Looking for advice from my fellow audiogoners...I have the potential to move into a store front that is already being operated as a record store (lps only) and become the new shop proprieter/owner. The owner has offered me the space (rediculously cheap rent) in a good area of town. He has had his store for about 5 years now and has a steady customer base. He will be taking all of his inventory and record storage bins that were in the store.He has a web site set up already and signs out front indicating the name of the shop...I plan on rebranding the shop with name change and interior upgrades. It is not a large space maybe 800-1000 square feet. I have a rather large inventory of my own so my up front investment of vinyl would be minimal. The owner wants me to buy him out..basically give cash in return for his customer base and the potential to get my hands on pretty good collections. I am trying to come up with a fair valuation of something like this and I am looking for advice..What do you think something like this is worth? Thank you in advance.
Millercarbon is mostly correct. Do not listen to anything nonoise utters. In SoCal, there are several successful LP/CD retail stores. They generally have an on-line presence, have both new and used stock and large collections, mostly in storage. Some use special discount dates a few times annually to draw in customers. One store gives away 100 LPs for a $20 in store purchase (they purchase 250,000 LPs annually and give away stock that is mostly unsaleable at $5 or more).
For those who have steady income, can afford private schools and live in a good community, California is attractive still. As a businessman, I do not invest in any new Calif. business which is subject to increasing regulations (apartment ownership-low yields of 4-4.5%, increasing costs and regulations, why they still like hot cakes I don't understand and I was a commercial real estate appraiser for 28+ years). I only own single family rental homes in Calif. where I have the option to sell to owners if the rent is insecure (all 23 tenants have paid rent in 2020 due to below market rents and 24 hour repair service-many decade long tenancies). Some friends and relatives have moved out of state due to business reasons.
Before purchasing any business, one needs a business operation education. In Calif., there are no simple brick and motor businesses that one can just open. Many posters have provided you with the requirements and pitfalls of opening any business, let alone a retail record store. I would do it as a hobby only but time is precious and I rather listen to music with a few friends then create the "High Fidelity" scenario. My other investments include recession proof businesses out of state. I extremely warn you against buying this record store.
@fromunda --Based on your lack of response to many questions/advice here i'm gathering you either (a) don't like what you're hearing or (b) did not expect the response you're getting and are re-thinking this--hopefully the latter. Are you unhappy with what you're currently doing? Have you ever run a business before ? Obviously not or you wouldn't be asking a bunch of knuckleheads like us for advice about it. Notwithstanding, you've been getting some very good advice and 90% of it says "RUN" ! Sounds like your friend is escaping from Alcatraz and throwing you an anchor that will slowly drag you under as it was him. If you're already rich you wouldn't be asking us and since you're not...stop watching High Fidelity and stop smoking for a couple weeks and the light will break through...
Rule of thumb is a business sale price is based on multiple of EBITA...
And often times the previous owner has ’a portion held’ back and a role to help the new owner(s) be successful.
In this case it seems you’re paying to take over a store front lease and ’buying’ a lead list since he’s already informed his customers of the web-business.
So if you are financially independent and looking for an opportunity to create business for your hobby in order to write-off some costs then I think you may have a good opportunity.
Retail is a challenging business and I would really view the 'store' as your personal listening room that can create some revenue. Given the current state of the economy your demographics are limited in comparison to what they were 9 months ago.
fwiw, my opinion only and based on having owned several businesses and having had two failed partnerships 1. forget talking to an accountant or a biz analyst, unless they offer a free service and then you get what you pay for. 2. find a real estate atty if you must use professional advise, ask him to coffee and offer to pay him cash, no receipt, just for a few minutes of chat. if you look you will find one that will give you maybe 30 minutes of a C note, and it will be the best money you ever spent. he will tell you how to find out if the place is free and clear of liens or other encumbrances.
