs to be applied in order for the store to sell for top dollar. You don’t just put an ad in a trade journal or on the internet and try to find a buyer, and you don’t call your vendors telling them you want to sell your business. All of these ideas are a recipe for upsetting the operations of the business and losing employees due to the breach of confidentiality, and generally, it will only attract a bunch of tire kickers who don’t have the money to purchase the store even if they wanted to. Occasionally, I will get a call from an owner who has been approached by a prospective buyer who has made an offer for their stores, and the deal has fallen apart. In one situation where I was called, the owner had been approached and was given a price for their stores that was not in sync with the market, but the offer was higher than the owner could ever imagine. Thinking they had won the lottery with this buyer, they began the process of entering into a purchase agreement. Then the buyer started asking for price reductions because of items they were finding wrong with the stores (we call this a clawback), and then the buyer couldn’t get the money needed to close the transaction and the deal fell apart. (This is one of the main reasons you would call a broker because we know who has the money and who doesn’t.) The bad news is that if the seller had gotten a market valuation from a knowledgeable advisor who specializes in the convenience store industry, the price offered
would not have been out of line, and they would have known the buyer did not have the money to complete the transaction. Another situation was when the owner was approached by a national convenience store chain, and they had agreed on an $18 million price, and while they were working on the purchase agreement, the buyer began to claw back on the price, and when they got to $14 million, the owner told them to take a hike and called me. After reviewing the financial information, putting the correct procedures in place, and advising the seller on what the right price was for the chain of stores, we ended up selling the stores for $17 million. In both of these situations, the quality of these stores was good but not great, and they both had not kept up with investing in their stores, so they were tired-looking and needed money invested in them; they ultimately were paid a lower multiple in the 6–7X EBITDA range. Let’s take a different situation. An owner called me before attempting to figure out what the value of their stores was worth and let me bring in my team and go to work. In this situation, even though the stores were not located in a high-density populated market, we were able to determine the right buyer who had the money and did not have stores in the market area where the stores were located and wanted to be in this area. The stores were in good condition and very profitable, and they were located in a market that appealed to the buyer whom we had in our database. The transaction was consummated and closed in a short time at a 9X EBITDA because the transaction had all the Continued on Page 3 ...
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Choose the Right Sitter for Your Pet
YOUR FAMILY MAY NOT BE UP TO THE TASK!
When your children were young, you wouldn’t trust their care to any old babysitter, would you? Of course not! Now, your pets are no different. When you head out for a summer vacation, they deserve to be cared for by someone who will pamper and protect them the same way you would. The only problem is, who? FRIENDS AND FAMILY VS. PROFESSIONALS You may be tempted to ask your sibling, friend, or child to watch your pet. This can be a great solution because you trust them, and they’ve bonded with your furry friend already. But have you considered a professional? Some situations may call for a little more. Use these questions to help you decide:
If your loved one is pressed for time or easily stressed, or your pet has medical needs, you may be better off working with a professional.
HOW TO FIND THE RIGHT PRO When choosing a professional pet sitter, don’t start with the flier on the stop sign pole down the street (it was probably put up by a 10-year- old). Instead, call your pet’s vet, groomer, and/or trainer and ask if they can recommend a nearby pet sitter. You can also ask friends and family who are conscientious pet owners. Then, thoroughly check the sitter’s credentials and experience. Look for signs that they’re serious about their work, like certifications, insurance,
and background check information, and set up an interview and meet-and-greet with your pet. If you can’t find a sitter through your network, consider online groups like the National Association of Professional Pet Sitters, Care.com, Pet Sitters International, Rover, or TrustedHousesitters, and use the same vetting strategy. For more help choosing a great sitter, visit HumaneSociety.org/resources .
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Will your friend or family member be able to visit your home regularly or stay there temporarily while you’re gone to avoid disrupting your pet’s routine? Does your pet have a disability or need to take medication that would be better handled by a professional? Does your friend or family member know how to stay cool and react calmly in case of a veterinary emergency?
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Life Lessons From an Old Tale
THE SCORPION AND THE FROG
A scorpion and a frog meet each other on the banks of a stream. The scorpion is on its way to the other side of the bank, but the waters are too treacherous for it to cross. So, the scorpion politely asks the frog to help carry it across the water.
The frog begins to slowly sink under the water and, realizing what has happened, has time to gasp out, “Why did you do that? Now we will both drown and die!”
As the scorpion sinks under with the frog, it replies, “It’s in my nature.”
The scorpion compliments the frog by telling him he is an excellent swimmer with a wide back that can easily carry him across.
