Dive shop purchase- worth it?

[ampdiver]

Tough decision for me. I found a shop for sale and am very interested in purchasing it. However, I've heard a couple dffering opinions and found little information on industry stats. I don't know a reasonable purchase price for the shop including inventory. Is it worth the large figure that is being asked or should I buy inventory and start up myself. Any educated opinions help.

Thanks for your input.
AMP:huh:

 

[scubadobadoo]

99% of the time the answer to this question financially is NO. Good luck!

 

[KazooDiver]

Gosh I would think that if they are asking for a large amount and you are purchasing an existing store, you would want to look at all of their books. How are their sales trending, what level of profit are they taking, what is their customer base...many repeats... how many competitors, etc.

 

[dsteding]

I had an interesting conversation this weekend with a friend about buying flyfishing stores-I think the concepts are fairly transferable to dive shops.

1) It is difficult to build a successful business in such niche markets. Even for flyfishing, the internet has cut into local shop's margins, and the downturn of the economy in the late 1990s shut off the flow of a fair amount of disposable income to the sport. I imagine this was somewhat true for scuba diving as well, certainly the first part regarding how difficult it is to build a local business is true.

2) Once built, these things are valued under traditional valuation schemes at a fairly good chunk of cash. The concept we came up with was "do you want to spent $300,000 for a $40,000/year job?" This seems to be the rub, the shop may have a good revenue stream, but once overhead and other costs are taken into account, it seems to me that buying a shop is not a good way to get rich. What could you do with that $300,000 besides buying a shop? Could you make more money without buying the shop?

3) So, considering the above factors, why buy any type of niche market shop (dive, flyfishing, I think this question can be asked about a lot of industries)? I think the answer is because you enjoy the sport. You are buying a job--one that may not pay much--but you are also buying a lifestyle, and that may be quite appealing to you.

Anyways, a couple of factors to take into account. Another is local loyalty. You'll have to either (1) rely upon the existing customer base, or (2) build a new base. For me, I am fiercely loyal to my LDS, and they take care of me in return (more importantly, I like all the people there). Because of that, I'm willing to pay a little more to support the place. If you do buy a shop, I'd think that good marketing and customer service is a must, which doesn't seem to be the case for a fair number of shops (at least if you base your sample on the internet--in reality, I've found most dive shops to be reasonably welcoming and helpful).

My two cents, at least.

 

[mirrocraft]

i would look at the books see how many customers thay have on average make shore the store is making money not losing money check the inventory make shore there not listing stuff that thay have had in storage for years and you cant make good money on and if it dont feel right dont do it i9ts your money and your going to have to live with the decision you make not me but i would spend alot of time there to see how many people come in and out in a day and week check out the copatition in the area and hows the diving in the area its it a good business for the town it in and why are thay selling it

 

[PhilEllis]

Tough decision for me. I found a shop for sale and am very interested in purchasing it. However, I've heard a couple dffering opinions and found little information on industry stats. I don't know a reasonable purchase price for the shop including inventory. Is it worth the large figure that is being asked or should I buy inventory and start up myself. Any educated opinions help.

Thanks for your input.
AMP:huh:

Buying an existing business is often much easier than starting from scratch. That is true of the scuba business. If you are looking at a shop with a good retail sales history, one that has shown growth from year to year, it is common for the price of the business to be approximately equal to one to one and a half years sales. I cannot stress how much easier it is to begin the first month with a steady flow of existing customers and a fairly guaranteed cash flow from the beginning. You don't get this with a start-up from scratch.

Many dive stores have limited inventory and much of that will be carry-over merchandise (new merchandise from a previous model year). Don't let this scare you. If you are a good business man, you can correct the situation and remedy the inventory situation fairly quickly.

I personally don't think it means much to look at the existing owners profit and loss statement. I can PROMISE you that the profit is CONSIDERABLY higher than what is listed in those reports and considerably above what is reported on income tax returns. In the end, reputation, accuracy of the customer data base, and ongoing sales are a much better way to make your purchase decision. In a dive shop, you can AWAYS find ways to cut the fixed costs of operating and can cut the variable costs even more. You can feel free to give me a call if you want and I will help you more if I have any information of value to you. Thanks.

Phil Ellis

 

[RJP]

I cannot stress how much easier it is to begin the first month with a steady flow of existing customers and a fairly guaranteed cash flow from the beginning. You don't get this with a start-up from scratch.

Right - but you might not get it from an existing business either. For instance, if the bulk of the current business is built on the personal relationships that the current owners have with customers, those relationships are gone the minute "under new management" goes into effect.

All of a sudden the idea of paying "LDS prices" doesn't have the same allure in the minds of "existing customers."

In summary - the only benefit you might get from buying an existing business is that there are customers who know how to get to the store. YOU need to get them to come BACK in to "your" store, and then get them to KEEP coming back.