I have been contacted by another newsagent this week who is considering taking legal action against the vendor and broker for the newsagency they purchased from and through not so long ago. They think that they have a case based on the financial data presented.
In this case the business was purchased based on sales data and ‘standard’ margins by department. The due diligence was arranged by the broker.
Anyone buying a newsagency should only do so based on audited financial accounts. While this will frustrate some newsagents, it will ensure that you are purchasing the business based on real numbers rather than numbers based on assumptions. Newsagents with nothing to hide will welcome this suggestion.
Buying a business based on profit assumptions made made by ‘standard’ margins is dangerous.
Anyone buying a newsagency should never buy a newsagency based on due diligence organised by the broker. The broker has a conflict of interest. They have a contract to represent the buyer. They are paid a success fee on completion of the sale. Common sense should tell any purchaser to get their own due diligence. A small investment in independent due diligence could be the best investment ever made.
There are plenty of good newsagency businesses on the market. Take your time, do your research and buy well for the future of your business and the future of the channel.
Now is a good time to buy a newsagency, there is upside in the model and there are good opportunities for growth for a proactive business person.
Just like any other business, if people only listen to the seller then more often then not they are going to get the short end of the stick.
Before anyone buys any kind of business ask existing owners about the work/money involved. In our area we have had quiet a few shops up for sale and then after a few months the new owner come in with their eyes hanging out asking for advice but by then it is too late as they are committed, talk to more then one newsagent and ask how hard/easy it is in the area you want to buy.
I would not buy a coffee shop because I have drank in a few and like the idea of coffee, so don’t buy a newsagency because you read mags or have been in a few and think it is easy work.
All points valid, but what is a good agency?
Albeit ‘riskier’ in my experience (with other businesses) I found that people who buy great, well-run businesses/ agencies have no upside.
I fully realise the paradox…
(The decision must still be made on reliable data, but you know what I mean.)
i dont get what you mean…even an unprofitable badly run business with plenty of upside still has to provide reliable data to be able to ascertain a value….it must keep these for tax purposes at least..so any excuse by agents to say i dont have figures is just pure crap and a weak excuse to try and rip off incoming purchasers
Dennis
The interpretation of a good agency could be perceived in a number of ways. Newsagencys come in all sorts of sizes, condition, locations, family or Marketing group run, combined LPO /Supermarket / Newsagents run.
To me buying a good agency would require me to not be greedy and saddle me with excessive debt, it would be not in a shopping centre, it should have a guaranteed trade, it can be a marketing group or a stand alone business, it should be no less than average in condition. Has it begun diversifying? Use Marks due diligence examples including independent advice & assessments on sales, overheads and profitability. Due dilligence on the area that you would like to buy a Newsagency via your local council, rta etc etc and the price you pay for your Newsagency you should reconcile once all due diligences have been carried out if you like what you see.
A good agency then means I would not go broke if I provide the best possible customer service, provide an ever diverse range of products with good margin which compliment Printed products and I wont loose my life long assetts.
However a good business means different things to different people and I am sure people could add & substract from some of the above.
You may have to elaborate what you mean regarding upside – I know what a downside is, do not buy an overpriced business.
Regarding skimming from the business which cannot be included in the Sales figures if that is what you mean, That should not come into the Sale Price of the business, a Business transaction is all about due dillengence and evidence.
Derek,
Without speaking for Dennis, I think what he means is that a profitable, well run newsagency may very well be at or near the peak of its potential trading ability.
If there is little room to improve sales and efficiency or reduce costs and overheads then it may be that the “good” agency ends up being less profitable than the “bad” agency.
Jarryd.
“If there is little room to improve sales and efficiency or reduce costs and overheads then it may be that the “good” agency ends up being less profitable than the “bad” agency.”
Agree.
We bought a “badly” run shop. Changed a lot & set a different direction for the business. It has been hard work through a very trying economic climate, but we have survived through faith in our own worth & skills. If it had been well run, & still struggled, there would have been no point in taking this on.
We hope to keep improving certain areas to the point where this business will realise its true worth.
To reinforce what I think Dennis is saying – buying a newsagency is like buying a pub (and I have done both, the latter a few times) – don’t buy at the top of the market, the potential for improvement is a lot less and in a lot of cases there is only one direction – DOWN. Use reliable, audited figures to buy something with growth/improvement potential and use a bit of gut feel but most of all use audited figures.
My Latin isn’t that good these days but I think the term Caveat Emptor is very applicable
don’t buy newsagencies , setup online store more profitable these days, with min. overheads and only need a warehouse
Eric – you are a funny guy.
Thanks Jarryd, you lean something everyday, very important point.
Eric I disagree. A good business at a fair price will serve a good retailer well.
For all prospective buyers out there, from what I have seen from decades in the industry newsagents are a pretty approachable lot so talk to us.
Sure we whinge and moan about the work a lot but if you went in and told the owners you are looking to buy at least you could ask questions and get honest answers before you commit (talk to the owners not just the staff, totally different point of view).
Our business has not made us mega rich but it has feed, clothed and educated 3 generations of our family and paid off our homes. It is long hours ( not hard as digging holes for a living is hard but long work as the margins are slim and you need to make 100’s of small sales all day every day not just the one big score).
Talk to as many owners as you can before you buy, and get a picture of the work as it is a great industry but it does have its moments.
