How can I tell if a hardware store is profitable before I buy it?

A hardware store’s total sales hide a lot. A counter that cuts keys and mixes paint earns differently from an aisle of power tools, and a contractor who buys on account is a different customer from a homeowner paying at the till. To see what the store really earns, ask for the records that let you separate those streams, then read them with your accountant.

Departments and service counters

Ask for sales and gross margin by department, and ask where the service counters sit within them. Keys, glass, screen repair, pipe cutting and small-engine repair are service counters that need little stock. Test how much they contribute against the store’s records, and compare them to departments that need a lot of inventory. Ask who runs each counter, and how much of the store’s earnings depend on that person.

Contractor accounts and receivables

Contractors often buy on account, so some of the sales you see have not yet been paid. Ask for an ageing report of what customers owe and how old each balance is. Find out whether a few large accounts make up much of the total and whether the seller expects them to stay after the sale. Unpaid balances can make sales look better than the cash that follows.

Rebates, owner hours and family labour

Many stores receive year-end rebates from a supplier or co-op. Check how they are recorded and whether the next owner would qualify for them. Then ask who works in the store. If the owner or relatives take little or no pay, a new owner may need to hire someone, and that cost changes the picture. Your accountant can help you adjust for it.

Seasonal months

Look at results month by month over several years rather than a single year. Garden, snow-clearing and renovation seasons can carry the whole year in some regions. Seeing the pattern helps you plan for cash in the slow months. For the wider checks, see how to check supplier relationships.