Should we buy this holiday let business?

chickmug

Pee

Thats a new one on me, the 10% ratio, and I have been selling this type of business for long time as a qualified business valuer and sorry but it just doesn't apply as simply as you suggest.

Where did that come from any web links?

emmylou69

I live in Norfolk and am familiar with most of it, which region are you considering purchasing in?
Have you visited the area frequently? Do you know it well?
Not all of Norfolk is lovely (although even the 'bad' bits are not too bad :-) )

RabbitMad

I'd be most interested too. Being from around that way I often have family I need to visit. I've often struggled to find holiday lets once you get away from the coast. Where is this in relation?

knightstyle

Before committing yourselves double check the figures, are they for a few years ago? Then ring a couple of their clients to see if they will book again, if not why not?
If the sellers have nothing to hide they will supply this info.
Then decide if you want to spend every holiday season working at home, miss weddings engagement parties etc.
Then think carefully about being together 24/7 some relationships crack under the strain.
Good luck with it if you go ahead, I was made redundant at 50 and did similar.

lincroft1710

Chickmug - I think Pee may be confusing "business income" with rental. In the VOA we worked on a yearly purchase of 10, so a commercial property worth £875K, would command rent of £87,500 pa.

However, I would understand if you disagreed with these figures as sometimes agents and VOA have very different views on property values.

Rockporkchop

Chickmug - many thanks. Just wondering why the net profit would be so low? If it was that amount with the mortgage included in that then I could understand it. I have since found out that all the utility bills for the property average out at £12k per year, then they pay approx £8k per year for staff and then approx £5k for repairs, replacements, contingency and such like (so £25k in all). They don't have a mortgage on the property but as you said, our mortgage would be approx £25k.

Very interesting to read what businesses can be so profitable. The idea of buying any sort of industrial or leasehold business really scares me to death though, I don’t think I could take something like that on.

Emmylou69/Rabbitmad - the property is in Aylsham, is that a nice area? It seems nice to me but I must admit I don't know Norfolk that well. It's always a novelty to me to see a large patch of grass without a dumped sofa on it.

DD2 - DH's firm went under so he only received the statutory £3500 plus notice for 10 years' service. There are a few jobs out there for him but he would be looking at a drop of about £15k at least, which will be much less than I am earning. Also his job requires him to be flexible, on call 24/7 and also regularly study and keep up to date, which just isn't possible at the moment with our home situation. Retraining for something completely new would take a while so I would still have to work to support us in the meantime, put the babies in nursery and have no guarantee of a job at the end of it.

Knightstyle - did doing something similar work out for you? Missing out on weddings etc doesn’t really worry us at the moment, we haven't exactly been inundated with invitations recently! I have asked for the contact numbers of previous guests and apparently they will be happy to give them to any serious prospective purchasers. I have checked the gross profit listed and for the last 7 years up to April 09 the lowest year was £94k, the highest £107k.

Many thanks again to all who have replied.

Madmel

I'm going to have to disagree with someone's posting. You don't have to miss weddings etc. We simply remove the property from the website if we want to do something on a particular weekend. To someone looking to book, it looks as if we are already booked for that week. As you may well have staff anyway, that should not be an issue.

I think I would be asking questions about occupancy of this venture. What percentage of total possible bookings are they actually booked for? Our vendors showed us their last 3 years which ranged from 46 weeks in a good year down to 36. That has not been our experience in the 3 years we have lived here BUT we are not using it as our sole source of income and have not marketed it as aggressively as we might. However, this suits us.

For info, we are 3 miles from the sea, a little off the beaten track and you need a car to get here as the nearest public transport is 1.5 miles away. Our best years have been about 28 weeks' occupancy. This year we have 23 weeks booked (but nothing after the end of September yet) plus we have reserved 5 weeks for our own family holidays/commitments. DH works very long hours and I also work p/t 4 or 5 days per week so this is a bit of a sideline.

chickmug

One aspect that has struck is you used the term Goss Annual Turnover and in my mind this included Vat but does it? I assumed it did. So if it did the Net of Vat figure is around £87,000 less the admitted running costs of £25,000 so a Net Profit of £62,000.

I say “admitted running costs” but this is where an experienced eye may spot the omissions and the figures that are too low. Also when I say Net Profit is then a case of what is there, in the business expenses, that can be added back in to the ‘bottom line’ to give the Reconstituted Net Profit. Legitimate running cost will include many items that could be seen as a perk of running the business, mobile phones, broadband, car running costs and the like.

A number of questions for you and bear in mind to trust no one until they absolutely prove they can be trusted. This has always been my view as I seen so many vendors of businesses try and ‘pull the wool’ over peoples eyes and get away with. So: -

To cut your repayments down could you get an interest only mortgage but would you wan it?

Hw long has the business been owned by the current owners?

Re question above have you asked to see P&L accounts since they first took the business on?
It is common for long standing sellers to start declaring differently for the few years leading up to ‘going on the market’. Such as leave many items out that are essential business running costs.

Do they pay booking fees to any intermediately?

Do they have any annual contacts with any intermediately?

Have you asked for the accounts?

Do you have accountant that understands business accounts and who will look through for you?

You say the booking levels are steady - how can they prove to you forward bookings?

Will they give you the database of returning customers. I know sellers that refuse on the basis of the Data Protection Act (Hogwash).

GDB2222

I know Aylsham a bit as we usually spend a week or two each year in North Norfolk. It's rather a pretty town, which we pass fairly often on the way to Norwich. I imagine most people pass it by.

Do you know what customers of the holiday villas come to that area for? I imagine the broads and general tranquility, but it would be worth finding out. (Essential, actually, in case whatever is attracting them is about to close down!)

I don't know what schools are like, and so on, but it seems a desirable area. It must count as commutable to Norwich if you need to find employment. The Bure Valley railway is fun for the kids.

emmylou69

Hi OP,
Aylsham is lovely!! I used to live in Reepham, which is nearby. It is really well placed for the North Norfolk coast, the Broads, and the city. It is a pretty little market town (think there is a market twice a week still), and although there are one or two dodgy bits they are not bad at all! It is on the Bure Valley railway, and close to Blickling Hall and Holt, so you should attract the older generation out of season as well as the younger ones during the school holidays.
I think unless you were particularly looking to be on the coast etc it would be hard to find a better location in Norfolk that made it easy to reach everything that appeals to tourists.
I am no expert in business and cannot help you with the figures side of it, but the location sounds great to me.
I do not know about the local schools but they do not ever appear on the news as being bad so I expect you would be fine :-)
I can look into them for you a bit more if you like.

And if you live outside London now, Norfolk will be wonderful - it is a bit sleepy but we are catching up and we have lots and lots of sky! It is a great place to bring kids up. The worst thing is that we have no motorways and hardly any dual carriageway to get into the county, the A11 is as good as it gets and that is not dualled all the way. However Aylsham is on the A140 which is a very big road for Norfolk :-)

Good luck making your decision xx