Ivan Barkhorn, a consultant to ABA on strategic matters and a partner in Meridian Strategy Group.
On Saturday, May 31, at this year's BookExpo America, approximately 60 bookstore owners, looking towards the future, came together at a session that Ivan Barkhorn, a consultant to ABA on strategic matters and a partner in Meridian Strategy Group, described as Succession Planning II, or "Succession Planning Reloaded." The session, which focused on different methods of valuing a bookstore, built upon issues discussed at a succession-planning seminar held at BEA 2002 in New York City. That first session focused on developing a thorough sales document, choosing the best succession option, knowing your ideal buyers, and making an orderly transition, among other things.
At Succession Planning II, Barkhorn used a PowerPoint presentation to examine four methods of valuing a bookstore: the Market Approach, "Horse Trading," Cash Flow (earnings-based), and Excess Earnings (asset- and earnings-based). The PowerPoint presentation can be viewed in PDF format by clicking here.
Barkhorn began his presentation by providing data for two imaginary bookstores that he created to illustrate different valuation methods: Cora's Corner, a small, seven-year-old store on the Jersey shore with a large seasonal business; and Barney's Booksmith, a mid-size, college-town store in Austin, Texas, with strong customer resistance to chains and a 22-year history. To arrive at valuations for each store, the following financial figures were provided: Revenues, Net inventory cost; Other assets; Owner's comp; EBIT (earnings before interest and taxes); Pre-tax capital cost; and Projected EBIT growth.
While a few pros and cons of both the Market and the "Horse Trading" approaches were given, the presentation focused on the Cash Flow and Excess Earnings methods, which Barkhorn described as providing the most accurate and useful information. He examined these two methods and provided valuation outcomes for each, using the two imaginary bookstores and an example created by combining the figures of three actual bookstores. The sample results are provided on pages 16 - 22 of the PowerPoint presentation.
For booksellers wishing "to become a valuation expert," Barkhorn recommended the title Business Valuation: Body of Knowledge by Shannon P. Pratt (Wiley).
Barkhorn was joined at the session by Kevin Ryan, who, with two other partners, is assuming ownership of Green Apple Books in San Francisco over a 10-year period. Ryan discussed aspects of an employee purchase of a bookstore. Look for more on Succession Planning in next week's Bookselling This Week, when BTW talks to six new independent bookstore owners. --Rosemary Hawkins