Retail business valuation: stock, the lease and who the customer belongs to

Stock is counted, not multiplied

Inventory transfers at an agreed valuation rather than as part of a goodwill multiple, and the argument is about what is actually saleable. Ageing the stock by line, writing down what has not moved and separating consignment from owned is work a seller should do before a buyer's stocktake rather than during it. A business whose stock figure has never been tested is one whose earnings have probably been flattered by it.

The lease sets the ceiling

Remaining term, renewal rights, rent review mechanism, service charge, permitted use and whether assignment needs consent. For a physical shop this is the single largest constraint on value, because the trade is attached to the address. A short lease with no security caps the price whatever the accounts say, and negotiating a renewal before going to market is usually the most valuable work left to do.

Ecommerce business valuation moves the same questions online

The location becomes the channel: the marketplace account, the domain, the search and advertising positions, and the reviews. The concentration question becomes how much of the revenue comes through one platform and what that platform's rules say about transferring an account. The stock question is unchanged, and the owner-dependence question usually becomes who actually runs the advertising, which is the job most often invisible in the accounts.

How to value a retail business once the owner is paid properly

Add back the owner's drawings and take out what it would cost to employ somebody to do their hours, then look at what is left against the rent. Retail earnings are unusually sensitive to that adjustment because owners work long hours in their own shops. Do it before deciding what the business is worth to you, because it is the first thing a lender or a buyer's accountant will do.