3. if it turns out the location is legit, and you can lease it at a price you want to pay, then do that. 4. do not pay the guy for the business customer list, or any list. 99% of his customer base will come into you shop anyway, so why pay 10grand for the possibility of getting the final 1% of his customers... they will eventually come in anyway. 5. i didn't read all the posts here, but my experience tells me "no" small business is worth a nickel, as you are generally buying a job, a poorly paid job at that... unless the owner can provide an set of books that `a. can stand up to an audit b. show a substantial profit for the business after all is paid, including the wages of the owner. c. tax records for both federal and state, along with sales tax reports if he can provide these three things, and they clearly show a profit, the taxes have been paid, and support his books, and very importantly the sales tax records support the books, "and" after all that there is a substantial profit, maybe then we have something to consider as the business having a value. otherwise you are buying what is called "blue sky", and 99% of small businesses "blue sky" value is "0" or worse! if you are intent on owning your own business of any kind, record store included, be ready to work long hours, for little pay, for quite a long period of time. think of it as a labor of love or an expensive hobby and you will be fine, to do otherwise you will be sorely disappointed much sooner than later. i think others have mentioned the following but it bares repeating try to also include products or services others don't offer in the record store business, such as 1. selling turntables, to include used, and new (moderately priced) and even those nasty suitcase jobs, as there is a market for those with the younger folks just getting started. many here will bitch about this last one, but they aren't the ones that will be eating top ramen either. 2. offer reel to reel tapes as you can find them, seems like a lot of folks interested in those as well. if you are handy look around and find a common unit that can be bought cheap and get it to work, resell and repeat. even some of the old consumer grade stuff is pretty reasonable and not that hard to get back to working condition, and in doing so you can provide a low rung on the reel to reel market for those starting out. 3. consider a consignment of used gear, just be sure what your floor space is worth and if something sits around too long it has to go back to its original owner to store away, unless he will lower his price. 4. you might also consider keeping a look out for rare 8 track quad tapes such as the holy grail dsotm (decca) a good example can bring a grand or more. (there are more eyes rolling i am sure, but remember who is eating ramen noodles, and besides if you find a quad dsotm let me know!) 5. you might consider also some import tube amps, some are surprisingly good, and the young guy starting out is a market, and having one to actually hear/see/touch is probably going to sell faster than one on the puter screen on ebay. (again, more eye rolling) 6. lastly, smile even when it hurts, go the extra mile to try to find stuff for your customers, and above all, have fun. getting your head straight with reasonable expectations going in will pay off big time, and "if" your store is a raging success, you can be pleasantly surprised. good luck! ps, lest i forget +1 for no partners! it is exceedingly rare that they work out, far more rare than businesses that make it. been my experience a partner brings more work for you to do than he/she saves.
Have traveled to wine country in California a handful of times. Learned that those who purchase a winery do so not in hopes of making a fortune, but because they have a fortune. Agree with multiples above that this would best be a hobby in retirement. If income is your goal, I like the suggestion of a coffee shop where you can play Your LPs for your customers.
I wish you well and all the best. I live in NYC and almost every single record store from Tower and J&R to Rebel Rebel and Rocks in Your Head are long gone :( and we are worse for it. I don't know how you could pay your rent with such a low priced/ profit item... A larger space you could do a Starbucks cafe thing/listening room or booths and maybe sell some turntables and used gear. Some banks here are doing the Starbucks cafe/bank/ work space thing. Anyway I wish you the best. I sorely miss browsing the racks of my favorite record shops...
You're going to compete with SalvArmy/Habitat sifters looking for THAT and happy to waste your time. You'll spend most of your time listening to what You've bought to sort the trash from the 'ehh, OK's'.
If it's not a 'labor of love' and a means to burn through $ you need to do so with, or perhaps running into the rare audiophile that admires your version of plucky insanity, don't...
Do you know how to run a business? A real, honest-to-Whomever, retail business? Incidentally, in a real niche market? Hot for now, but...?
Suggestion: Take a clue from the wizened ones here, blow off the B&M shop, and go online 1st. Cheaper, you can stay home, work @ your 'leisure', and build/rebuild your/a market....
Get notoriuse....we have. It's taken 13 years and rolling.
I don't sell audio 'anything'.
If that changes, I'd head online. First.
(...and offer a 'Lifetime Warranty!' As in, Mine. *LOL*)
Good luck, anyhow. You'll need a lot of it..... ;)
I had a small (1,000 sq. Ft.) vintage store for 3 years - had 1,500 records in the store all classic rock unless I could find jazz. All Vg+ or better and most NM or I didn’t sell them. Over 2/3rd of them were priced at $6.00. Could never/rarely realize Discog or eBay prices in the store. In retail for my kind of shop we had to sell 3X our rent to make it somewhat worthwhile and a lot of profit went back into inventory. We also took a hurting by albums being re-released a few years ago. Not long before COVID my landlord decided to convert the space to daycare and terminated my lease. I am so glad that happened to me. Big record store in area recently closed after 4-5 years. You could see cars in his parking lot diminish over time as novelty wore off. 10K$ in sales is a lot of records to sell to make that up. And you are in California where life may never return to normal. I’m in NJ and won’t reopen a business until/unless things normalize. I’d have to be crazy. For half of $10K I’ll sell you a storage unit with thousands of classic rock LPs with a retail worth of $30,000 plus.