THE MORAL OF THE STORY People over the years have often said the scorpion in the story represents those who take advantage of good people in the world. It can also represent people who have no regard for their own self- interest or well-being, but instead, follow their tendencies and compulsions to do addictive, bad, and destructive things.
Suspicious, the frog asks the scorpion, “How do I know you won’t sting me?” The scorpion replies, “Why would I do that? Then we would both drown.”
The frog is still unsure and asks the scorpion more questions, and the scorpion always replies with a logical answer.
Some have even said this fable is based on capitalism, and the scorpion represents politicians, government, or people in power.
Satisfied with the scorpion’s reasoning, the frog allows the scorpion to climb on his back and they begin their journey across the water.
The moral is everyone should be wary of whom they give their trust to, be well-informed before giving it, and know when to walk away from someone willing to do more harm than good in their life.
The waves are high and so the scorpion holds on tight to the frog’s body.
However, before they can make it halfway across the stream, the frog feels a sting right in the middle of his back and feels the spread of venom slowly taking over his limbs.
–Terry Monroe
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SUDOKU (SOLUTION ON PG. 4) Take a Break!
"HIDDEN WEALTH" The Secret to Getting Top Dollar for Your Business
► What is the value of what you are selling? ► Want to make sure the sale is confidential? ► Want to sell everything together & fast? Terry has sold over 857 businesses. His book tells you what to do and more importantly what NOT to do when selling one's business. GET YOUR FREE COPY TODAY! Email Terry@TerryMonroe.com Put FREE COPY in the subject line for your free copy of "Hidden Wealth", a ForbesBooks publication.
TERRY’S QUOTE OF THE DAY QUESTION OF THE DAY
“The difference between stupidity and genius is that genius has its limits.” –Albert Einstein What is the most valuable asset we have? Answer: Now. In the moment. Because that is all we really have. Not the past or the future. Only now.
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qualities needed to sell for top dollar: a good EBITDA, good locations, no capital improvements, and a well-run operation. ... continued from Cover The moral of this story is to emphasize the fact that the buying and selling of convenience stores with real estate has many different items that go into determining the value of a convenience store. Do not try to guess or go by what you read in trade journals. Instead, employ the services of a knowledgeable broker or advisor who works in the convenience store industry full time before making the decision to sell
your convenience stores. All the convenience store operators I work with are very good at operating their stores because they have operated them for years, and they know what they are doing. But performing the sale of a complex business such as a group of convenience stores takes a special talent, too. And you are only going to sell your business once, so be sure you have all the right information before you venture into an area that is not your expertise. Knowledge is power, especially when it involves your livelihood. –Terry Monroe
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SUNSCREEN YARDWORK
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Sudoku Solution
Learn From the Scorpion and Frog
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Thinking About Selling Your Business in 2023?
How to Revive a Failing Marketing Strategy
Here’s How You Can Bring It Back to Life MARKETING STRATEGY NOT GOING AS PLANNED?
MAKE IT MEMORABLE. Thanks to social media, consumers are constantly bombarded with ads and offers from countless companies vying for their business. This means your marketing may have gotten lost in the noise by failing to stand out and grab someone’s attention. So, check if your campaign is similar to others that launched around the same time. You may need to return to the planning phase to differentiate your message from your competitors. AMP UP THE OFFER. Gifts, special sales, discounts, and other incentives are some of the reasons a potential customer will engage with your business, but if the offer isn’t valuable enough, they will ignore it. Whatever desired action you want your clientele to take, you need to ensure they’re receiving enough in return.
EVOLVE AND ADAPT! If none of these approaches work for you, start fresh. Take a new route and use the new information you’ve learned after evaluating your strategy’s results. Don’t consider this marketing strategy a failure but a learning experience that will help you build more effective campaigns in the future. Learn from your mistakes, and you can come back stronger and better than ever!
Marketing isn’t easy, and despite spending countless hours and resources crafting a marketing strategy, it can still fall flat. The definition of a “failed” marketing campaign is undoubtedly subjective, but if you see that there’s been no significant impact and your ROI isn’t cutting it, then it’s time to get back to the basics. THINK LIKE A CUSTOMER. Your campaign may have seemed bulletproof initially, but if you see less than great results, it’s time to think less like a business owner and more like a customer. As a customer, consider what issues may have caused you to react negatively, or not at all, to this marketing strategy. Was the targeted audience too broad? Was the messaging not powerful enough? Consider specifying your target demographic and redirecting your message to fit that audience.
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