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Fair market value of dive shop

Discussion in 'Business of Diving Institute' started by vjongene, Jun 30, 2017.

  1. JamesBon92007

    JamesBon92007 Loggerhead Turtle

    # of Dives: 2,500 - 4,999
    Location: Southern California...too far from the ocean
    2,955
    1,149
    113
    There are some great suggestions and advice here. First, ask yourself, do you know what a "profit margin" is? And as others have said, have you ran a successful (profitable) small business? If either answer is "no", I would pass. If both are "yes" then we move onto such things as are you able/qualified to do equipment repairs, VIPS, and all of the usual stuff that dive shops do? Are you willing to work seven days a week, 14 hours a day to make $20K/year? Do you have to sign a lease or is the building included? If the business fails can you afford it?

    According to statistics I've heard in the past about 98% of small businesses fail within the first two years. I have known people who mortgaged their home, signed a five year lease, and were out of business in less than a year. Most people do not seem to me to be equipped to run a small business. Are you one of the rare exceptions?

    LIke others have said, you would need to find out exactly what the total yearly revenues are plus what all of the expenses are in order to determine how much profit it makes. Based upon that you could determine approximately how much your monthly/yearly income would/could be. It it's agreeable then you need to consider the financing. Do you have enough cash to buy it outright? If not, will the owner carry a loan? Subtract the loan amount from the projected profits and see what your net is. Is it enough? If you fail will he re-possess the property or will you still have to pay off the loan? In the USA about 25% of your "profit" will go to Uncle Sam. I don't have a clue how it works there. If you do decide to buy I'd suggest seeing if you can do a LLC there. In the USA you can form a limited corporation and the business does not have to pay taxes, you just pay income taxes on the money the business pays you. The business pays half of your Self-Employment Tax and you pay the other half.

    Aside from all that, owning a dive shop in the Caribbean sounds delightful :)
     
    Last edited: Jun 30, 2017
  2. vjongene

    vjongene Barracuda

    # of Dives: 1,000 - 2,499
    Location: Willemstad, Curaçao
    366
    12
    18
    OK, thanks everyone for the advice. Some excellent points being made, and believe me, I am listening.

    Now, to be more specific about why I am considering this, and what the parameters are:
    • I can purchase the business cash, as part of my overall investment portfolio. I am thinking of it as a way to diversify my investments, and not having everything in stocks & bonds. I have a house on the market, and when it sells it would more or less pay for the purchase. I am hoping to get a return on investment in the order of 5-10% a year.
    • I am not a businessman, but I believe that I have a reasonable understanding of finance. I am mostly retired, with sources of income that are sufficient to sustain my current lifestyle.
    • I am in fact working part time as a divemaster, so I understand the "sweat and tears"" part of the business. Owning a dive shop would be primarily a hobby, as well as an investment. I would be looking for a full time manager, and be personally involved only in making business and HR decisions. I would also be helping with day to day operations as needed (e.g., taking customers out on trips, helping with courses, etc).
    • I was indeed planning to engage a business consultant / CPA to gauge the solidity of the financials. The shop has been operating for 10 years now, has a solid reputation, a customer base, a good team of instructors, and an excellent set of internal SOPs and checklists for its daily operations. In other words, it would take spectacularly incompetent management to take it down in a year.
    I have not made up my mind yet about whether I will move forward, but many notes of caution have been sounded. Thanks again for all the advice.
     
  3. Froggle

    Froggle Angel Fish

    # of Dives: 50 - 99
    Location: UK
    42
    16
    8
    The first thing i always check is whether the existing owner will sign a no-compete agreement. I've seen too many small business owners cash out of existing businesses in order to start up again with no liabilities or baggage and with the benefit of all the customer and supplier relationships they've just made money selling on.
    Not sure if a no-compete agreement would be enforceable in the Caribbean though as that's not within my area of experience.
     
    Darcy Kieran and JamesBon92007 like this.
  4. Bobby

    Bobby Dive Equipment Manufacturer

    # of Dives: I just don't log dives
    Location: Charleston, SC
    481
    319
    63
    Before I started Light Dude I was a consultant, mostly corporate turn around, however I've done some valuation & purchase consulting. You can easily pay $20K or more for in depth valuation and purchase consulting. To do it right is a lot of work and takes time. Looking at my own small business, that I structured, I often have to take some time to sort out the why for something in my books. Looking at another business and getting down to the nuts and bolts regarding how they do things is challenging for even the most experienced. Be prepared to spend some money for this type of service however having someone that is good and thorough can pay huge dividends down the road, especially if they have the negotiation experience.
     
