Opening Record Store


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.
fromunda
Its a rocks in your head thing to do if your goal is income. But if you like High Fidelity (the movie, not the hobby) then it could be a really good way to spend your retirement. Assuming you saved up and have a lot of retirement to spend.

Of course the owner wants you to cash him out. No one knows the current worthlessness of the business like the current owner.

But really, hate to be the one to break it to you, but what this depends on more than anything else is where are you? What town? Or more to the point what state? 
Northern California Bay Area. Owner threw out a figure of $10,000.
In my hometown, growing up, there was a restaurant on the corner of main street.  Every few years there would be a new restaurant at the same location.  None of them ever made it.

Clearly, the previous owner isn't getting out of the record selling business.  He's taking his merch online only and letting his current customer base know this.

If things were going well in that shop he wouldn't be turning to an online only business.  

If you're financially set and want a hobby and owning a record store is something you always wanted, go for it.  If you're needing the shop to succeed in order to survive, you might reconsider



Storefront in Northern Ca? Cheap? OK that’s good, operating cost and the first employee, will floor you on cost. There went that record collection..I’m not laughing.. But maybe a little.. I’ll give you my business if you can stay in business. I wouldn’t pay anybody for an existing record business, with no inventory..AND you’re doing a name change. NOPE! BTW look to storage companies for LARGE volumes of LPs.

I had two good businesses in CA. I was young a full of thunder. Both were good money earners, and SECOND jobs for me. My kids first jobs, and a few neighbor kids, too. 15 and 12 years each. I owned the property though both times..

Lots of thought, and lots of luck.. and a double scoop of the above post, fun or fortune? Lot of liability for the wheelchair, the public (pubic I say), the infermed, like me.. LOL You better think on this now..

"My MOMMA told me, you better aware".. Still hear her..NOW...

We were dancin’ and movin’ an grovin’ to the music and....
Play that funky music white boy, play that funky music, LOUD, oh yea!! KC......

Regards
There is a reason he is going on line, can't make the storefront work.

If you do it, you’ll be doing it for love, not money.

You’d have to maintain the online side of things really well. A friend of mine runs a luxury leather goods/jewellery, camping equipment store and he says that it’s the online side that keeps it going.

Maybe having a listening booth, as they used to in days of yore, might be worth considering. Might also save on returns.

As for names, well how about ’Ah...Diskies!’?

(Just in case you later decide to also stock a few choice CDs and DVDs).
The most successful brick and mortar record stores I know maintain a a robust online side of the business.  That's where the "real" (well not really) money is made, especially one the collectibles side.  Jazz Record Center in Manhattan is a good example.
Post removed 
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.
He’s going to have first dibs on any nebulous collections intel he’s selling you. 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.
Yes, online too, I forgot about that. BUT again, employees. ONE person... You’re gonna live and breath STORE.. To exist WELL and build a customer base. I’ll support you though..

Add REEL To REEL support, maybe a tiny blank inventory, or access to good pre recorded or record per request tapes...  THAT'S A GOOD IDEA... let me write that down.. ok, now where was I?

That’s an idea, "All things Analog PLUS" (of course, you fill in the blank) on PLUS. Plus could be support, CD, tiny listening room with a select small system, SS VALVE or combos. TRUE mini reference. BUT fair profit earning prices..

Have a back room coffee listening lounge. Where you can smoke and sip coffee TOO, I mean think on it and ponder the sound over yonder, Ay?..

Gears are grinding....

Regards
Shouldn't you be consulting a business analyst?
You're looking for a tax write-off, right?

thecarpathian
1,851 posts
11-28-2020 1:50pm
Shouldn't you be consulting a business analyst?"

<<<<<<<<<<<<<<<<<<<<<<<,>>>>>>>>>>>>>>>>>>>

There went that second record collection? BIGGER :-)

Teeny tiny itty-bitty, startup, record store.. Sonny an Cher and Iggy POP are gonna be sharing the spot light...

