Rickk
Contributor
Putting a value on a dive operation, especially one in a foreign country is a very risky and subjective proposition.
Traditionally to value a business you look at the break up costs, the value of the physical assets if you sold everything. This would put a floor on the price.
Then you would look at the current value of discounted net cash flows, this is MBA speak for how much would I need to put in the bank right now, at some interest rate, to generate the expected cash flows of the revenue less expenses. Obviously this is also very subjective. What interest rate to use? What will the future cash flows be? What threats are there to the cash flows, will something like corona-virus wipe our a dive season’s income? Will global warming with rising and warming seas kill the reef and make diving there not as attractive? What will your costs be, will the boat need a new engine? Will you need a new boat?
Are people coming to the operation because the current owner is just such a great host that they come to be with him and will go elsewhere when he leaves?
Are there any legal ownership issues issues? That is can you actually buy the land and own the business in the country where you are? What is the risk of having your operation expropriated by the government authorities? In the Philippines a foreigner cannot own land and can only own 40% of a business for example. Titles and ownership can sometimes be questionable.
How big is your moat? That is what protection do you have, is it in an area where there are limited dive shop permits issued? In many cities a junked taxi cab but one that is licensed is worth over $100,000, not the vehicle but the license that you will transfer to a new vehicle. Is that the case for your dive shop, are you protected from competition? Can anyone open a dive shop next door to you?
What about the location, are you somewhere that is recognized as a dive destination and are there other facilities to make the dive vacation experience good for your divers and their non diving families?
Is the owner going to sign a non-compete agreement, will he agree to not open or work for any dive operation within a reasonable geographical area within a reasonable period of time i=or will he take your cash and open or work for a dive shop next door to you tomorrow?
What about staff? Will existing staff stay with you? Can you hire good staff at an affordable salary/wage? How about getting work permits for expats? You will need some expats to cover all language issues that you will need to provide service.
Once you do al the due diligence and are satisfied that you have a reasonable estimate of the costs and cash flows, discounted at an interest rate that you are comfortable with and have all the commercial issues resolved, what exactly are you buying?
Are you buying a business, one that will provide a reasonable positive cash flow? If that is the case, then as a general rule buying a business that people don’t want to do can be much more profitable. I know a guy, high school dropout who banked over a million dollars operating an old beat up septic truck, no one wanted to do that so he made an excessive profit.
Everyone wants to operate something like a dive shop, They are buying a lifestyle more so than a business. Nothing wrong with that but it does impact the numbers. Sit on the beach, dive whenever you want, have locals do all the work. That will increase the price and reduce your return.
After you answer all the above issues and more, you need to decide what is your target market, who are your divers, vacationers on a once a year may or may not dive holiday? Serious divers? Where are het coming from? How do they pick your operation over another dive operation? Are you a full service high end valet dive shop? Are you a high volume limited services dive ship? Are you a boutique shop catering to a specific small segment like serious tech divers?
Finally what are your own skills? Yes you may be a good diver but can you also do the finance and accounting, or at least have someone you trust to do this for you? How are you are you at customer service? How would you handle someone who was aggressively pushing an unreasonable complaint? Can you manage people? Can you easily relate to your customers? Give them what the want and not what you want to give them or think they may need?
I could go on, but it would end up as a mini business school education but you get the idea. Not everyone can run a successful business especially in the hospitality vacation industry. Lots of risks but the rewards can be great both financially and in term of lifestyle.
Traditionally to value a business you look at the break up costs, the value of the physical assets if you sold everything. This would put a floor on the price.
Then you would look at the current value of discounted net cash flows, this is MBA speak for how much would I need to put in the bank right now, at some interest rate, to generate the expected cash flows of the revenue less expenses. Obviously this is also very subjective. What interest rate to use? What will the future cash flows be? What threats are there to the cash flows, will something like corona-virus wipe our a dive season’s income? Will global warming with rising and warming seas kill the reef and make diving there not as attractive? What will your costs be, will the boat need a new engine? Will you need a new boat?
Are people coming to the operation because the current owner is just such a great host that they come to be with him and will go elsewhere when he leaves?
Are there any legal ownership issues issues? That is can you actually buy the land and own the business in the country where you are? What is the risk of having your operation expropriated by the government authorities? In the Philippines a foreigner cannot own land and can only own 40% of a business for example. Titles and ownership can sometimes be questionable.
How big is your moat? That is what protection do you have, is it in an area where there are limited dive shop permits issued? In many cities a junked taxi cab but one that is licensed is worth over $100,000, not the vehicle but the license that you will transfer to a new vehicle. Is that the case for your dive shop, are you protected from competition? Can anyone open a dive shop next door to you?
What about the location, are you somewhere that is recognized as a dive destination and are there other facilities to make the dive vacation experience good for your divers and their non diving families?
Is the owner going to sign a non-compete agreement, will he agree to not open or work for any dive operation within a reasonable geographical area within a reasonable period of time i=or will he take your cash and open or work for a dive shop next door to you tomorrow?
What about staff? Will existing staff stay with you? Can you hire good staff at an affordable salary/wage? How about getting work permits for expats? You will need some expats to cover all language issues that you will need to provide service.
Once you do al the due diligence and are satisfied that you have a reasonable estimate of the costs and cash flows, discounted at an interest rate that you are comfortable with and have all the commercial issues resolved, what exactly are you buying?
Are you buying a business, one that will provide a reasonable positive cash flow? If that is the case, then as a general rule buying a business that people don’t want to do can be much more profitable. I know a guy, high school dropout who banked over a million dollars operating an old beat up septic truck, no one wanted to do that so he made an excessive profit.
Everyone wants to operate something like a dive shop, They are buying a lifestyle more so than a business. Nothing wrong with that but it does impact the numbers. Sit on the beach, dive whenever you want, have locals do all the work. That will increase the price and reduce your return.
After you answer all the above issues and more, you need to decide what is your target market, who are your divers, vacationers on a once a year may or may not dive holiday? Serious divers? Where are het coming from? How do they pick your operation over another dive operation? Are you a full service high end valet dive shop? Are you a high volume limited services dive ship? Are you a boutique shop catering to a specific small segment like serious tech divers?
Finally what are your own skills? Yes you may be a good diver but can you also do the finance and accounting, or at least have someone you trust to do this for you? How are you are you at customer service? How would you handle someone who was aggressively pushing an unreasonable complaint? Can you manage people? Can you easily relate to your customers? Give them what the want and not what you want to give them or think they may need?
I could go on, but it would end up as a mini business school education but you get the idea. Not everyone can run a successful business especially in the hospitality vacation industry. Lots of risks but the rewards can be great both financially and in term of lifestyle.
