Advice on buying a business

by topazco. Posted on Sep 16, 2020    0    5


I’m looking for advice on how to structure a business purchase. It’s a seasonal vacation rental multi-unit property. The owners do not have any detailed bookkeeping. Everything is done manually and the 3yr financials they provided leave more questions than answers. So far they have not answered basic questions about the financials such as descriptions of certain expense accounts. I believe they had an accountant create these income statements based on their inputs so they not have any way to verify or backup these numbers other than going through physical invoices. They have owned it for a while and are ready to retire, very old school operation. Their response is basically, you are going to want to run it differently than us so sorry from scratch.

I think there is big potential here to realize efficiencies, increase revenue, do some updating, etc.

As it stands now we don’t want to move forward since the financials are not giving us much confidence and objectively speaking it is not a good investment based solely on the data they provided so far.

My thought was could we do some sort of trial for 1 season and see how it goes while I visit regularly and keep my own set of books based on actual expenses I can verify while learning the business. If it looks good I can complete the purchase and if not, walk away.

Has anyone structured a deal like this? I’m curious if this is common or how it should be structured and what metrics should be used, etc.

I am going to speak to my CPA and attorney as well.


Comments

BizCoach 1

I would not think of it as a business. I'd think of it as buying an asset. You'll have an asset that could generate income, and hopefully profit. But they're right - how you'll run it is very different from how they did. So do your research on how you'll run it and then decide how much you want to pay.

You can do the research of what expenses will be for a property like that in that area pretty accurately regardless of how they ran the place. You'll have to be more creative to estimate the rental income given the seasonal nature and the current pandemic. But that's why you get paid the big bucks [GRIN].

Lloydwrites 1

You could propose a "manager's agreement" in which you write a letter of intent to buy and manage the business for the current owners while you do your due diligence and arrange for payment. Make sure your letter of intent states that if the data doesn't support the seller's claims, then you're under no obligation to pursue buying the business, and that the business is removed from the market during your manager's agreement.

ronnevee 1

Do not buy the business. That comes with any tax debt from them improperly reporting income.

Buy just the assets.

Swaption20 3

Why don’t you look at the tax returns? Every law abiding business owner files tax returns for their business income. And every business valuation professional would require them as well.

newby007 3

It’s a good idea to shadow the current owners for a few months to see what the operation is like whiteout making any payment.. But if it’s seasonal you’ll need more time. How is the industry like in your area right now( COVID 19).
It’s wiser not to go forward if the financials aren’t provided and satisfactory