    JamesBon92007 and northernone like this.
  5. mi000ke

    mi000ke Manta Ray

    # of Dives: 100 - 199
    Location: Massachusetts & Grand Cayman Island
    736
    755
    93
    A return on investment of 5-10% would not be sufficient for me to invest in my own small business, given that you can make this with way less risk and effort in the financial markets. Even the real estate investment we've made in the Caribbean meets your target return including all our costs to have it managed for us and every other cost associated with the property. And we get a few months of use at the high season essentially free, and I get to dive at the local dive shop without having to worry about whether the DMs will show up or the boats will start.

    Well, you would find out soon enough if your understanding of finance was adequate. I have a BS, MBA and PhD in business administration, ran a few businesses as mentioned earlier, consulted to many more, and I still hire outside professional help. And if the business starts to lose money are you OK with putting your other sources of income at risk?

    I predict that your hobby will become a full time job pretty quickly. Make sure to add the cost of the manager into the financial projections. And as you are putting the success of the company in the hands of a "hired hand", be sure to vet that person really well.

    Not to imply that you are not competent, but I have seen successful businesses taken down that quickly, so it can happen. But this sounds like a solid shop, so that's good. See if you can find out how much is repeat business as that's your bread and butter, so to speak.

    Anyway, as I said in my earlier post, I would try my best to dissuade you from going ahead, but if you chose to anyway, then...

    BEST OF LUCK and I wish you great success!

    (And be sure to let us know if you do the deal so we can all dive with you!)
     
    northernone likes this.
  6. JamesBon92007

    JamesBon92007 Loggerhead Turtle

    # of Dives: 2,500 - 4,999
    Location: Southern California...too far from the ocean
    2,955
    1,149
    113
    As was mentioned it's crucial to know what your market is plus who is your competition. Just make sure you are included on the list when someone asks "what's the best dive op in wherever-you-are" here on SB. I'm sure many of us here will pay a little more for better quality services so cheaper is not always the best choice. If someone offers a 2-tank dive for $50 images of the movie "Open Water" come into my mind.
     
  7. Superlyte27

    Superlyte27 Cave Instructor

    # of Dives: 5,000 - ∞
    Location: Florida
    3,562
    2,555
    113
    Bwuhahahahaha, lol. That was funny.
     
  8. Bubblesong

    Bubblesong Marine Scientist

    # of Dives: 50 - 99
    Location: Massachusetts
    2,220
    1,849
    113
    Ok, maybe not, but it is another place to look at what you'll face as a business owner, agreed?
     
  9. gypsyjim

    gypsyjim I have an alibi ScubaBoard Supporter

    # of Dives: 500 - 999
    Location: capital region of New York
    32,791
    24,789
    113
    I recently had a close friend question me about the idea of investing in rental properties, since I have decades of experience in this field.

    I will offer the same advice that I gave my friend.....

    Take your hand, and wrap your fingers around the outside edge of a very heavy house door. NOW, repeatedly slam that door shut, latching it with your fingers still around the edge of the door.
    If you find that you are actually enjoying this experience, this business is made for you!

    Alternatively, you can also perform a similar test by sitting down quickly on a sharpened fire hydrant, lubrication optional.

    Good luck. I want to dive, not spend my days nursemaiding tourist/divers.
     
    Saniflush likes this.
  10. Rred

    Rred Manta Ray

    # of Dives: 200 - 499
    Location: In a safe place
    1,058
    441
    83
    5-10% ROI...unless the market tanks, you can make that without paying light and power bills for a shop. When you talk about diversifying, bear in mind that if this is a shop in a resort area and the economy and market tank again? Right, no vacations, no dive vacations, this kind of a luxury frill business is going to tank even faster and harder. So it may be a high risk diversification.

    A good way to write off all your travel and diving as business expenses, sure, but you'd have to ask your accountant how that might balance out.(G)
     

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