What is the $10K for? He's either trying to make rent if he owns the place or save from paying rent. If he's just trying to profit off of a cheap lease deal that he has, see what the real market rent is, and do a net present value calculation of the savings over the number of years at a rate of return of say 6% or whatever you can borrow money at (if you need it). That is all you should be paying if you want to be in that business, or I should say, hobby. There are lots of used record shops near me and covid has killed them.One also sells inexpensive turntables and sells a good amount of $4-500 ones to people just getting into or back into vinyl. I think on-line is the way to go, and if you rate good used ones properly, you should make money there. Brick and mortar, I doubt, especially if you need to hire an employees.
Enough posts here for you to be going into this with your eyes open.
I don't get the $10 grand. He is NOT leaving you a customer base if he takes the name. And you are not getting stock or fixtures. So there is nothing to buy. There will still be customers - all those folk who know his record store exists - and will turn up and to find your replacement store in place. They will all come in to check it out. You don't need to pay for that.
Think about what you like about record stores and what turns you off. I hate stores that over stuff the bins so it is impossible to leaf through the records - to the extent that I will not shop there. There are stores I would have stayed longer in and checked out more stock if I had not had to leave and find somewhere with a bathroom so I could take a leak.
Listening stations are also nice. Lighting needs to to warm enough to be inviting but bright enough to check out the vinyl surface.
Having a focus is good. Will you sell all genres or do you want to be known as THE place to go to for a particular genre(s). I think you also need new records - because as a B&M store people will just pop in and ask for the new Taylor Swift album. May as well make that sale.
With used records you will have people coming into the store with records to sell. Do you know how to price them. How will you handle pricing up a collection and cashing out sales at the same time. You will need to have cash on site in order to pay for records (if you ONLY sold at the store you could be card only)
Are you clued in to estate sales, record fairs, etc. How are you going to get to those and be open at the same time.
And most importantly you need to be able to answer customer questions on EVERY record you stock and also be able to make further recommendations based on what they are already buying,
I LOVE record shopping and am impatiently waiting until the current COVID $hitshow is behind us so that I can go digging through those crates again.
My son-in-law is half owner of a record store/bar/recording studio in downtown San Francisco. Fotrunately it is not his primary income generator but they are making money.
There are so many problems with this that it's hard to know where to begin.
But if he is taking everything, it sounds like he's selling you a lease, not much more.
Unless you are using the store as a front for other "business activity", or doing it as a hobby or as a way to meet chicks, lol, etc I'd fuhghedtabouwdit.
Check out YouTube I have seen several successful record store owners do videos on what it takes to be successful. Check out Spinmeroundstore and noble records to start.
I did something similar years ago in the Midwest and it didn’t end well for me. What reason did the seller give for wanting out? Is this 800 square feet of space rent free? Rebranding costs money. A new sign alone can cost a fortune and then there’s advertising, where the Sky’s the limit. How much will insurance cost? Will you need a safe? Will you need an alarm system? Will you need a cash register? Will you need a computer, Printer and backup hard drive? Do you have 80-100hours a week to put into the place? Have you talked to an accountant? Do you have another source of income? Will you be able to establish credit with Venders?
You've already heard a great deal of great advice here - I'd add a couple of elements:
1.) What do you really want to do this potential business for? What's your motivation? If you're highly motivated, upfront money may seem different now than later. Likewise, a passing hobby is far different than feeding yourself or a family - cheap rent or otherwise.
2.) What are your differentiators? You can throw a rock and hit an online version of a record store, and everyone is popping up a record store in every antique mall in the country. What's going to make you different?
3.) Selling 'your' inventory is more difficult than selling 'inventory.' 'Your inventory' has a personal attachment to it that could negatively impact you very quickly.
4.) What's the real time commitment? How much is your actual 'profit' after you factor in all the real time you'll have to invest? Then take that and compare it to the answer to #1.
