Selling a business is never easy, but some businesses are easier to sell than others. It is relatively easy to sell a business that has a long history of generating profits every year. It is harder to sell a business whose sales and profits are erratic and unpredictable.
Though we could have chosen any type of niche business to discuss, to illustrate some factors that go into demand, let's discuss an extremely difficult to sell business - an art gallery that sells fine art.
A business appraisal for an art gallery must take into account the unique characteristics that add to and detract from its value. Although the list shown below is not complete, it does offer some insight into several factors to be considered when doing a valuation of a company.
The barriers to entry in this type of business are low. You don't need to buy expensive equipment, inventory costs are low, and you don't even have to be an accomplished artist to own a gallery. It does not take a great deal of capital to open a new art gallery and you will usually find a number of art galleries located within a few blocks, or maybe a few miles, of each other. While having numerous competitors might not be a positive in some industries, it is actually advantageous for owners of art galleries. Having numerous galleries in a small geographic area attracts local art lovers as well as art lovers who live many miles away. When more people browse through your gallery every day, you make more sales. In the art gallery business, business appraisals need to factor in the competition.
Another component for valuing an art gallery is its location. A prime location can be along the main drag or anywhere there is heavy foot traffic. Art galleries do best in upscale neighborhoods sprinkled with boutiques, bookstores, antique shops, and other art galleries. A good location adds value and makes selling a business, any business, easier to do.
If you own the building that houses your art gallery and include it in the sale price, you have a substantial asset that may be in demand. If you are leasing the space for your art gallery, and the lease is transferrable, the lease could be valuable. The number of years remaining on the lease, the monthly rent, and the availability of other spaces to rent, will all help determine the lease's value.
Most art that is sold in art galleries is not purchased by the gallery owner. It is usually acquired on consignment . However, some galleries do purchase and own the art they display for sale. A business valuation should account for the art that is included in the sale of the business.
List of Artists Represented
Galleries that have agreements to represent artists whose works are in demand can command a higher selling price if those artists agree to remain in the gallery after it changes ownership. The number of artists represented is not as important as the popularity (artists whose art sells) in determining the value added to the overall value of the gallery.
Health of the Economy
Art galleries prosper in good economic times, but do very poorly when people are worried about losing their jobs and paying their bills. You have to buy food and clothes, but you don't have to buy art. When consumer confidence is high and they have a large amount of discretionary income they buy art. It is important to realize that a company valuation can vary widely depending upon the current state of the economy.
Selling a business that sells fine art can be an emotional experience. Most gallery owners also sell the art they create and that personal involvement makes it hard to find a price at which they are willing to sell their business. The best way to do these types of business valuations is to hire a professional business appraiser who will give you an unbiased and objective opinion of what your art gallery is really worth.