Dive Shop Ownership- Good idea?

[jdcpa]

Yes, I think the internet is impacting the sales of the LDS.

I would do two things.

Ask the owner why they are selling and see if that answer actually makes sesne.

Second, get a copy of the financial statements or tax returns for the last five years and analyze the gross sales trends. My best guess to the answer is they are declining. That should be some proof of internet sales issue. It will also tell you if the shop has customer service issues.

Finally (okay three things) look at the location. As with most any store, there are three factors to consider. Location, location and location. How hard is to get there, how hard is it to see, was a new road built that diverted traffic away from the location, was an overpass built around it? Was a new larger LDS built close by. How far from the water?

To be honest with you, it is pretty easy to see if the deal makes sense or to tell you what you are in for. If I can explain it and make any sense, here goes.

Take the last three years tax returns and determine discretionary cash flow. (If the LDS owner says I take out $XXX in cash each week/month, you have a problem in that can you trust the numbers.) Discretionary cash flow is the cash flow of the business and adding back all benefits to the owner, salary, football tickets, personal dive gear, etc. Add back depreciation and loan principal and anything unnecessary, like the sons salary who is off at college.

Take this number and subtract from it a reasonable amount of salary you think you need. You are now left with a number from which you must finance the business purchase.

Take that number and divide it by 12. You now have monthly cash flow. Using 8% or 9% as an interest rate, figure out the loan principal you can afford with that monthly payment. Use five years and seven years as the loan term. Any amortization program can calculate this.

Now you know what you can afford.

Next take the price the current owner is asking for the business. Figure the monthly payment for that princiapl amount. Now you know how much short each month you are going to be assuming you do the same business as they did. That is the number you are going to have to make up to break even.

We all believe we can do a better job than the previous owner, why else would we be interested in buying the business.

Good luck.

If you have any specific questions on this, please pm me and I will do my best to anwser for you.

 

[rjack321]

3 or 4 shops in the Seattle area have closed in the past couple years. If your biz thoughts are for that area, I'd say your chances of success are very limited.

Outside the Seattle area, there are fewer existing shops and your chances are probably better, although I have no first hand experience in those areas.

 

[PerroneFord]

I think people need to think outside the box.

There is a LDS in a certain town in N.FL. that offers no training, no fills, and no BS. They produce and sell limited products, and carry gear from other top manufacturers that cater to the niche market in their area. They also do a healthy online buisness. Apparently they do pretty well.

I think modern LDS's can thrive, but like most businesses today, they have to be smart, embrace technology, and not just offer "more of the same".

Becoming "THE PLACE" in your area for a certain kind of diver is probably a good bet, if that market can sustain your business. Here in N.FL., we see shops catering to two types of divers primarily. Cave divers, and spearfishermen. The cave market is pretty well tapped. There is more market for spearers though.

Perhaps in the PNW, something similar could be approached.

 

[jviehe]

I am looking into purchasing a shop in the Pacific Northwest but don't know some of the vitals of the sales industry. Are more divers moving away from the local shop and into an on-line purchasing menatity? Can anyone let me know where to get statistics on industry sales figures? I am very interested but want to make the right decision here. Please help if you can.
Thanks.

DEMA would be your one stop shopping for anything about the Dive Industry. PADI also publishes the only comprehensive book I know about. The Business of Diving.

When it comes to online shopping, LP cant do fills or Training. If you keep your pricing reasonable, people will pay extra for convinience and friendly staff. There is also lots of money in trips.

 

[rjack321]

There are 2 tech shops in the Seattle area left, one NAUI, one GUE. The only places for mixed gases. There's one minor chain of 3 shops which seems to have a dwindling customer base. They have been in the area for decades.

There is another chain of ~6 shops which caters to the recreational intro divers and is trying to attract more technical oriented people.

(Spear)fishing is extremely limited, a couple of weeks for lingcod, shrimp seasons up here for divers are 4 or 5 days per year. The most hunting is for crab and that's not going to be enough to sustain a shop. Too few days, too seasonal.

