Share This Info:  

Buy Smoke Shops With An Earnings Stream: Answers To Buyers Questions


Buying A Smoke Shop Answers

Some entrepreneurs want to buy smoke shops because they understand that even with the pressures for people to stop smoking, there is a huge market of Californians who will continue to purchase cigarettes, cigars, lighters and other items that support the habit. And there are thousands of people all over the state who enjoy an occasional smoke, though it's not a compelling habit, and they plan to continue shopping for their tobacco product of choice.

One way to help potential buyers understand this business is by offering a review of frequently asked questions posed by those who may want to buy smoke shops. Answers to those questions include:

1. QUESTION: How do smoke shop owners compete with grocery, liquor and convenience stores that seem to be the logical place to buy smokes? The more general retailers that also might carry tobacco products are more common and easier to find than smoke shops dedicated to cigarette and cigar sales.  And people often are already in those larger stores to buy other, non-tobacco items. Wouldn't they just add a pack of Marlboros or carton of Camels to their other purchases?

Answer: It's true that a large portion of tobacco sales take place in general merchandise retail businesses that also sell some products for smokers. But many smoke shop customers much prefer shopping for their nicotine goods at a place where they can feel comfortable about what they purchase. It's a more pleasant way for many people to shop than when asking for what they want in an environment where they may be surrounded by disapproving people. And many cigarette and cigar smokers who seek out designated smoke shops are looking for more information about their hobby, and what's available to satisfy it.  Smoke shops can offer smoking lounges, if permitted by local ordinances, and often carry gift and novelty items that won't be found at general retail stores.

2. QUESTION:  What is the profit margin on cigarette sales? Aren't cigarette sellers receiving less gross profit (sale price less cost of goods sold) than they used to because of taxes and price competition?

Answer: This is an issue more complex than a buyer might expect when inquiring about gross profit. Many smoke shop owners would agree that their margins have decreased over the past few years from about twelve percent to seven or eight percent. That is a substantial decrease. At the same time, many people in this business receive incentives from the tobacco companies which can result in increased margins or can decrease some of the retailer's marketing costs. Electronic signs, floor displays and free gift items are examples of supplier incentives.

3. QUESTION: Is it better to purchase a smoke shop that has other income streams, like sales of gift items, roll-you-own kits and a selection of lighters, or is the company that focuses on just the essential tobacco products likely to be more successful and profitable?

Answer: That depends on the store, how it promotes what it offers for sale, and the desires of its customers. As a general rule, the shop that sells cigars, imported cigarette brands, chewing tobacco, electronic cigarettes and other, related products, will attract more customers and will generate more sales.

4. QUESTION: Speaking of electronic cigarettes, are they making an impact on the market?

Answer: Absolutely. the cigarettes that deliver nicotine in a burst of steam rather than in the smoke, are becoming more and more popular. Some retailers report that electronic smokes now account for about 30% of their business.

5. QUESTION: How secure are leases for owners of smoke shops compared to those held by owners of other types of businesses? How can a buyer avoid being ultimately pushed out of a retail district if smoking is unpopular among the other merchants?

Answer:  Even with a few years remaining on the lease of a smoke shop for sale, prospective buyers for the business are advised to meet with the property owner, before committing to a deal. I've recently heard stories about landlords who were persuaded by other tenants to deny a smoke shop lease renewal, even though the lease holder was a responsible tenant. The neighboring business owners were pushing their own anti-smoking agendas. One strategy in meeting with the lessor is to stress the benefit of having specialty stores, such as a smoke shop, in a center with other retailers, because specialty companies can attract customers who might not ordinarily shop at the area, and whose patronage can benefit the other, nearby retailers. That is the case whether the shopping area is a large regional mall or a small strip center with just a few businesses. Ask for a lease extension or option to renew if there are just a few-under five-years remaining on the lease.

6. QUESTION: What are typical cost factors in a smoke shop and how much discretionary earnings can an owner expect to collect?

Answer: Naturally, the percentage of income in a smoke shop business that is allocated to each of the operating cost categories will vary depending on the product mix offered by the business and whether the owner is a working participant in daily operations or is absentee. Cost of goods sold might represent as high as fifty percent of gross revenues if much of sales volume involves traditional smoking products. Some smoke shops that push gift items, pipes and smoking accessories can achieve levels of sales volume that are closer to forty percent of gross.

