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BRECKENRIDGE, CO—"What's my business worth?" It's a question that virtually all bicycle shop owners ask themselves, yet there's no easy answer. Unlike the sale of a residential property, where recent comparable transactions are usually easy to find, the sale of a retail bicycle shop can be tricky business.

In interviewing a number of experts on the topic, as well as bike shop owners who had purchased their businesses from previous proprietors, it's clear there's no certain formula for finding a shop's overall worth.

A number of common rules-of-thumb do exist for such valuations and resulting sale prices. One states that a business is worth one year's gross sales. Another benchmark says that worth is two times earnings plus the value of inventory—this for a bike shop that gets about 2.5 inventory turns per year. But, such numbers serve as a mere starting point.

"The important thing to consider is 'What are you selling or buying?'" said Tom Beckett, a certified business intermediary based in Breckenridge, Colorado. "Another way to think about it is, 'What can't be created if you instead started a new business from scratch?'"

Beckett has plenty of industry-specific knowledge to back-up his reasoning. For 10 years, he owned and ran the Sports Garage in Boulder, Colorado, before selling it in 2004. Now, with a Colorado real estate license, he has brokered the sale of about half dozen bike/ski/outdoor shops.

Some deals Beckett has seen have gone for more than the two-times-earnings-plus-inventory rule, and others for less. Often, it's other intangibles—often hard to quantify in dollar terms—that can affect the value of the business.

"A business is a three-dimensional entity, so there are other value drivers in finding its worth," said Beckett. "In the recreation industry, it could be higher than average margins, or a great staff. Or maybe strong affiliation to a good, established event. Those things can let you market the business at a premium."

Numerous other factors could add value, like consistent revenue from a fleet of rental bikes. While proximity to colleges, beaches or a cycling destination should be reflected in annual sales numbers, these local strengths can further bolster value by insuring a long-term supply of tourists and fresh customers.

Carrying strong brands is an obvious boon for a business, but there's no guarantee that a supplier will continue to sell to a new owner. "As part of a buyer's due diligence, they'll need to meet with vendors. Almost all the time, the relationship will transfer," said Beckett. "The culture of the business is important to vendors, but ultimately, vendors want someone who represents product well and pays on time."

Another bit of extra worth can lie with legacy—a name and storefront that's remained in the same location for generations and become a local institution. On the other hand, longevity can be a liability: In 2009, Gamache Cyclery in Fitchburg, Massachusetts was unable to find a buyer and closed after 95 years in business, even with top lines like Trek and Giant.

Brad Hill of Goodale's Bike Shop, in New Hampshire, considered purchasing Gamache's, but found that much of the remaining inventory was old and of low value. In addition, the once-vibrant milltown of Fitchburg has been on a longterm economic slide.

"Years ago, inventory was like money in the bank," said Hill. "Now, anything around for more than 12 to 24 months starts to lose value, especially when distributors blow old stock out at big discounts."

Long-established business owners are also likely to be less concerned with debt compared to a new buyer. This adds another angle to determining a selling price. "Revenue is often not a good basis for valuation," said Beckett. "What it may come down to is the buyer's cash flow. A buyer might be financing a majority of the purchase price through an SBA loan. Servicing that debt has to be a consideration in the purchase price, whereas a longtime-owner wouldn't have that kind of debt."

While all business owners have to respect their bottom line, many retailers are driven by other motivations. In the late 1990s, Doug and Jan Tanner were looking to buy a shop in New England. A friend of theirs wanted to sell his Connecticut shop. "I sat down with my CPA. He said, 'What, are you crazy? Put your money into something else,'" Doug Tanner said.

"The CPAs are cut and dried, they just look at the numbers. That's their job," Tanner added. "But that's not the only thing to look at. Some people are numbers-driven, but for others, it's a lifestyle question."

Several years later, the shop owner lowered his price, and sales had gone up. The Tanners made the purchase, renaming the business Benidorm Bikes. The shop has thrived in their 10 years of ownership. And the Tanners are still close with the friend they bought from. "He doesn't own a shop, so he rides a lot more than I do," quipped Tanner.

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You never really believe it until it happens to you, but I have just learned firsthand that small business lending in the United States is in big trouble.

My partner and I own a small food manufacturing and distribution business. Since we acquired the business in March 2009, we have added seven jobs to our work force and have managed to grow sales by over 20% in a down economy.

We put together a business plan that clearly and compellingly spells out how an infusion of capital would help us to acquire equipment, create additional jobs and achieve higher levels of profitability. The head of a regional Small Business Development Center (an SBA program) praised the plan as one of the best he had ever seen. When asked if we would get the loan, his response was "If you don't, no one will."

Our local banker awarded our plan similar praise, but he rejected us for the loan based upon our company's tight cash flow. The fact that we have reinvested all of our profits into our growth was ignored. He also apparently ignored the parts of the plan that showed savings in labor, material purchases and delivery costs. Our prior experience in business ownership and the food industry were equally valueless.

In spite of our company's growth and the increased profits shown by the business plan, this rejection was exactly what I expected from the bank. However, based upon our personal credit, collateral and alternate income sources, I still thought we would get loan approval.

My partner and I both have superb credit, with scores between 750 and 800. Our personal assets, including home equity and investment real estate, are five times the amount we were trying to borrow. We also have personal cash reserves of over four times the requested loan amount. As the cherry on the sundae, my partner's spouse earns substantially more than a six-figure income, which would provide discretionary income more than sufficient to make our loan payments. I also receive additional income from another business I own. Given our personal collateral and alternate income sources, the risk to the bank was virtually zero, yet no loan was made.

Small businesses plant the seeds of our economy. Without fertile soil, and sufficient water and sun, plants cannot grow and there is no harvest. The proverbial "fat cats," who are hoarding the resources of soil, water and sun, will be the death of not only small business, but the entire economy. Until the lending industry achieves some sanity, there is little hope that our economy will thrive, not to mention survive. Things cannot and will not improve until the banks and the government give small businesses like ours the chance to grow and contribute to the economy.