Selling a bookshop is hard to do....

Buying or selling a book shop is not an easy task in the current financial climate. If you are the seller, how much should you ask for the business above and beyond the stock? If you are the buyer, how can you be sure the business will continue to make profits at the current level?

If you are new to the bookselling business environment, how can you be sure this is the right step for you? Well, you don’t have to fly blind these days.

One of the first steps to take is going on Westpac’s website and heading for Free Business Tools. They have an 'Am I suited to business?' worksheet (PDF), which is a great starting point.

Follow through with their 'What will it cost to set up?' (PDF) spreadsheet, and progress to cashflow forecast and loss and profit forecast. These are great starting points and have to be taken seriously.

Naive newcomers may bail at this point... which is a lot better than handing over borrowed money and seeing the asset you bought drop in value.

There’s also thorough advice on www.business.govt.nz. However, veteran business broker Clyth MacLeod is sceptical about the level of trading banks and Government’s understanding of small/medium enterprises (SMEs). He suggests a buyer may be better consulting a Chartered Accountant who has experience in small business and paying for the advice.
 

Like their real estate counterparts, business brokers are a savvy group who soon sort out the dreamers from the doers. Rodger Green of NAI Harcourts Coopers says his agency sells around two or three significant – i.e over $500k – bookselling businesses per year, often with related franchises such as New Zealand Post or Lotto involved.

Note that business brokers do not give out confidential business details to just anyone. Rodger says that tyre kickers do not get through the business broker gateway if they are just fishing for information.

“We take it seriously. People have to have the money and also sign a non disclosure document before they are given any information not already advertised.”

For a would be buyer, Rodger says it is important first of all that the business is making money and the price paid is value for money. “If you come down to the end of it all and the nett profit after everything is paid is only $10k per year, the figures don’t work. There’s no goodwill in that return.”

Goodwill - the price you pay for a solid business that is making money, stocks good product and has a good location – would be around $70k-$80 in the price of a business asking $500k, he says.

Another factor to take into account when buying a business is the lease. Rent has to be sustainable, and extensions to the lease available for a significant period.

So what’s out there on the market at the moment? An internet search of Trade Me shows a Take Note in Kaikoura and a Take Note in Motueka both at ‘price on application’; Rodger has an Auckland city PaperPlus in a mall location for $450k plus stock at valuation.

Boutique bookshops, second hand and highly specialist bookshops are more reasonably priced, but you have to apply the same financial rules to their profitability and thus in deciding their viability.

It also appears there is no quick turnover in bookshops – most have been on Trade Me for many months.

Turning the tables from buying to selling, the same guidelines apply: is the business profitable? This will determine the amount of goodwill you can expect. Is the lease at a good rate, with ongoing rights of renewal? Is the likely cost of your stock too high and should you be specialling off dated unsold stock ahead of a sale? Do you need to get rid of unprofitable lines or consolidate ranges? Can you get away with a good clean and tidy or would a coat of paint on the walls and prominent fixtures make the business more appealing?

It is a sobering thought that an in-depth, well run and highly regarded business like Parsons Art Books in Auckland was on the market for several months. The owners received such low offers, that they opted to sell the stock and fixtures off and end the lease to exit the business. (Though Helen Parsons still runs Parsons Library Services from a home office.)

An improving situation.
But perhaps the clouds are lifting. One of the business brokers contacted for this feature, Paul Thomas of Colliers International in Nelson, is the agent for Take Note Motueka. It turns out that business is under contract, and Paul says he had a notable number of enquiries for the store.

The business sold in under three months from listing, a surprise when the usual time to sell a business in the South Island recently has been around 18 months.

Paul referred The Read to Clyth MacLeod regarding the strict guidelines agents must adhere to when selling businesses. Clyth said that salespersons or agents must be licenced; the broker is obliged to give the vendor a written appraisal, based on comparables, of what the business is worth. The broker must also detail the commission charged for selling the business.

These steps are all ones that protect the buyer of a business. Clyth has only one grumble regarding bookstores and other infrequently traded retailers: “How can we assess a value on ‘comparables’ when there are so few?” he asks. In contrast to Paul’s optimism that the market is improving, Clyth notes that he recently failed to sell a good suburban bookshop in Auckland, “Because the returns simply weren’t good enough.

“High inventory levels and low profits account for many specialist bookshops not selling or having to close,” Clyth reckons.

While he too sees signs of increased business sales at the moment, his position is one of ‘cautious optimism’. “Buyers are conservative and slow to make commitment. The banks are bloody-minded about lending to SMEs.”

With seven day trading over long hours, a bookshop is no longer a lifestyle choice... it is a business, a business that has to make a profitable return on investment to succeed and to support its owner at a corporate salary level.

Written by Jillian Ewart, writer for The Read