Opportunities
New and Gently-Used Children’s Resale
Sold
Specifications
This franchised business concept offers parents an easier and more cost efficient way of providing the best for their children without breaking the bank. Lincoln has a population of over 280,000 people with a median age of 31, which drives both buying and selling transactions. The staff of 14 (1 full time Inventory Manager and 13 part-time employees) are knowledgeable about child safety and committed to providing a safe environment to shop, and safe products to buy for all. A computerized inventory system assists with appropriate pricing and tracks what clothing sizes and categories are needed.
This business is being sold at a discount of $42,252 due to the owner’s health. After all debt services are paid, a new owner can expect a Net Operating Income (Profit) of $74,844. That is a three-fold Return on Investment in year one of ownership.
Business Highlights
- Year Established: 1996
- Location and Service Area: Lincoln, NE and surrounding communities
- Demographics: Located in a population of over 258,000 people that are 50% Female and 50% Male with a median age of 31 (prime time to have children within the family)
- Lease: 5,400 sq./ft. at $7,281/month all included
- Reason for Selling: Seller Health Concerns
- Employees: 14 – 1 Full Time Inventory Manager, 13 Part Time
- Hours: Monday – Saturday 9:30AM to 8PM and Sundays 12PM to 6PM
- Seller Training Period: 90 days
- Growth Opportunities: Continue to grow a social media presence to expand to a wider market
- Current Owner’s Responsibilities: Overseeing Day to Day Operations, Payroll and Accounts Payable
Financial Highlights
- List Price: $246,000
- Gross Sales
- 2016: $959,026
- 2016 Gross Sales impacted by owner health issues and lesser involvement in day-to-day operations
- 2015: $1,015,360
- 2016: $959,026
- Owner Profit/Cash Flow
- 2016: 115,301
- 2015: $147,258
- Profit Margin: 12%
- Assets Included in Purchase: $282,386
- Equipment: $106,646
- Build-out: $24,908
- Inventory: $150,832
Gross Sales Trends
The Owners have historically been active in the business. The Gross Sales in 2013 and 2014 reflect that Owner involvement. After 2014, the Owners experienced major health issues which resulted in hospitalization and significant time away from the business. Although there was a Manager in place, she was not effective and the margins suffered. A new Manager is now in place, and the business is starting to come back to the levels of 2013 and 2014. Those years better indicate what the business could be worth.
Growth Opportunities
The business is located in a great part of town with constant customer activity. Focus on additional social media presence could increase sales by expanding into a wider market.
Client Demographics
The demographic of clients which come into the store to sell their new or lightly used clothes are anywhere from 25 to 49 years of age. There are often times that older, grandparent aged, individuals will come in and sell their grandkids clothes as well.
The demographics of clients coming into the store to shop and buy clothes are any individuals with kids in the age range of 0 – 10 years old.
Cash Flow Analysis
| Description of Financial Statement | P&L Statement January - December | Tax Return | Tax Return | Tax Return | Notes |
| 2016 | 2015 | 2014 | 2013 | ||
| GROSS SALES | $959,026 | $1,015,360 | $1,139,318 | $1,125,066 | |
| Net Income Shown on Financial Statement | $12,457 | $10,212 | $12,197 | $11,623 | |
| ADDBACKS | |||||
| Compensation to Owner | $59,834 | $87,817 | $84,355 | $82,408 | |
| 11% Tax on total W2 Salaries | $6,582 | $9,660 | $9,279 | $9,065 | |
| Depreciation | $0 | $770 | $770 | $982 | Non-cash item |
| Auto-Personal Use | $385 | $456 | $340 | $0 | Personal auto use unrelated to business |
| Auto Insurance | $1,379 | $0 | $0 | $0 | Owner's personal auto insurance |
| Health Insurance | $26,840 | $0 | $0 | $0 | Owner's health insurance expense |
| Long Term Care Insurance | $3,157 | $0 | $0 | $0 | Owner's long term care insurance expense |
| 401K | $1,550 | $0 | $0 | $0 | Owner's personal 401K expenses |
| Travel & Entertainment | $1,317 | $0 | $2,330 | $1,191 | Non-business related travel & entertainment |
| Non-Business Telephone | $1,800 | $1,800 | $1,800 | $1,800 | $150/month for personal phone |
| Inventory | $0 | $36,043 | $0 | $0 | End-of-year inventory purchase |
| Contributions/Donations | $0 | $500 | $0 | $0 | Non-onward going expense |
| TOTAL ADDBACKS | $102,844 | $137,046 | $98,874 | $95,446 | |
| Seller's Cash Flow = Total Addbacks + Net Income | $115,301 | $147,258 | $111,071 | $107,069 | |
| Profit Margin | 12.02 % | 14.50 % | 9.75 % | 9.51 % |
- Cash Flow is the owner profit, which is the sum of business net income plus any owner perks and any non-onward going expenses
- Gross sales consistently over $1 million from 2013-2015
- 12% Profit margin in 2016
Valuation Details
The Firm Business Brokerage used a Cash Flow Valuation methodology to determine the Purchase Price of the business.
The formula used is as follows:
Cash Flow x Prescribed Multiple = Fair Market Value
Cash Flow is the sum of business net income plus any owner perks and any non-onward going expenses.
A multiple is prescribed by a 20 question, 100 point parameter ranking system that is used to analyze the current business health. Each question is based on a scale from 1 to 5: 1 being low, 2 below average, 3 average, 4 above average, 5 high. The average of the responses sum is the business’ prescribed multiple.
For this business, the annualized 2016 Cash Flow was used. The prescribed multiple is 2.5. With this information, the computation is as follows:
$115,301 x 2.5 = $288,252
This business is being sold at a $42,252 discount due to the owner’s health. This sets the purchase price at $246,000.
Funding Example
Purchase Price: $246,000
10%Buyer Down Payment: $24,600
20%Seller Financing: $49,200
70%Bank Loan: $172,200
Seller Financing: 5-year term at a rate of 4.50% equals a monthly payment of $917.
Bank Loan: 7-year term at a rate of 5.25% equals a monthly loan payment of $2,454.
After business expenses and annual loan payments of $40,457, a buyer would retain a net operating income (profit) of $74,844
A down payment of $24,600 results in a three-fold return on investment in the first year!
At a proposed Purchase Price of $246,000 with the terms listed above, the coverage ratio is 2.85.
Print, sign and send to:
210 N 78th St. 2nd FloorOmaha, NE 68114
Or fax to:
f 402.939.0857