How much should a bike shop cost?

[clerkkent]

How much should a bike shop cost, not counting inventory and real estate? A shop in town wants $50,000 for 'tools & fixtures', inventory would be extra, and rent is to be arranged with landlord. Right off the bat, I'm thinking there is an extra zero in the price tag, then running the numbers, $5000 would get me an entire new set of tools and fixtures, plus some spending money.

oh, and the kicker is that there is another bike shop right across the street.

 

[MERK]

It would really depend on how much money the shop was bringing in. You`re buying the business, including the location and clientele...hopefully! If it`s a well established, booming shop with lots of customers, 50 grand might be a great deal. If it`s relatively new with a small client base, you`d be better off to start fresh...and save yer` dough!

 

[outskirtscustoms]

Personally as far as tools go I know you don't need much to work on bikes, a trip to harbor freight with $50 and a few specialty tools out of the catalog (wheel truing stand, crank arm puller, bearing press, sprocket removal tools, exc.) As far as the business goes I hate to crush your dreams but you have to really ask yourself if you can make a profit from the business, knowing most people can buy a bike at Walmart for under $100 unless you've got a large clientele that comes with the business or are in a big booming city right on the strip I don't know how most bike shops even make enough money to cover the rent. Although I have made some decent money working on bikes myself in my free time, but I don't have the overhead.

If it's really what you want to do though I say go for it. I know it'd be a dream come true for a lot of us here. I personally would love it.

 

[clerkkent]

I personally wouldn't want a stand alone bicycle shop, as the costs (particularly in California) make it cost prohibitive. I know the bike shops in my county need to sell those $600- $1000 bikes to pay the rent and overhead, and the profit comes from service and accessories. Having to fling $1000 bicycles to survive would take the joy out of bicycling for me.

I've been watching some of those 'distressed business/restaurant' shows on cable, where some naive people pay too much for an established business that sinks fast, and the host asks them how much they paid for the business, and they'll say something along the lines of "$200,000 .. our entire life savings!" and the host comes back with "There is barely $10,000 worth of equipment here". I think I saw one real bad one where the weasel who sold the unwitting couple the business then took the money and built up a new business down the street since they never had a non-compete clause in the sale contract.... the money they paid him for all his used equipment and stuff he was able to go out and buy entirely new equipment and stuff.


In this particular case, one is paying $50K for tools and 'goodwill', and my back of napkin calculation says that I can drop $2000 on Park Tools and a laptop to have a fully stocked facility, and I doubt the 'goodwill' is worth $48K.

 

[Tailwinds]

It would really depend on how much money the shop was bringing in. You`re buying the business, including the location and clientele...hopefully! If it`s a well established, booming shop with lots of customers, 50 grand might be a great deal. If it`s relatively new with a small client base, you`d be better off to start fresh...and save yer` dough!

Merk pretty much hit it on the head here....
You're right to first break it down to the nuts and bolts of things, which is a very simple calculation, but beyond that, well, that's where things get tricky. It starts with any person serious about buying the business taking a look at their books, this will tell the tale. And no, when we're talking about selling a business here that information is NOT private record, they're obligated to crack the books if they're at ALL interested in selling. A record of the sales and expenditures will quickly expose if there really is any tangible business there.

But the fact that there is another bike shop RIGHT across the street is an instant red flag for me. Now I know SF can seem a bit crowded sometimes but there is still plenty of room for a man to carve out a small niche without being utterly surrounded by competition.

Also, the upside of buying a business is that you're also buying their existing clientele, but you're also buying their reputation and their standing in the community, it would really need to be spotless.

 

[jerrykr]

If you are considering buying the business:

Hire a trusted accountant for about 2 days or what ever it takes, and have them go over the shop's "books" for as many years back as they can produce.

You have already estimated what a set of tools is going to cost.

Detail out what store fixtures will cost vs what they are asking vs what they have for sale.

If they have any employees, try to talk privately to get the "skinny" about what is happening with the shop. Is it a great place that customers love or a disaster about to fail?

Detail out what agreements they have with bike wholesalers, what brands, how much brand exclusivivity vs the bike shop across the street.

I have a feeling that this is just the tip of the iceberg.

Good luck with your dream.
.

 

[c.p.odom]

When buying "Goodwill" you are paying forward for years of net profit. This is normally two years. If the accounting shows that this shop nets $24,000 per year this would be right. Still that is a lot of work and investment to live at the poverty level.

 

[TornadoDave2]

If it were me... I probably would not buy it, even if the $50k for tools was right. Starting a bike shop is EASY, and the "good will" or "established customer base" in that particular market is very fickle. Typically, bike folks tend to deal with the people they like and once word gets out that hte original owner has sold out, all of that "established customer base" goes away. In my view, it's not worth anything.

