Let’s say the bookstore anticipates selling 7 copies of a book per week, or approximately 1 per day. Some days, 2 copies are sold, but never more than 9 books in any week and never more than 4 books in 3 days. Let’s also say that books can be printed and delivered in 3 days, which is nearly impossible with traditional printing but simple with POD. Then, using the Kanban system, when only 4 books are in inventory (the maximum that will be sold between the time of the order and the time of the delivery), the company places an order for another 9 books. This way, just when the inventory has no more books from the previous order, the next order arrives.
Figure out what the seller’s true discretionary cash flow is: Take the owner’s salary, add back anything a new owner may not spend money on yearly (these are called add backs) like a car lease, a lawsuit, use of a big CPA firm, health insurance for the owner and his kid etc. That resulting number is the true cash flow of the business. That number can be multiplied from 1 through 6 times to get your asking price or value of the business. The scale of 1-6 is mostly proportionate to the age of business and the time left on premises lease. If the business is only two years old, then the price should reflect the lower end of the spectrum and vice versa.
A good way to do a visual valuation is to watch the day to day operations and count the customers daily, foot and vehicle traffic over at least a month’s time. Yes, count. Sit inside the store but don’t be obvious. Observe and count! You will become a ‘regular’. This will also give you the opportunity to not only see the customer flow but also get an approximate of what the actual sales are. Sit close enough to hear what customers order and keep a generic tally. That will give you a little more vision of what IS reality.
She’s been spreading the news a little at a time and has been gratified by the supportive responses, encouraging her to keep the business going in another location with lower overhead.