Good luck to all.
we have 2 newsagencies both in shopping centres and 1 michel pastiserie , i think newsagency is still easier to run than a cafe and i don’t think i will ever sell them. if i have the opp i will setup an online retail , in few more years when my boy bigger.
Hi All,
Hoping someone with more experience can give me some advice.
This time last year I added a newsagency (full subagency) to my existing Stationery company. We are in the main street well located opposite 3 chemists and 5 doors from a bakery.
Everything has gone fine and we are very pleased with the change.
We still don’t have lotto.
Our supplying agent has offered to sell me his Newsagency, and focus on is newspaper distribution business. We will relocate it to my shop. His shop is in a very bad location, with very limited parking.
I figure this will get me lotto, computer system, proper magazine and card stands. In addition most of his customer base. (always the big question).
Add to this the vendor is willing to finance the deal for 12 months with 12 months support.
My supply rate for Magazines will change from 12.5% to 17.5%, but newspaper will remain at 12.5%. Is this the norm?
Our weekly bill to the supplying agent is around $1,600 and includes everything in the way of magazines and newspaper except “The Land” and our Local which we get direct.
I anticipate that our Newspaper and Magazine sales will at least double with Lotto.
The other question is in relation to his delivery business. He wants me to be a payment point, so the account holders can pay there account they have with him at my newsagency. His has asked me what I will charge Him. I have no idea, I figure around 4-6% as this is all we get for phone cards.
Any help would be greatly appreciated.
Regards
David
David, your magazine bill could get you to a point where you have a direct account. Be careful to NOT contract away that opportunity. That said, the quoted commissions seem reasonable in the circumstances you have outlined.
5% or more for being a payment point is the going rate.
On the comp-uter system – only one that is current has any value.
David,
We give most of our payment points 15% on papers and magazines, a little less for the AGE as we don’t get 25% anymore. I agree with Mark, the commission for papers and magazines seem reasonable.
The commission for being a payment point from people I have spoken to is more like 2%, and not 5%. I have heard of people getting 5% but this was someone selling their territory and becoming retail only, and this figure was the negotiated price. This higher payment point commission would have lowered the price of the territory though.
Regardless of what % you get, you should consider taking on the payment point as it is a reason for customers to go to your store and not someone else’s. However you need to weigh up whether the return you receive for the work involved is worth it to you. Assuming you are in a city and not the country, then customers who usually don’t go to your store will go to you and pay their paper account and hopefully buy something else while they are there.
In relation to applying for a direct magazine account, you should be upfront with them if this is your plan. They are selling you a business and negotiating commission rates based on you continuing to buy magazines from them. If you then turn around and take some income from them this is unfair to the seller, as if he had known this he possibly should have been paid a higher price for his store. To back stab them like that could destroy the relationship.
Thanks for the advise Mark and Dean and also the ethical business practices.
Regards,
David
I am thinking about buying a newsagent /post office. How so i establish if it is worth the asking price?. Also, is it too risky considering Australia post is on the down hill. Any feed back would be great
David you need to access accurate financials you trust for the business and determine if the price is reasonable based on this. As to the future success of the business, it all depends on whether you are an engaged and proactive retailer.
David, as someone who owns an inconjunction Newsagancy and Post Office I would say that the Post Office business is actually now much much stronger than the Newsagency business in general thanks in part to the stamp price rise which has resulted in a 43.8% increase in alot of payments that the Post Office receives. (BPR is linked to therate for alot of the payments in the post office) From my PoV that equates to roughly another $50K on my bottom line at the end of the year for doing the same work I was last year. The Post Office channel now also has a strong representative presence via LPO Group who have and are actively pushing for increased payments and growing of services to replace letter mail revenue to Aus Post. In fact having a foot in both camps I would say that the Aus Post business is in general a far stronger one than the newsagency channel
Thanks guys. Ive been told that the value is determined by multiplying the yearly gross profit by 3. Is this correct?
David, the price you offer is yours to choose. You should never pay more than you think a business is worth. While some will suggest there are multiples, the reality is this is at your discretion.
Thanks Mark.
I come from a construction background, so the more advice that i can get, the better. If there is anything els that you think i should know. I am open for advice.
Thanks
Make sure you have accurate numbers – a real P&L not a spreadsheet put together. Trace the revenue numbers back to the source – the POS software. Question any add backs – some are legit while others are not.
Buying a business is not easy just as running a business is not easy. The key is to put in the work as that is what will determine your reward.
Your objective is to pay the lowest price you can while the sellers objective is to achieve they highest price they can. These are realities.
David,
Spreadsheets and POS reports will give you detail you need, but you need you sure they are accurate. Ask for BAS reports that tie into to POS reports.
Compare at least 2 years to ascertain whether the business is growing or contracting.
If you don’t have a financial mind, employ an accountant for the due diligence.
Hi everyone
I’m looking into buying a news-agency in a quite suburb. The business seems profitable for the past years and current but having said that, looking at the news report and the future of exclusive sales of lotto (Memorandum Of Understanding with Tatts to prevent coles & woolies until 2018?) and with the decline in magazine, newspaper and also the bans on tabaco, is there any future left for this business?
Dave, there is a bright future for good retailers who do not rely on the old traffic generating product – just like in any specialty retail channel.
The success of any business you buy will be more to do with you as retailer than the cannel in which you purchase.
I’m looking to buy an existing newsagent business and I’ve found this thread to be incredibly helpful. Even though I have a business background there are lots of gold nuggets here. Many things to consider.