Also..... when purchasing an established business, you are also buying the BAD WILL from all of the customers that the previous owner may have screwed through the years. PLUS when you buy an existing shop's inventory you typically get all of the left-over stuff that nobody wanted to buy, like last year's model, or the odd colors. The real value of all that is dubious, at best.

Instead, I'd use that $50k, and what you were going to spend on his inventory, to establish my own shop. Rents and so forth will be the same whether you buy and existing business or not...... and that $50k will go a long way towards advertising. THEN you can start fresh, and do it right..... right from the very beginning.

 

[outskirtscustoms]

I agree, I'd start fresh and build your reputation on your own rather than paying out the nose to take over someone else's shop that he is wanting out of. If it's been really profitable why does he wish to sell it? :?

 

[laguna454]

What no one here is discussing is the manufacturers and manufacturers reps. that sell to that particular shop. One cannot just open a business and have accounts to buy product with. Also, most mfgrs will only sell to so many shops in an area to show loyalty. You may sell Trek while the guy across the street sells Specialized. You may sell SRAM while the other sells Shimano. A new shop will get neither account.

Just because there is another similar business across the street doesn't make it a bad location. The other business will draw additional clients to the area to shop for product. You will get some of his business and he will get some of yours but the client will go to that location because if one shop doesn't have something the other most certainly will. Thus, 2 shops together will potentially draw more clients than 2 shops in separate areas. This is apparent in all areas of business both retail and wholesale.

 

[outskirtscustoms]

If I was in the bicycle shop business I would not worry about reps that sell to a certain shop or whatever, With internet anything is obtainable in any quantity. Many retailers online will even give you a better discount the more you order, so staying stocked up is as easy as point, click, ship. Also this would give you the edge being able to carry BOTH brands where others specialize in only one. Also this would create the diversity to offer something in every price range and get more customers rather than catering only to the higher income people. Furthermore you can also increase revenue by setting up a website that offers parts and supplies (at a fraction higher than you have to pay for them) and you can make money without having to touch the products, and pull money from pockets of people who are not even in the area. Also the web is a great way to advertize and get your name out there and let people know what your shop is all about. Think outside the box and you'll do fine. :wink:

 

[laguna454]

If someone or some business sells something that they are not an authorized dealer for then the end user will not have a warranty. You would have to buy bulk old stock and resell it at a deep discount just to make a profit as not many people will pay a regular price for bikes or parts without a warranty. The store across the street and across town will destroy you if you are not legitimate. And the manufacturers and reps will also destroy you.

You also may be legally liable for the product as a re-seller. Are you ready to be named in a lawsuit when little Timmy falls off his bike or when the adult cracks his carbon forks or when the brakes fail or the person suing claims the brakes failed ? The manufacturer will state that you are not an authorized seller and are not qualified to assemble their bikes or install their product or give advise on their product. You will not be able to mount a defense against their law departments.

 

[outskirtscustoms]

Hmmmm, interesting. Never thought of that side of it. I thought if the part was new you'd just pass the manufacture's warranty on to the customer.

 

[Tailwinds]

You also may be legally liable for the product as a re-seller. Are you ready to be named in a lawsuit when little Timmy falls off his bike or when the adult cracks his carbon forks or when the brakes fail or the person suing claims the brakes failed ? The manufacturer will state that you are not an authorized seller and are not qualified to assemble their bikes or install their product or give advise on their product. You will not be able to mount a defense against their law departments.

^ THIS is a major issue, and one that a lot of guys here haven't considered thoroughly enough.
Are you fixing bikes for other people and money is exchanging hands? Buying, improving, and then reselling bikes locally? Let's all be on the same page here, MANY people on RatRod fit into this category. If you're not plunking down that $200-$400 annually for a sound liability policy you're really playing with fire.

 

[outskirtscustoms]

I sell bikes all the time, Never had a call back, complaint, or anyone having anything bad to say about me. Outside of one guy who called back with a flat tire. If I did I'd just say number one it's a used bicycle, and number two how can I be certain the customer didn't abuse or mis-use the bicycle to cause it to fail. I also would offer to fix the bike free of charge (within reason). Running a legit shop is more complicated than I thought. I just don't see the money in it. May be different in your city but around here it's tough making a dime off fixing bikes.

 

[HotRodRob]

I just saw a bike shop in Toronto for sale ( where everything cost more) and they were asking $149900. Not sure if all the tools came with it for that price, I would hope so.

 

[X-RAY]

Unfortunatly, many times your hobby isnt fun anymore when it becomes a career.

 

[HotRodRob]

Unfortunatly, many times your hobby isnt fun anymore when it becomes a career.

I agree.