I was approached recently to consider purchasing a newsagency which had been on the market for a long time. The owners were in dispute and wanted out urgently.
The figures provided were what I’d call creative. While I could see the business was losing money, a first time business buyer might have seen otherwise given how then information was presented.
The shop itself looked good, the shop fit quite new. But it was old school. It would have looked relevant in 1980 but not today in 2014.
The business had lost one magazine distributor direct account. The stationery department looked okay but tired. the card department looked the best.
With plenty of the stock old and given the business was losing money I said I was not interested. When pressed I said if I was to make an offer it wold be based on no goodwill and a payment of around 75 cents in the dollar of the wholesale cost of the stock. I said this knowing the business $50,000 in new stock and around $50,000 in replacing fittings – just to get started. So there was no point to me in rewarding the vendor for their poor management and poor decisions.
It turns out the vendor was told what I would pay – even though it was not an offer and was only mentioned in a highly conditional way.
The business has now been sold for a higher price than I would have contemplated. That tells me the purchaser has paid too much. The question on my mind is – has anyone told them they paid too much for the business? If not, they will experience sticker shock within three months of settlement.
Those of us in the newsagency channel for the long-term owe those coming into the channel honest advice.
Bit hard to offer advice when you where at some stage also interested in buying it ,possible conflict of interest ?
Shaun I am not offering advice on this business nor did I offer advice on this business. The final sentence of the post is about anyone offering advice to someone buying a newsagency – be transparent and honest.
I heard of a newsagent who knowing he was selling reduced his stock holding by $50k. Instead of showing this as a lower stock figure on his balance sheet he increased his profit by $50k in the P&L. This meant that the buyer paid about $150k too much for the business.
What made this worse was the broker knew about this, and when confronted by another buyer who was wise to the move, simply shrugged his shoulders and said “Oh well”.
Dean this is a point I’m trying to make. It’s frustrating that a new colleague has paid too much. Our obligation is to the future and not the past.
Hi Mark,
It depend how you value the business and the potential of the business. The market price is what the business is sold for. If you are buying a house in an auction, each buyer has his/her own value but whatever is the highest bid that’s the market price.
Bhagwat – the market price is what the business sells for. My concern is that the ‘market’ is fully informed.
Once the Duopoly get rid of all honest small business, they can put their prices up and charge what they like.
Law of supply and demand.
If people can’t get items elsewhere, the demand will still be there, and those with the items can charge what they like…
For the sake of both small business owners and consumers as well, the ACCC and federal and state pollies MUST get involved.
oops, meant to post on the woolies thread, not this one…..sorry
Mark, you are right but unfortunately finding an accurate set of KPI’s and an honest appraisal of a business’s worth in nigh on impossible. Far too many newsagents are even older and more dated than their stock and if they have a computer it is just an overpriced pricing gun, far better to rely on “I Reckon” or “lots” or some equally vague measure, don’t dare ask about stock turns, ROI or space management, thats just double dutch to not just newsagents but brokers as well. I spent days and countless calls trying to ascertain industry KPI’s, best kept secret in Australia, anyone asks me now, I am only too happy to share, problem is until we as an industry get over this hurdle and can start to present ourselves as a credible entity, we will all continue to suffer as a lack of transparency just allows all the shonkys in to do as they please. Sorry for the rant, but if we pulled together we might actually achieve something, the opportunity is there but too few are taking it. Sometimes real rewards are hidden behind hard work.
Cris I certainly share KPIs, benchmarks and due diligence advice here.
Anyone archaising any business needs to go off the P&L and to trace income back to the source – such as POS software data.
Newsagents who want to sell that the most important pay day is today. Run your business today to be profitable today and you will get a better outcome when you sell.
If, however, newsagents run their business in a lazy way and expecting the sale to be the pay day then they deserve a price that reflects their actions.
On old stock, I won’t pay what the newsagent paid if it is old. Now should I. The old stock is the problem of the vendor and not the purchaser.
Yes, thats right. But I feel for the incoming person who has bought this business, hence my point, your KPI’s and others are just some in a sea of them. My own personal experience tells me that the influence of not just a creative vendor, but add an even dodgier leasing agent and throw in a broker who is just after a sale and through some miracle they all manage to sing the same tune-that is the problem and I have watched as it has happened over and over again. We have survived-eventually, many don’t.
Most likely you will pick that business up for nothing in 12 months, no 75 cents in the dollar required. Thats the real issue.
Cris I’d temper this by saying buyer beware. People need to do their homework and be naturally suspicious not only of buying the business but of the many suppliers who beat a patch to the door of the new owner. Get everything in writing. Do your homework. Own your decisions.
On this specific business, the vendors ran it appallingly. That’s a whole other problem. They deserve nothing.