What is a pet supply store worth?

A pet supply store looks like an ordinary shop, but a buyer may test how much of its value rests on a customer cycle: people who run out of food, litter or treats and come back to the same counter. Ask how often hard goods such as beds, crates and toys are bought; if less often than food, they may add margin without adding as much loyalty. Some stores also run grooming, training or boarding, which is a third stream that works more like a small service practice than a shop. Two stores with the same sales need not be worth the same, so ask how much revenue sits in each stream and how firmly each one will survive a change of owner.

Three earnings streams, priced three ways

A buyer can split the store’s revenue into consumables, hard goods and services before looking at profit. Consumables are where a repeat-purchase argument would be made, so ask how much of the goodwill rests on them. Ask how exposed hard goods are to price comparison with online sellers and larger retailers; a store that leans on them may be more exposed. For services, ask who delivers them: a grooming room built around one groomer with a personal following is a different asset from one with several staff and a booking system that the business owns. If your books do not already separate the three streams, that is a job a buyer may do for you, and it is better done in advance and on your terms.

Repeat purchase is evidence a buyer may look for

A seller who wants a higher price should be ready to show that customers return. That might be an auto-ship or subscription program, a loyalty scheme with a real active membership, or till history showing the same households buying food every few weeks. Anecdote is weaker evidence than records. A seller may be asked how many customers bought in each recent period, how many were new, and what share of consumables sales came from members. A buyer may see this in aggregate before closing, because customer-level records are personal information; our selling guide explains the sequence in which more can be shared. A store with strong repeat sales and no records to prove it may be priced on the records it has.

Recasting the earnings

Recasting rebuilds the profit figure so it shows what the store would earn under a new owner rather than under you. BDC lists discretionary and non-recurring expenses and management compensation among the records a valuator reviews, and those feed the add-backs: owner pay replaced with a market wage for a manager, personal costs run through the business, and genuine one-offs removed. Pet stores add wrinkles of their own. A seller who calls a large write-off for expired food a one-off should be ready to show how often it has happened. Supplier rebates need the same scrutiny, because a rebate paid on a different cycle from the sales behind it can flatter one year and depress the next. If the owner works the floor or the grooming table, that labour needs a wage before any profit appears.

What pulls the price down

Several features of this sub-sector can lead a buyer to discount, and a seller who knows them can address them before listing.

• Perishable stock: expired or near-dated food is not an asset, and slow-moving specialty diets are worth what they can realistically sell for, not what they cost.
• Live animals: if the store sells any, a buyer may price the compliance risk, which differs by municipality and province, or ask for the line to be left out of the deal.
• Named-person services: a grooming or training line that depends on particular staff can lose clients if they leave. Brampton, for one, requires pet grooming establishments to hold a licence, and Abbotsford states that its business licences are non-transferable, so a buyer should expect to apply in their own name.
• Supplier dependence: ask whether premium or exclusive lines would continue for a new owner, since a buyer may have to reapply and may be declined or offered different terms.
• A clean break: BDC notes that buyers may insist on a reduced price if the seller cuts all ties, which matters most where the owner is the face of the store.

Stock can be priced apart from goodwill

A deal can settle the price of the business and the price of the stock separately. The CRA notes that a sales agreement may set a price for each asset, a value for the inventory and, if applicable, an amount attributed to goodwill, and that, depending on your situation, you may have a recapture or a terminal loss of capital cost allowance on the sale of your assets, so how the price is divided is a question for your accountant. In a pet store the stock line is where disagreement can arise: food has dates, specialty diets can sit for months, and the count may be set for the closing date rather than the date of the offer. Our answer on how retail inventory is valued at closing explains the mechanism, and the same logic applies here once expired and slow-moving lines come out of the count.

Fair market value is not the price

A valuator’s fair market value is an opinion about what a business could fetch, and BDC notes it is not necessarily the price it will sell for. BDC lists market conditions, the buyer’s strategic interests, due diligence, the availability of financing, the seller’s eagerness and the seller’s post-transaction involvement as factors that can affect the final price. BDC notes that a strategic buyer will often pay more because they see synergies, so a regional pet-supply banner or a grooming-and-boarding operator may value the same store differently from an individual buyer. Treat any range you see as general illustration, not an appraisal of your store.