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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
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bigwave1
222 posts
 
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. 
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bigwave1
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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. 
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tonykay
1,297 posts
 
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.


mitch2
3,680 posts
 
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.

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mdalton
268 posts
 
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”.
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