Fair market value of dive shop

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Short answer is 5x the yearly profit. Also this has backfired on many business where the owner takes a wad of cash everyday home to not pay taxes.
 
Short answer is 5x the yearly profit. Also this has backfired on many business where the owner takes a wad of cash everyday home to not pay taxes.

Judging from business owners that I have know this is fairly common. So common, in fact, that the IRS is probably acutely aware of it. There seems to be an unwritten law that says you can get away with a certain percentage but after that they will come after you.
 
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.
Is you goal to diversify your investments or to have a hobby thing to play with while you piss away your retirement money?

There are lots of investment "syndicates" out there that will make you a better return with zero effort on your behalf. You just need to look beyond the crap offered to the common person (stocks, bonds, mutual funds,...).

Find an investment firm that offers alternate investment vehicles. Things like: roads, bridges, hospitals, shopping malls, hydro electric plants, solar farms, commercial buildings, industrial warehouses,... You get to own a very very small slice of a lot of different things.
 
Is you goal to diversify your investments or to have a hobby thing to play with while you piss away your retirement money?

There are lots of investment "syndicates" out there that will make you a better return with zero effort on your behalf. You just need to look beyond the crap offered to the common person (stocks, bonds, mutual funds,...).

Find an investment firm that offers alternate investment vehicles. Things like: roads, bridges, hospitals, shopping malls, hydro electric plants, solar farms, commercial buildings, industrial warehouses,... You get to own a very very small slice of a lot of different things.

That sounds like a REIT. Several years ago they were considered a sound investment, a few years ago not so much. Are they back in favor? According to one site they were recently averaging 11.8% return.
 
That sounds like a REIT. Several years ago they were considered a sound investment, a few years ago not so much. Are they back in favor? According to one site they were recently averaging 11.8% return.
Not a REIT. A REIT is just like a mutual fund except they buy real estate. You buy shares of the REIT. You do not own any of the underlying assets.

I meant using a individiual investor where you actually do own a portion of the underlying assets. You have an individual portfolio that is tailored to your investment strategy.

My examples did make it sound like a REIT as I did not explain the infrastructure examples well enough. For the solar farms, there is no real estate involved. Only the solar panels that are being installed on the top of buildings in cities.
 
Not to resurrect a slightly old thread, but one point of consideration should be the "intangibles".

In this Dive Operation you're looking at (or any of them for that matter) pay attention to the intangibles like how active the owner is in the local community, with nearby resorts and other areas. You have to consider who the divers are, where they are coming from and what keeps bringing them back?

For example, is the owner of the dive shop a 'super fun guy/gal' that people enjoying coming back to see? Does that present a problem? Can you also be that 'super fun guy/gal'?

Is there a long relationship with nearby resorts/hotels that provide a significant amount of referrals for various things because of the owner? Would you be able to keep those relationships wit the locals or would they go elsewhere? It would suck if a lot of the business revenue came from say "Discover Scuba" type programs from nearby resorts and somehow that relationship was lost.

Don't get me wrong, the numbers are important (hobby or not), but IMO the more the business is concentrated around key people, a key person or a key relationship, the less valuable the business is.

Just my 2 cents....
 
One thing to consider is the amount of stress you'll be taking on. As you are older this gets wearing. You're the babysitter for customers and employees. The finances are always a juggling act. It all comes down on your shoulders sooner or later. Not to mention hurricanes, accidents and many more issues. You'll be working at least 18 hours/6 days a week, don't kid yourself otherwise.

Do you really want to be tied down that way?

Anyone want to buy an UW Photo Store?
 
I am thinking about buying a dive shop in the Caribbean, and trying to figure out what its fair market value would be. It is a well-established operation with a good reputation. Most of its business is from courses and guided dive trips, plus some equipment rentals and sales. I have access to its recent financial reports. I also know the asking price.

Does anyone have pointers on how to estimate the value of a dive shop, given its basic financials (profit and loss, balance sheet, etc)? Any advice would be much appreciated.

did you end up buying? We are considering the same.
 
https://www.shearwater.com/products/peregrine/

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