Like I said, we've had 4 shops close all with different biz approaches in the last ~2 years. 1 tech shop, 1 budget air fill place, one all inclusive "we have a huge pool shop", and another I forget the name of and never patronized.

Just because the Seattle metro area has contracted over the past couple years doesn't mean there's no room for a new place. But it sounds like the OP isn't from this area - or maybe is thinking OR, ID, or BC. But if its Seattle the OP is thinking about, I say without firsthand understanding of the various clienteles it would be very very challenging to start a shop here.

 

[MXGratefulDiver]

On the other hand, one new shop opened in Tacoma last year and they seem to be doing OK ... I think the trick is having the business acumen to identify strengths and weaknesses in the market, pick a target audience, cater to that audience, and provide enough service to build a following.

Most divers want to be associated with a dive shop. Sadly, most dive shop owners lack the skills to know how to attract and retain the customer base they want. Low prices aren't the only incentive ... if you offer something else of value. Diving is essentially a social activity ... and divers generally aren't afraid to spend money for value. Value comes from more than just products ... it comes from providing a place where people can feel comfortable hanging out to socialize, from offering quality education, providing activities like trips and dive outings, nurturing new divers with mentoring and diving opportunities, and most importantly, listening and responding when your customers have issues.

Another guy purchased an existing shop here a couple years ago ... and at the time the business was hurting. He did all of the above, and today he's running a pretty successful shop. He didn't do it through online sales ... he did it by offering services that people wanted enough to drive out of their way for, and in many cases, to switch shops for. Frankly, his "unlimited nitrox" program was a stroke of genius that brought a lot of business into the store.

You can run a successful business here ... you just have to be innovative about how you do it.

... Bob (Grateful Diver)

 

[rjack321]

I'm with you on that one Bob. The key to success in this market is figuring out a way to 1) compete with the Walmarts, whether they be brick and mortar or online, and 2) finding a customer base and serving them. The shops that folded in the past couple years weren't able to address these issues (one or both).

IMO, the unlimited nitrox offered by one shop is a disaster waiting to happen. The liability of having pure O2 dispensed and/or mixed by unsupervised customers, most of whom are not certified gas blenders is staggering. Eventually, this is going to cause a problem, potentially burning down the neighborhood. I sincerely hope no one gets hurt.

 

[boulderjohn]

I think you are going to have to do some market research, make sure that you know all you need to know about running a business, and be prepared to weather the initial period when no one knows you are there.

I have a friend who just oepned a new shop in a growing area with the demographics that suggest he sould do well.

Hopefully, someday he will. Right now, he is having trouble just getting people to come in the door and see what a great guy he is and what great products he sells. He was prepared for this, though, and he has enough independent income to get him through the startup period--if it doesn't last too long.

 

[boulderjohn]

I was told by an LDS manager that the Internet has not had as big an impact on sales as people might think. Where it has really had an impact is in travel. People can plan their own dive trips so easily now that they don't need to go through the shop's travel services so much any more.

 

[scuba-charters]

You will get out of it what you put into it... If you're a people person, like dealing with the customers and "are very enthusiastic about diving", you could probably make a brick fly. Don't have that same mentality as the general public: "If I own my own business, I can set my own hours, and work whenever I like and become very rich". That is the furthest thing from the truth that I know. Sixteen hours a day 7 days a week will be your schedule for the next 2 years at a minimum.

Three things...

1. If ya can't beat um, join um. Selling products online is not very difficult. Ebay and other auction sites are also available. BUT!!!!!! Be very careful, many distributors frown very heavily on selling online below their MSRP.... To the point that you might not be able to get your orders ontime or maybe even not at all...

2. Concentrate on things that you can't normally do over the internet.
a. You can't sell fills online.
b. Teaching and certifications.

3. A physical presence is sometimes needed to motivate and encourage customers for travel/trips (the #1 money maker in the shop).

Other than that, I wouldn't plunk down my monies for an existing shop (possibly full of "shelf dogs") unless I was getting a fantastic deal on the equipment alone. Good faith and momentum go out the window when the previous shop owner leaves and his customers/friends go with him. Starting a shop from scratch, part-time might be the best beginning.

My $.02