5.) The immediate value of the previous owner's business is slight more than zero but far less than you're been talking about paying for it. The previous owner is looking for a number to get out of the shackles of that business, while there's virtually no upside for you. If you can't negotiate a non-compete then perhaps you can work on a draw or something where you are splitting the costs over time in order to minimize your overall financial risk. Actual partnership where you both share in the business with you taking on some sweat equity while not having to fork over the entire nut. If he wants out, that shouldn't be an issue for him unless he's looking to either pay off something or finance something else. If he's not willing to discuss it, then you know what you're truly walking into.
6.) Virtually every used record store that I know also deals in new product in order to get people in the store - especially 'new' customers. That's a significant upfront investment that can go stale as distributors wont give you terms until you've established a track record with them. That can be crippling if you're forced to buy $10K of product but only sell 30% of it within any reasonable time period.
Again, not to be disrespectful. Best of luck with it.
I would not do it. If he is taking his store on-line you do not get a customer base only a competitor. Now if he was to sign a 5 year non-compete agreement the business could be valued at 1 to 2 times annual sales but talk to a business broker or good accountant.
Additionally, I would take no less than a 10 year lease with a get out clause at 5 years.
The business is worth nothing without the lease and customer base.
You might be better off to start your own web based shop but talk to a good accountant.
I wish I'd had this forum to read back in 1993 when a "friend" at my favorite indy record store convinced me we'd make a solid profit if I joined up with some other investors to open a CD/record store in Tampa (which grossed over a $M the first year!).
Long story short: lots of money went down the drain, along with toasted friendships, and it's death was drawn-out and painful; we were direct-with-the-majors, letters of credit, etc.
A few pre-investment questions you should answer a hard "yes" to: - Do you know every single facet of the business you're undertaking? - Do you have a person/employee in mind you trust explicitly to share the same business philosophy (i.e. won't steal or "give away" merchandise)? - God forbid, have you established a $ loss figure that, once crossed, will result in immediate store closure....ceasing the bleed-it-forward?
No dream will ever be realized if it isn't acted upon....but also, every dream like this must be able to be unwound.
Hate to be a downer, just keepin it real during these challenging times.
Any time is actually good to open a record shop if your idea is just having a cool neighborhood store with enough traffic to pay its way. Deciding what next to play while running "the business" is what my local guy does while enjoying his "retirement" years. Not a bad plan.
Good advice above. I agree with those above who question whether you would be buying anything more than a headache and a quick loss. No reasonable businessman is looking for a record store in California to buy. You might approach it in terms of how much the seller should be paying you. He wants to get away! You could make a counter offer, once your due diligence reveals the liabilities he is trying to escape from. Don’t ever do anything like this without an attorney. They would need to create an LLC to own this money pit, for a start. California is a regulatory nightmare.
Let's break this down. You pay him 10K. You also need to pay rent, and do upgrades to the interior. You have no idea whether the customer base will stay with you or follow him. You'll need an advertising budget. Insurance. Utilities. And you plan to spend 8-10 hours six days a week running the place. Or hire someone. How much does that all add up to? How many of your own used LPs do you need to sell to recoup even all that initial outlay? How long will that take? What will you be living on in the interim? Is this a hobby that you can afford to pour $$ into, or will it be part/whole of your livelihood? In short: "does not compute".
From a former business broker, the value is determined by PROVE-ABLE profit. Inventory, if sellable, at his cost,fixtures depreciated. If the word potential leaves his mouth,leave.
Table jockey... I disagree...he should seek info WHEREVER he can get it...and keep the good stuff and disregard the bad. By posting here...he may get valuable input from his target customer base...
op... while I suspect it will indeed be an uphill battle...doesn’t mean it can’t work...keep doing your due diligence and don’t let the gadflies get you down!
Too bad some here had to bring up politics......so sick of it and there is no reason self-control cannot be engaged to keep that topic disengaged. To the OP...... Buying an empty record store and not getting the name makes no sense. Several years ago the owners of a very well known record store in Seattle sold it to another party, leaving the name and everything inside completely intact. Is like going to the same store but the new guys also speak Internet and have their act together. Negotiate a sale like that and you’d be good to go.
Quick, throw all your money in the fireplace and set it on fire. Yes, you'll be flat broke, but at least you'll get it done less gradually and frustratingly.
Err yes, more good points neither California or Hong Kong would inspire much confidence right now.
Political stability is important for business. Everyone knows - unless you’re in the instability business of course - yes you Mr Soros!
If you want to run it as a boutique venture then you’ll need to work out just how much you can afford to lose each year.
