This week I met with a client who is investigating purchasing a significant agricultural retail tourism business, that both grows its own food source, and has a tourist attraction element to their operations.
The numbers are hard to verify, but given the asset split, it’s more than an accounting conversation. This project falls into what we call ‘buy side advice’ – advice on buying a business – what it’s worth, how you may be able to fund this, the risks around the purchase, submitting an offer, structure advice, accounting software training and helping you through the early stages of business ownership.
It was my fourth appointment of the week on this.
The earlier buy side appointments of the week were across professional services businesses and retail stores – relatively predictable businesses. You need to ensure leases are in place and beyond the payback period, does the business generate enough profits to pay you and any associated business debt, and the list goes on.
Your personal circumstances also need to be considered, especially if it is an owner operated business you’re considering. If you are a growing family, can your own maternity leave be accommodated? Are you also a stay at home parent? Do you need to be able to do the school run? Does the business have the capacity to pay your current salary and beyond?
With this purchase, I did some initial calculations on payback period, but most of my queries laid around areas I have no influence over and this is why it’s important to consider more than just how the figures perform when you’re deciding if a business is a “good” buy for you.
My queries included things like:
- What happened if the lead manager left – what expertise do you have? How difficult is this to replace? What risks does this have?
- Of the agricultural crop – there are environmental factors at play, how do these impact the crop? Is there anything you can do to minimise the risk to the crop?
- Since COVID19, there has been a decrease in tourism to the area – is this bouncing back? What are other local businesses experiencing? Are visitor numbers back to pre-pandemic numbers? Are they likely to grow?
- With wholesale and retail – what is the split? Has the Chinese restrictions impacted this split?
- In the regional area – what is general staff recruitment like? With the current owners working in the business, who would replace these roles?
From here, we talked through different avenues to get more information – a meeting with the vendor, having a conversation with the relevant University Department on their concerns on the agriculture industry and even a land and building valuation. Given the public sale, we also suggested our client speak to a nearby business owner who often speaks about regional tourism at state government events – is he willing to have a coffee and talk?
Our client had thought about reaching out to the University about the industry, but other comments were all ideas we came to in the meeting.
Buying a business is more than a simple calculation, it’s why it’s critical to talk to some who will do more than crunch numbers. To start that conversation, make an appointment with your Accru Advisor.