The occupancy cost (rent, utilities, insurance, maintenance)--should not exceed ten percent of gross revenues if an owner wants to show a substantial profit. Payroll costs can run from 18% to 22%, perhaps a little higher if owner is absentee. The other expense category, is general overhead, which applies to a number of expenses such as promotional costs, bank fees and professional (legal, accounting, IT) service fees. Most effective operators keep those costs under seven percent of annual gross.

The remaining figure, the owner's discretionary earnings, might average 15% to 20%, although a number of smoke shops are able to show discretionary income approaching 30%. That's particularly the case if the owner is at work during most of the hours of operation, with staff of just a few part-time workers.

7. QUESTION: What's the right price to pay for a profitable smoke shop?

Answer: The key determinate of value is discretionary earnings collected by the owner. The industry rule of thumb for valuation starts with a figure of 1.5 times the owner's average annual discretionary earnings. A higher multiple might be warranted if there is substantial equipment involved, such as a walk-in cigar humidor, while a business that continues to struggle might not bring a price more than the equivalent of a year's average owner adjusted income.

A limited number of California's small business purchasers want to buy smoke shops. Part of the reason this type of business is not more popular is because of personal concerns about the health risks related to the use of nicotine related products. And some buyers simply have no interest in the business, having quit smoking or having never smoked. For buyers of this type of business, whether or not they are smokers, this could be an opportunity to recover the investment in a matter of several months, rather than years.

More Info Regarding  How To Buy & Sell California Smoke Shops:

Smoke Shops For Sale & Wanted To Buy In California - Requests:

http://www.bizben.com/business-for-sale/smoke-shops-for-sale-type-california-ca.php

Business Brokers, Agents Who Assist With Buying And Selling Smoke Shops:

http://www.bizben.com/business-brokers/smoke-shops-business-brokers.php

Smoke Shop Resources To Assist You With Consulting, Financing, Due Diligence:

http://www.bizben.com/business-resources/smoke-shops-resources-california-ca.php

Detailed Articles And Blog Posts Regarding Buying And Selling Smoke Shop Businesses:

http://www.bizben.com/blog/smoke-shops-blog-posts.php

One last thing . . .

Let me know if you need any assistance with either buying, searching for, or sell a California smoke shop - I will point you in the right direction. If you have a specific question about buying and selling a smoke shop contact me and I will get an answer for you.

Categories: BizBen Blog Contributor, Buying A Business, How To Buy A Business

Contributor:

Peter Siegel, MBA
Areas Served: All Of California
Phone:  925-785-3118 Cell, 925-785-3118 Text
Founder & President Of BizBen.com (since 1994) & BizBenNetwork.com. I am the Lead Facilitator for the ProSell & ProBuy Programs on both websites. I consult daily with buyers, sellers, and intermediaries daily about buying and selling businesses. Call 925-785-3118.






  Helpful Resources To Assist In Selling And Buying California Businesses
Rob Hartman: Business Broker, SF Bay Area

Business brokerage services in the SF Bay Area. I bring skill, integrity and energy to all of my clients and our projects. I'm accustomed to working with a wide variety of clients and their businesses; large or small, simple or highly complex. Get a free consultation by phoning 650-279-3097.

Ryan Clark, Business Broker: Southern California

The Veld Group provides a refreshing approach to Business Brokerage, Mergers & Acquisitions and Business Consulting and Valuations. From Your Street to Wall Street, we cater to Main Street Businesses as well as more complex Strategic Firms and Start-Ups. Phone Ryan, Business Broker at 310-652-8353.

Brad Steinberg, Business Broker: Laundromat Specialist

PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.

Janet Carrera: Escrow & Bulk Sale Service - SF Bay Area

Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.

Bob Hughes, Business Broker: Coachella Valley Area

Bob Hughes is a business broker & is President of Hughes Properties. Hughes has a wide variety of entrepreneurial experience with the personal ownership & sale of numerous businesses, and has sold over 200 small & mid-sized businesses in the Riverside County marketplace. Call Bob at 760-323-8311.

Christina Lazuric CBI CBB, Business Broker: Orange County

Premier Brokerage for Selling Orange County Service Based Businesses since 2005! C.B.B. provides a step by step approach to Business Brokerage, Mergers & Acquisitions, Business Consulting and Valuations. We work on creating the best possible presentation for your business! Call today 949-257-7823.

