Selling Computer and Smart Phone Repair Stores
Stores that sell, buy, and repair computers, laptops, smart phones, tablets, and other electronic devices have become commonplace in South Florida. With the near universal adoption of laptops and smart phones, consumers often want a local store in which to repair, replace, or purchase their favorite communication devices. Most computer and phone repair stores also offer used, refurbished, or new merchandise for sale. While many computer and phone repair stores are independently owned, others are franchised stores operating under the umbrella of a national brand. Additionally, many owners expand their stores to multiple locations so they may serve more customers while realizing cost and revenue synergies. Business owners of these niche retail stores should prepare their historical financials prior to selling, streamline their operations to maximize profitability, reduce the level of owner-dependency, and hire a business broker experienced in valuing computer and smart phone repair stores.
Valuing Computer and Smart Phone Repair Stores
The key to selling a computer and smart phone repair store is assigning the correct valuation multiple to its annual adjusted owner benefit or Seller’s Discretionary Earnings (SDE). The average valuation range for computer and smart phone repair stores is 2-4 x its annual adjusted owner benefit. The adjusted owner benefit is often very different from the taxable net income or the net ordinary income from a financial statement. The adjusted owner benefit includes ‘add-backs’ such as the owner’s salary, personal expenses of the owner which flow through the business, and any other non-recurring or unusual expenses which would not be incurred by the buyer. The valuation range of computer and smart phone repair stores is affected by its gross and net margins, the role of the owner, and whether the business has multiple locations.
High Gross and Net Margins
- The gross margins of a computer and smart phone repair store is the percentage of sales left over after paying for its Cost of Goods Sold (C0GS).
- The COGS for a computer and smart phone repair store consists of expenses for the parts and products sold to consumers.
- These costs are usually very low in comparison to the prices charged to the consumer.
- Often, a computer and smart phone repair store will purchase used computers or laptops from consumers, and after some refurbishment, will greatly mark up the prices.
- In many cases, the store will encounter very little COGS expenses in repairing a customer’s phone or laptop other than replacement parts.
- The net margins of a computer and smart phone is the percentage of sales left over after paying all of its costs such as rent, labor, advertising, and COGS.
- Because of its low cost structure, most computer and smart phone repair stores have high net margins.
- The small retail footprint needed for most stores results in low occupancy or rental costs.
- Labor costs vary with the involvement of the owner and with the efficiency and ability of staff members to do the repairs.
- The typical computer and smart phone repair store may be run by only 1 or two employees.
- One employee is usually needed to run the counter while one or more employees work in the back of the store doing repairs.
- An efficient and productive staff will significantly increase a store’s net margins, and hence its valuation.
- Many stores do spend significant money on marketing and advertisement.
- A store with high visibility in an excellent location may not need to spend as much on advertising to drive customer awareness.
- When selling a computer and smart phone repair store, it is is crucial to identify the store’s gross and net margins.
- The gross and net margins demonstrate the efficiency of its cost structure and represents a potential competitive advantage.
Role of Owner
The valuation range for computer and smart phone repair stores is greatly affected by the role that the owner has in its daily operations. Stores with more passive or absentee owners will receive a higher valuation than similarly situated stores with more active owners. This is especially the case where the owner does repair work in the store. If the owner has special skill sets, certifications, or technical abilities, the buyer will need to have those skills themselves or find someone else who does. This means costs and risks to the buyer, which will detract from the valuation of the business. An active owner-operator may wish to replace their role with other employees prior to selling. While doing so will result in higher labor expenses in the short term, it will greatly help the valuation of their business when it comes time to sell.
Multiple Locations
Many successful owners of computer and smart phone repair stores eventually establish more than one location. Having multiple stores not only reaches more customers, but it creates economies of scale from spreading out advertising and labor costs over more than one location. This results in higher net margins for the overall business. Further, multiple stores means the owner has more leverage with suppliers since they will be ordering more parts and inventory. Overall customer awareness and brand recognition is improved with multiple locations which drives higher overall sales. The valuation multiple for computer and smart phone stores with multiple locations is higher than stores with a single location because of its more efficient and profitable business model.
Inventory
The inventory – or products available for sale – of computer and smart phone repair stores is often sold separately from the business. Inventory is valued at cost (not retail value), and is part of the store’s working capital (or carrying costs). The price paid for the inventory is negotiable between the buyer and seller depending on its age and condition. Inventory is normally treated separately from the sale of the business since it can change significantly over a short period of time. Also, the buyer will need a Florida resale certificate in order for the sale of the inventory to avoid triggering possible state sales taxes.
The valuation of computer and smart phone repair stores should reflect its margins and the efficiency of its business model including the role of the owner. Well established stores with multiple locations and a productive staff will sell for a premium valuation.
Give Martin at Five Star Business Brokers of Palm Beach County a call today at 561-827-1181 for a FREE evaluation of your business.