HOPEFULLY Camila Cabello, TOO. "Havana"

Liability.. that's the biggie... protect yourself..

DON'T borrow money, and NEVER have a partner. NEVER, EVER , EVER.... Collaboration with defined lines... nothing else...DRAW a LINE.... (maybe a lifetime spouse on paper for survivorship). NO mouth piece as far as ownership.. NEVER works...

Regards
I'd second that, no partner.

Never ends well.
Two questions I would ask:

Is the guy you're paying rent to the owner of the property? If so, you may consider getting a lease.

Is the property in default for taxes, does anyone have liens against the property, etc.? This guy could be out of the picture soon and trying to cash in.
Red flags popping up all over my friend.
Get a non-compete clause!
Open a shop somewhere else. The same customers will come to buy and sell. Id make it a vinyl/ used audio gear store snd sell a lot online. You will get a lot of audio gear in and only deal with working stuff unless you want to hire a tech. Which also could be a great idea as a lot of hifi stores nowadays will only work on gear bought from them and there could be people looking for a lot of repairs.
Spend the money on as good accountant. They will tell you exactly what it's worth. (or not) If the guys business records are iffy, RUN, don't walk! Joe 
Music stores, book stores closing everywhere. What are you planning to do that escaped the attention of everyone else? All you know about this place is that the previous owner couldn’t make the business work, despite what he claims is "steady customer base" (which he plans either to take with him or sell to you w/ his inventory for 10K.  Doesn't seem like he thinks that base is worth much.) Minimally, you should ask to see his books in detail and study them carefully. After that, walk away.
Great advice has been given.
Northern California Bay Area. 

California???! No one in their right mind is opening a business in California! Democrats have so thoroughly screwed California the people trying to flee can't, there aren't enough rental trucks to move them all out! Hong Kong I can understand, its far enough away and Americans are such global zeroes they don't even know the country has been in a state of virtual siege for going on a year now. But California, surely everyone knows the state is second only to Illinois, or maybe NY in corruption, taxes, crappy schools, nanny state regulations, and disrespect for property rights and the rule of law. All of which- guess what?- are pre-requisites for a successful growing business economy.

You would have to be mental to open a business in California. Mental, or democrat. But I repeat myself.
Oh Millercarbon.     Your thumbnail pic explains you...., YOU'RE A GENIUS!!!!

.. and probably probably a really stable one... 

but to the OP , $10k will buy some great speakers, think used Wilsons!! 
Which record store in the Bay Area? I’ll tell if store is worth it hahaha. But no, just the fact that you’ll have to deal with buying collections and/or b2b accounts with distributors is reason enough to not do it. Vinyl is in the tank right now and business is only online.
Ask to see his tax records and books. Hire someone that knows what they're looking at. That will give you an idea of the worth of the business. If he balks at that, walk away.
so the owner is moving out of state..far out of state to reopen a record store. He is moving his whole family with him. He is a pretty good friend of mine and I trust him. He has no online sales to speak of, he doesnt know how to navigate sales through discogs and in the past has asked me to help him sell items there...he is super low tech. There will be no competition here at all. I do not plan to buy/sell any new products....strictly used lps. Many record owners that I have spoken to across the bay area  recently are reporting record sales over the last 8 months or so....more dollars coming in now than they have ever seen.
Don't mind millercarbon: he's pissed off his idol lost the election. Soon, his conspiracies will pollute this thread. I think he's s foot soldier in the cult.
You asked for "tips". I partnered to have owned 3 hi-fi stores getting out in 2001 after 30 yrs of doing it.
Although your store is simpler in product, the thing that you must watch for is "expense creep". You will own the business. Are also owning the building or is he?
Rent can go up, Business regulations met such as fire code and equity clauses. You may be strapped to install the latest fire suppression or widen doorways for handicap access that the owner may apply to you in some fashion.
Differentiated tax codes. State regulations as they apply to transfer of ownership clauses.
New regulations as they apply to sq footage of stores.
10K seems fair to me but I would stipulate payment on a royalty basis to prove how valuable his customer base is within the area itself. If he is "re-opening" somewhere else, he is basically taking his customer base with him if most of his sales are on-line.
I may have missed some stuff but you get the idea.
The killer is in the details....and "customer count".
The Analog Room? I’m hoping a new record shop with higher end jazz and classical lands there. We don’t have many places in the South Bay for that stuff, which is weird given the demographics of the region. 
@fromunda 

