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Issue 3
| Buying a Newsagency 2 |
BUYING A NEWSAGENCY – 2
From the last newsletter you will have found out all about how the business operates and whether you are comfortable with the day to day aspects of running the business. How did you do that? You asked the owner open ended questions.
Now you are at the stage of finding out how much will you have to invest so that you can be the proud new owner! How is this done?
Talk to us and tell us what your thoughts and capabilities are financially and we will endeavour to arrange a mutually beneficial result between you, your financier and ultimately the newsagent.
But hold on – how do you know if the figures are correct and that you are going to get what you pay for? Most of you would be ringing your accountant right now to do just that and yet we are saying make an offer first.
Why is this so?
Performing a “due diligence” report on a newsagency often takes several weeks and can cost around $3,000 – so if this is the one that you are really keen on and there are other buyers wanting it, waiting a few weeks may mean you will miss out being considered by the vendor. Therefore you should make your offer based on the information provided at the same time remembering that this is just an “offer”, it does not bind you into buying the business even if the vendor accepts it.
When the offer is accepted that is the time to check the figures and if they are not what you expected then you can withdraw and start looking again or you can use this report to open discussions which hopefully lead to a satisfactory result for you and the newsagent.
Obviously, you do not want to pay too much and likewise the owner does not want to “give it away” so there maybe a period of discussion in which both sides, through the broker, try to convince the other that they couldn’t possibly raise another dollar or couldn’t reduce the price by a single dollar.
What the final price is, is determined by a large number of variables – nothing as simple as a formula such as the net profit times 1.8 or 3 – those variables include:
Location, Competition, Profitability, Hours, Staffing, Deliveries, Product Mix, Number of Days Open, Correct Financial Figures, Computerised POS & Accounting Systems, Condition of Shopfit, Condition & Mix of Stock, Lotto Turnover, Length & Term of Lease, Supply and Demand – to name a few!
Quite often we have buyers that tell us that the shop is way overpriced when in reality it is way outside their price range. Some shops maybe overpriced but unless you have done your newsagency safari and made the comparisons you will not be in a position to know where they are positioned in the current market.
Remember that Goodwill will only be as high as the lowest price acceptable to a seller!
You must also factor in how much more you would be prepared to pay if the choice was between two identical businesses, one was in the next street to your house and the other was an hour’s drive away. What is your time worth and even more importantly, your family’s support and if you have children, the shuttling to and from school and after school care.
As you can see there is a lot more than just multiplying two numbers together.
The main thing is to talk to us and we will be able to provide sufficient information for you to be able to make the right decision about the Goodwill.
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