Tips for Buying and Selling a Tourism Business
Guest article by Keith Vanden Avond, CBI
SOURCE: MARKETPLACE MAGAZINE

While 2002 and 2003 were extremely challenging for the tourism industry, many experts are pointing to signs that the economy is picking up.  RV sales continue to surge despite high fuel prices, and hotels, cruise lines, and car rentals have all seen a rebound. 

Not surprisingly, as the industry picks up speed, mergers and acquisition activity is on the rise.  If you are thinking about selling your tourism business or getting in on this growing industry, here are some key tips to keep in mind:

Tips for Selling

In order for your business to be salable, it has to cash flow. 

From a campground that sells firewood to a golf course with a driving range, tourism-based businesses have increased accessibility to cash.  If that cash doesn’t show up on the bottom line when it’s time to sell, your business is not going to be as valuable. 

One of the most important things you can do to increase the value of your company is report your income.  There’s a saying among industry experts about driving money to the bottom line: “You can only take it once.”

In fact, according to Mark Brandt, a CPA and partner in Pinnacle Consulting Group, for every dollar you take out now, that’s four dollars you won’t get when you sell your business.

In the event that your cash flow doesn’t support the sale price, be prepared to help the buyer with seller financing.  When setting a lending value, banks are interested in lending on what a buyer needs to retire debt and make a living.

When a business is seasonal, like many leisure and hospitality business are, sellers also have to pay more attention to a sales timeline.  Buyers want to be on board before or just at the start of its busy season. 

They won’t make a purchase right before your lean months, and they don’t want to learn your business during peak sales times when efficiency and expertise are most critical to success.

A typical business transaction is going to take 30 to 90 days to close, and you need to give your broker about six months to find potential buyers.  So plan to have a selling agent in place at least nine months prior to the start of your season. 

You should also investigate growth opportunities so you can communicate them to a potential buyer.  Many buyers will be looking for an opportunity to take what you’ve built and make it even better.  Demonstrating growth opportunities adds value to your business.

Finally, do what any business owner should do before a sale.  Clean house, paint, and make the facilities look nice.  Document your processes and organize your records.  Carry on business as usual—don’t let sales slump while you think about the future. 

Tips for Buying

There are always four things that I want to know when a person is buying a business.  Do you have passion?  Do you have the experience?  Do you have the financial wherewithal? And, are you prepared to make lifestyle changes?

In the leisure and hospitality industry, for transactions anywhere from $500,000 to $5 million in value, buyers are usually more driven by lifestyle than by profit.  They are looking to find a job they will enjoy.

These buyers want a certain lifestyle.  Consider golf courses, campgrounds, and restaurants.  These are attractive to outdoorsy folks, people who like to cook, and people who fancy themselves as excellent golfers.

So these buyers definitely have the passion and industry specific experience.  However, operating a successful business takes more than industry experience. 

I’ve known many people in my life who were great cooks and thought they should own a restaurant, but they didn’t understand the amount of work it takes.  Owning a business means dealing with issues like human resources, licensing, marketing, and commercial insurance.

When you’re buying a business, sit down with the sellers and ask them what they liked about the business and what they didn’t like.  Ask them to tell you about the tough times.  Are you prepared to go through the same challenges? 

Consider your family as well.  Whether or not you’re planning on making it a family business, you need to be sure that everyone in the family is on board.  Your spouse and children need to know that owning a business is typically not a 9 to 5 kind of job. 

When inquiring about a business, be honest with the broker about what your personal needs and motivations are.  If the business you are inquiring about isn’t right for you, the broker may be able to lead you to other opportunities that better fit your dreams. 

With a positive industry outlook for 2005, business values should be strong.  If you are in an acquisition mode, look for businesses with strong growth opportunities.  The industry uptick makes this an ideal time to grow an existing business through further development.

If you are looking for an exit strategy, work with professionals who can help you evaluate your current value and determine if the time is right for you to sell.