A retail shop is usually worth the profit it can keep making for a new owner, adjusted for risk. For bricks and mortar shops, the lease and rent, location and foot traffic, supplier agreements and the owner's hours often move the value most. Stock is often valued on top, at what it can really sell for.
What is the short answer?
Your shop is worth the profit it can keep making for a new owner, adjusted for the risk that the profit will not last. That rule applies to every business. What is special about retail is the role of the site and the stock.
A bricks and mortar shop depends on its location, its lease and its stock. Stock is often valued on top of the business, but only at what it can really sell for.
What pushes the value of a retail shop up or down?
Anything that makes the profit more reliable for a new owner tends to lift value. Anything that makes it less certain tends to lower it.
| Factor | Tends to support value | Tends to reduce value |
|---|---|---|
| Lease | Several years left, with options to renew | Lease ending soon, or no options |
| Rent | Rent the shop can comfortably carry | Rent that takes much of the gross profit |
| Location | Steady foot traffic from a strong centre or strip | Falling traffic, empty shops nearby, or an anchor tenant leaving |
| Stock | Fresh, current lines that sell steadily | Old, damaged or slow lines |
| Supplier terms | Agreements that can pass to a buyer | Exclusive rights that end on sale, or at short notice |
| Owner's role | Staff open, sell and close without you | The owner works most hours unpaid |
| Margins | Healthy margins that hold up | Heavy discounting to keep sales going |
Location and foot traffic. A shop lives on people walking past. An anchor tenant leaving a centre, or a new competitor opening, can change trade quickly.
Stock. Stock is usually counted at settlement and valued separately. Lines that have not sold in a long time are often worth much less than their cost.
What are the add-backs and traps in a retail shop?
Add-backs are costs added back to profit because a new owner will not have them. Traps are adjustments that look good but do not hold up. Shops have several of each.
- Owner wages. If you work in the shop, a fair wage for that role is deducted from profit.
- Family and unpaid help. Relatives on little or no pay need the same treatment.
- Cash. Only sales recorded in the accounts and tax returns can be relied on.
- Stock counts. A stock figure on the balance sheet may not match what is on the shelves. A physical count, with old lines written down, gives a fairer amount. The Australian Government's guide to buying an existing business tells buyers to ask whether the stock on hand is included in the purchase.
- Fit-out and equipment. Shelving, counters and point of sale systems may be owned, leased or financed. A buyer takes on, or replaces, those payments.
- Lease transfer. The landlord usually needs to agree. The same government guide lists landlord agreement to the transfer as a question a buyer should ask. Some leases require the shop to be restored at the end, a cost a buyer will allow for.
- Franchise approval. A franchised shop usually needs the franchisor to approve the buyer, and fees may apply.
What documents matter for a retail shop valuation?
Start with two or three years of profit and loss statements, balance sheets and tax returns. For a shop, these often matter just as much:
- The lease, renewal options, the latest rent review and any outgoings.
- Point of sale reports by month and by product line.
- A recent stocktake, with the age of the stock.
- Supplier, agency or dealer agreements.
- An equipment and fit-out list, plus any finance or lease agreements.
- Rosters and wage records, including your own hours.
- The franchise agreement, if there is one.
See the full list of documents needed.
How can two similar shops be worth different amounts?
This example is made up to show the idea only. It gives no values or multiples.
Imagine two gift shops in similar centres with similar sales. Shop A has five years left on its lease with an option. Its stock turns over steadily, and two staff run the shop on most days. Its supplier agreements can transfer.
Shop B has a year left on its lease. Many of its shelves hold lines that have not sold in a long time. The owner works every day, and its main supplier can end the agreement on a change of owner.
Once Shop B's profit allows for a wage and its stock is written down, it is worth less, with more risk. A valuer would likely find Shop A worth more.
Which Valuo report fits my shop?
Choose by who will rely on the report. If it is for your own planning, the Business Value Report fits. If a buyer, lender, investor or partner will rely on it, choose the Professional Valuation Report.
| Business Value Report | Professional Valuation Report | |
|---|---|---|
| Suits | Your own planning, or deciding whether to sell | A buyer, lender, investor or partner will rely on it |
| Signed | No, but reviewed by a valuer before it is issued | Yes, by the valuer responsible |
| Fee, revenue under $1 million | $995 + GST | $1,495 + GST |
| Fee, revenue $1 million to under $2 million | $1,495 + GST | $1,995 + GST |
| Fee, revenue $2 million to under $5 million | $2,495 + GST | $2,995 + GST |
| Fee, revenue $5 million to under $10 million | $3,495 + GST | $3,995 + GST |
Fees are fixed by annual revenue and never depend on the value concluded. For revenue of $10 million or more, you receive a fixed fee quoted before any work starts. If the shop is moving between family members or entities, Oliver Group handles related-party transfers. For tax on a sale, speak with your accountant.
What should I do next?
- See your fee in two taps: Get your fixed fee.
- Compare both reports and every revenue band: pricing.
- Read the general guide: how much is my business worth.
- Looking at a shop to buy? Read valuing a business before you buy.
Questions
Is the stock included in what my shop is worth?
Often it is handled separately. Many shop sales agree a price for the business and then add stock at a value set by a count at settlement. Old, damaged or slow-moving stock is usually worth less than you paid for it.
Does the lease affect what my retail shop is worth?
Yes, a great deal. A shop trades from its site, so the time left on the lease, the options to renew and the rent all shape the risk. A buyer also needs the landlord to agree to transfer the lease.
My shop sells one brand under an agency or dealer agreement. Does that matter?
Yes. If the right to sell that brand cannot pass to a buyer, or the supplier can end it at short notice, much of the profit is at risk. A valuer reads the agreement closely.
Do my online sales count toward my shop's value?
Yes, if they are recorded, profitable and likely to continue under a new owner. A valuer looks at the profit after shipping, platform fees and returns, and at whether the website and accounts transfer with the sale.
Which Valuo report should I get for my shop?
The Business Value Report suits your own planning, such as deciding whether to sell. If a buyer, lender, investor or partner will rely on the figure, choose the Professional Valuation Report, which is signed by the valuer responsible.
General educational information, not advice. Examples are hypothetical and do not value a real business. The right treatment depends on the purpose, the evidence and the agreed scope.