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Issue 4
| Buying a Newsagency 3 |
BUYING A NEWSAGENCY – 3
In Newsletter #2 we looked at how you actually calculated “Goodwill” and found that it was a lot more involved than just multiplying 2 numbers together to get a magical figure. If you remember, we based this on the net profit as disclosed by the vendor’s figures as shown on the data sheet and these figures had not as yet been verified by you.
Probably the third most asked question (first being “Do you have a newsagency opening only 5 days?” – second is “Do you have one that has no delivery?”) “How do I know if the figures are correct?”
The quick answer is “You don’t” – however it is a very simple exercise to find out. You can get very close to reality having the purchase invoices examined for a 12 month period and after applying the markups and gross profit margins you will very quickly see whether your answer comes in around the stated figures.
In many cases the bank lending you the money for the purchase will require a report by a specialist investigating industry accountant and this is often the main basis on which the bank will make their decision on lending you the money, or not.
This specialist accountant will check through 12 months of purchase records to see what the newsagent has bought as this is an excellent indicator of what the sales would be for that period (remember that if you don’t sell a publication then you return it by the required date and you get your money back).
Taking this a step further, if you add up all the invoices from a particular supplier say, John Fairfax Ltd. and they come to $75,000 then the newsagent would have sold $100,000 worth of papers ( if they had sold more or less then the invoices would have been higher or lower than the $75,000). This in turn means the newsagent would have made $25,000 profit. Newspapers are marked up by 1.33 leading to a gross profit margin of 25%.
The specialist accountant will check all the sales by department and apply the mark ups and margins to arrive at a gross profit; they will check the corresponding financial figures obtained from the Profit & Loss Statement and apply the relevant expenses.
This investigating accountant will also go and visit the shop to see for themselves that the numbers “stack up” and as they are specialists in checking newsagencies can very quickly identify any anomalies.
This will then show an average weekly net profit figure which can then be compared with the data sheet figure you started off with.
This is the most accurate method of checking the figures and depending on the newsagents ability to supply the required paperwork can take from 1 to 4 weeks to get a result.
What about the cost? In comparison to what you are going to pay the State Government in Stamp Duties and the Lottery Transfer Fee – it doesn’t even rate. But seeing as it does cost something then you need to budget around $3,000 for a check on a Capital city based newsagency. If it’s in the country then air fare and accommodation would have to factored in.
It’s very easy to arrange, we can provide you with a panel of the Industry Specialist Accountants names and their firms and then it’s up to you to have a chat to them and see which one you feel the most comfortable with.
Contact us and we will happily answer your questions.
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