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Jul 20, 2020If a West Michigan retailer (specializing in make your own cigarettes, cigars, CBD products, glass, accessories and the like) with two, well-located, attractive stores in desirable communities with minimal rent, sane hours, and an annual SDE (seller’s discretionary earnings – the historic cash flow available for a buyer’s salary and to service debt) of $270,000 year after year sounds appealing, read on as this could be the business opportunity for you.

Every year the two stores have combined annual sales exceeding $1,000,000 and have averaged $1,100,000 annually over the past four years. And this with stores that are only open 59 hours per week (10-7 daily; and 12-5 Sundays). A modest expansion of the stores’ hours would seem to present an easy opportunity for increased sales.

With combined annual rent of only $45,000 (just 4% of revenues), this business is poised to continue its excellent financial performance aided by a loyal customer base…one need only spend a few minutes in the stores to pick up the positive vibrations.

After ten successful years, the owner of these businesses (which have been in continuous operation since 2004) has his eye on some non-competitive opportunities which will require him to transition the stores to a new owner. The businesses boast a well-compensated, loyal, full-time general manager who leads a staff of three full-time and three part-time employees which includes full-time assistant managers at each location. The strong team allows the owner to average just 25 hour work weeks.

Let’s talk numbers: the business comes with approximately $115,000 of inventory (at cost) which (a) has an annual turnover rate exceeding 4.0x, and (b) generates a very impressive 52% gross margin. The business is priced at $725,000 which is comprised of 2.25x SDE plus the $115,000 cost basis of inventory. The seller contemplates more than matching $75,000 of buyer cash with a $100,000 seller note, with the balance ($550,000) coming from SBA bank financing which should be readily available for a solid buyer.

The annual SDE of $270,000 is such that there is ample cash flow both to service debt (bank and seller note) and pay the part-time buyer an annual salary (after debt service) exceeding $150,000. An asset sale is contemplated in which the seller retains the cash and A/R (from wholesale accounts that purchase cigars on a regular basis) while retiring all liabilities. The buyer receives the fixed assets (which have a cost basis exceeding $100,000) which include a complete point of sale system that has in-store cameras with cell phone accessibility and brand new attractive display cases. And of course also included is the inventory and the goodwill of the business.

During the Covid-19 shutdown, the businesses developed a new and vibrant direct marketing trade which should bode well for a new owner. Beginning in June, both locations reopened and in store business quickly bounced back to former levels.

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