Sorry in advance if these items are old news to you, I’m just trying to help....

I think putting together a business plan would be time well spent. Working the details out will require you determining profit margins, expenses, and what your breakeven would be in order to make a profit and perpetuate the business. 
Couple of questions/ comments:

1. If you open a business can you capture the customer base without his location, etc? What are you really gaining? 
2. When you figure your profit model, use numbers that reflect an inventory you don’t already own. That should give you a more realistic idea of your cost of goods. 
3. A good, thorough, business plan template will walk you through items to consider. It will be time consuming but worthwhile work. If you struggle with the business plan and hate the process, business ownership may not be for you. 
4. A friend of mine sold many albums in flea markets, music stores, etc. He dealt with stealing, people took advantage of his good nature regarding quality, sometimes swapping their poor album into a sleeve and taking his 33. Video cameras slowed the shenanigans...

5. Ask to see the guy’s books. He should be able to show you balance sheets, statements of revenues and expenditures, and past tax returns.  This is generally required by someone purchasing a business to determine a fair price to pay. His books will also give you an idea of his expenses like utilities, advertising, insurance, salaries and wages if any, and some yet to be determined. 

To be a great deal it should capture your heart and your head. If the numbers don’t make a compelling case, consider waiting for an opportunity that does.

Best-
My advice is to carry out DUE DILIGENCE!

How many stock items are in the store? Will it attract enough turnover?

Could you put stock online or on Discogs?
🇦🇺
I don’t understand why you’d need to pay anything.
If you're changing the name, there will be no follow
through whether you pay him or not.
Does he own the building? If so then pay him rent.
If he doesn’t, cut a deal with the real owner of it.
Then you are looking at paying $10k for good will
and a customer list. If you can rent that location,
or one close by, his old customer base will find you
without you needing to spend $$ as he is no longer
in business in that area.
He is going to be your direct competitor. He is only leasing space he doesn't want or need. Reach out to the owners of the successful YouTube channel and record store spinmeroundstore or Noble Records another great YouTube / record store and seek their advice on what it takes. Have enough capital to pay 6 months rent, utilities and liability insurance with out any income. Wish you the best.
I am not a business person but have a good friend that is, and has sold businesses before.  She has told me there is a formula (there is probably more than one) based on the business's annual income, of which you pay a percentage as a purchase price of the business.  I understand that having a written business plan is a must and I would agree that it would be wise to seek professional assistance from someone who knows business.  Also, check out the term "blue sky" and how it applies to a business's clientele.  This in itself could be a vital consideration.

On the other hand, it is well-known that one of the greatest obstacles to making a dream come true, are the people in your life that tell you, "you can't do it."  Maybe with the right prep, accurate knowledge, and operating on reason rather than emotion, maybe you CAN  do it.  

Good luck!

MuiskHEAD
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....
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’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.  
What's your mother say?
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
1)  How old are you and your friend? Not specifically, like in decades.

2) Why is your friend leaving California?  Personal reasons? Or just wants to get the hell out.

3) How much time have you spent in the store?  I mean full days at a            time?

4) Sounds like he is selling you his customer list, but he is keeping the          email addresses and opening an online store?

Just some random questions, there is much better advice elsewhere in this thread.  Best of luck if you go for it.

Regards,
barts
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. 
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. 
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.


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.

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”.
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.


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.

Tim
Asking business advice on a internet forum....

Off to a bad start.