I knew a few people who had inherited comicbook shops from their parents. They’d grown up themselves in the business.
One of them, in Birmingham, had to downsize gradually moving away from the city centre until he no longer even had a shop. The other was based in East London. I expect he’s long gone too.
Also gotta know how many customers on his list before you can assess what you’re getting for $10k. And how much marketing has he done to this list of customers previously? if not much, they come to his store based on convenience of location, habit, comfort with his inventory, etc. Wouldn’t pay for that. You might also want to look into buying data - are there alternative lists out there one can purchase, and what does that cost? (Why do I suddenly think of Glengarry Glen Ross?) Finally, idea for name? Twist on one of the great bars of DC (“Off the Record”): “On the Record”.
You have received a lot of really good advice here, including; @millercarbon
No one knows the current worthlessness of the business like the current owner.
@noromance
By keeping the name, inventory, and fixtures, he’s not really selling you anything other than an empty store that used to be a record store.
@jdane
Minimally, you should ask to see his books in detail and study them carefully.
@uncledemp
I think putting together a business plan would be time well spent.
All you are getting from this "deal" is the storefront with "ridiculously cheap rent in a good area of town" and a "steady customer base." This guy is doing you no favors if he "will be taking all of his inventory and record storage bins." Without the inventory and bins, all you are doing is renting a storefront and the "business" is worth zero. The customers are already in the area. Sheesh.....he has even become your instant web competitor who is selling his existing inventory from a website he is already advertising from your (future) shop! Duh!
If the location is that good, and you are looking for a hobby, then open a coffee shop (serving something better than S'bucks), or a sandwich shop, where you can play good music for your customers and operate a B&M pick-up point for a vinyl web business. Otherwise, in the wise words of: @millercarbon
Its a rocks in your head thing to do if your goal is income.
We lived in the SF Bay Area for more than thirty years, and only recently moved. I have never owned a record store but I have been in enough to know that, unless you just loved the movie "High Fidelity" and envy the lifestyle of its employees, a record store is a money pit. I recall two record stores in the Hayward area that moved three times each before finally quitting the business.
Like many on this forum, I have fantasized about owning a high-end stereo store. But, after talking with former store owners and employees about the business, I realize that it’s long hours, demanding customers and diminishing cash flow. I believe a record store would be similar, just more dimes and slower dollars. I did like the "Analogue Room" in San Jose, which is a great store for audiophile records.
One additional point. The fact that the owner is already soliciting away the value, the good will, I would offer even less of as that is what he is attempting to sell you. Some States permit non compete clauses in the contract, and a contract, you certainly should have. Best.
My answer to your question about the 10K is this. What’s the profitability after the figures are normalized? If the previous owner paid himself fairly as an hourly employee, added back in soft costs that he may have written off as a business expense that was really personal. What’s left over as the real profit? Then what you would be purchasing is the goodwill plus any hard costs, record bins, furniture, wall art, whatever. Theoretically, the good will is given a 3,4,5, X multiple. If the goodwill can’t be paid off(as in a small business loan) within 5 years, you are paying too much. This is a very broad generalization but a means to think about revenue stream. Hope it works and send us your stores website please.
Totally not my field but I am with the others that are puzzled what you are getting for 10K. If you were allowed to keep the business name and the web domain, that would possibly justify it, based on the volume of sales, but if not... Your friend may be taking advantage of your friendship here in a business transaction. My advice would be to decline. If he moves and isn’t able to rent the space (how many people want to take a space that is set up to sell records?) then you can reconsider and approach him about renting and get a much better deal
I’ve done this before. Here is my advice. Don’t change the name, remodel is fine. If you change the name you will lose the established customer (and have to buy new signs!) Is the current storekeeper the building owner? If not, what are you giving him 10g for? He’s just gonna go across town, tell his customers he’s moved and leave you in the dust. For 10g you should license the rights to the store name, do not t buy any asset or you will be encumbered by any debt the owner my have under that name. Just message me if you want help. I’ve re-established two business in my town. One has been here since 1951 and the other since 1974, I know the challenges of retaining a customer base while making the changes needed to survive.
Waste of $10K! If such a powerhouse as Tower Records with 130 stores couldn't succeed with brick-and-mortar stores ... used-record sales are best done online.
I don't quite understand what you will actually be getting for your $10,000. No established store name, no inventory, the cost of remodelling a building you don't own....
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