Bookstore

Location: Provo, UT

Description:

This is an analysis for purchasing a bookstore in Provo, UT. We are assuming that there are 34,000 student enrolled at BYU and that we will be able to get 8% of them to come to our storefront and 5% of them to purchase from our website.  There are forty-one bookstores in the Provo area, so we feel we will be able to get 8% of the students to our store.

We are forecasting that our sales will go down by 4% in stores, but our online sales will increase by 6%. This is due to a trend where students are looking for better deals online. 

Our average sale price per book in the storefront is $45, going up by 5% each year after that. That is a national average for textbooks.  Students looking for bargains generally go to the internet to see what deals they can get, so our online average book sale will be competitively priced at $35 our first year and going up by 2% each year after that.

Where our books are not perishable and have a long shelf life, our days in inventory will be 180 days and will remain a constant 180 days every year. We are keeping in mind that some books go out of date after a year or so.

Our average collection and payables period on internet sales and COGS  is 30 days. Cost of Goods Sold is 12% of total sales from the store as well as online sales. Our marketing expense is 7% of total sales.

We have a merchant account expense that is 1.7% of all gross sales, and we have an internet expense of 1.5% of internet sales each year. We assumed that general and administrative expense would be 10% of total sales. Utilities will be a fixed expense not based on sales. The total for year one is $1,424.88, based on a Provo average of $118 in utilities a month for storefronts.  Utilities will go up by 3% each year after year one. 

Our store building and rent expense is based on the average cost per square foot for commercial properties in Provo. The cost per square foot is $15 and we also included other maintenance costs in to the rent for a total of $14,475 each year. We are assuming zero depreciation because we are not buying the building. We are renting just like the previous owners of Bucks 4 Books.

The company is in the 25% tax bracket and we are forecasting the tax bracket will stay constant over the next several years. 

We were assuming that we could provide $15,000 of our own equity to buy the company but would need to take out a small business loan of  $40,000 for other expenses. The loan would be financed over 30 years with a 7% interest rate. The company needs to have a minimum cash balance of $5,000 to cover the register and other day to day business expenses. 

For the perpetuity calculation we assumed a growth rate of 1.5% for every period in the future.

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