Lee Petsas, Business Broker - Southern California Area

Lee Petsas has been selling businesses with UBI Business Brokers in Southern CA since 1981. In 1999 he became the Owner and Broker for UBI. He has been approved multiple times by Courts as an Expert Witness in the area of Business Valuations.

Jack Oh, Business Broker: LA, Orange Counties

Business broker and real estate services in the Los Angeles and Orange County areas. 10 years experience with great negotiating skills. To sell a business or buy a business in the LA or Orange County Areas phone Jack and his team at 562-787-4989.


  Related Articles, Events, Blog Posts, Discussions, Videos, Interviews
Unreported Income: Should Sellers Disclose Unreported Cash To Buyers?

Should owners who offer a business for sale reveal to prospective buyers any income that is not recorded in the books? This is a controversial topic with arguments both for and against. Most business sales intermediaries believe if you don't pay tax on it, you can't claim it. Some sellers disagree.

Before Buying A California Business, 10 Questions You Should Ask Yourself

Before buying a business, all serious business buyers should ask themselves some key questions about possible buying a small California business, franchise, or opportunity - from Peter Siegel, MBA (Business Purchase Financing Expert, ProBuy & ProSell Program Advisor with BizBen) at 925-785-3118.

Financing A Business Purchase With Limited Or No Real Estate Collateral

In my experience working with the "right banks and financial institutions" repayment ability sometimes overrules collateral pledged by someone needing financing for a business purchase or a down payment. Peter Siegel, MBA (Business Purchase Financing Expert) at 925-785-3118 shares his experience.

The Bottomline: What Exactly Is Adjusted Net Income, SDC, And Cash Flow?

The use of add backs & adjusted net income is common among sellers of businesses when showing their financial information/performance. But buyers are cautioned to review financials and tax returns/documents closely. Peter Siegel, MBA with BizBen (ProBuy & ProSell Advisor, Lead Facilitator) explains.

Selling My Small Business: What Items Should I Have Ready To Be Successful?

When selling a small to mid-sized business, owners should have their paperwork and financial information ready to go! They should also have a short business plan of past history, current operations, and potential for the future. In this BizBen Discussion several advisors and intermediaries weigh in.

Absentee Run Businesses - A Myth Or Reality When Buying A Small CA Business?

Some buyers search for an absentee business to own, wanting to collect profits generated by a successful enterprise without having to stand at the sales counter or cash register, without having to cook, operate equipment or talk to customers. Here's some insight about finding such a business.

How Many Months Should I List My Business With A Business Broker?

It's important to remember that selling a business takes time. Unlike selling a house, which can be sold relatively fast, a business can take up to six months to a year to sell. Joe Ranieri (Orange County Business Broker) at 714-292-5448 explores this topic from a Business Brokers perspective.

5 Myths About Selling A California Business: Best Tips For Sellers & Brokers

Peter Siegel, MBA (at 925-785-3118) - BizBen Director discusses myths associated with the process of selling a business and some of them can actually cause deals to fall through. Don't let your sale be comprised, be aware of these common misconceptions related to the process of selling a business.


Escrow Services Diane Boudreau-Tschetter
Joe Ranieri Orange County Business Broker
Harry Sidhu SF Bay Area
Rob Harman Business Broker SF Bay Area
Facebook
Twitter
Linkedin
Vlogs and Podcasts
BizBen ProBuy Program
BizBen Blogs And Articles
BizBen ProSell Program
California Educational Events Buying And Selling Businesses
New Postings Reports On BizBen Sign Up

BizBen - Where California Deals Get Done! 888-212-4747
7172 Regional Street #364 · Dublin, CA. 94568
BizBen · Copyright © 1994 - 2019, All Rights Reserved



Clost Login


Please confirm your registration by clicking the link we've sent to .

If you can't see it, please check your junk mail folder.

If you have any problems registering, or need assistance with your new BizBen User Account please phone BizBen Customer Support at 888-212-4747.



First Name:*
Last Name:*
Email Address:*
Confirm Email:*
Create Password:*
Confirm Password:*
Phone:
(   
 


You Are A:
Individual
 
Intermediary
 

Email Address:
Password:
 

500 New & Refreshed Detailed Postings Daily
Over 2500 Resources Available On BizBen
Since 1994. Where California Deals Get Done!
How To Determine Whether The Buyer For Your Business For Sale Is Sincere...
Read More News
What Should I Do If Other Buyers Are Trying To Buy The Same Business As ...
Read More News