A closeup look at a business offered for sale including the price rationale and the pros and cons of the purchase.
The Business Aloha, all you stressed-out executives. If you've been fantasizing about a business in paradise, catch this wave: a five-year-old kayaking and hiking company on the southwestern shore of Maui. Founded by a former stockbroker who'd longed for an outdoor life, the company paddles in its revenues from adventure tours, outdoor-equipment sales, and -- the biggest source of profits -- equipment rentals. Prospects for growth are hot, thanks in part to a year-old Web page that's become the second-biggest source of customers (after hotel referrals). After pumping up revenues by 52% -- and profits by 83% -- over the past three years, the owner is off to Fiji, where he plans to clone his business concept. Two full-time and three part-time staffers will remain.
Recast earnings before
taxes, and owner compensation
Price Reduced to $169,000. For $79,000 down, the owner will finance $90,000 at 10% interest for five years.
Outlook The timing couldn't be better for this industry niche, if trend spotter Faith Popcorn is right in projecting a booming demand for fantasy adventures. Nor could this company's location be topped: the flow of tourists to Maui, Hawaii's second-largest island, is even stronger than the force of Waimoku Falls, one of the sites visited in the company's $115 tour of the bamboo forest. To grow, push preseason bargains, expand the hikes, and add more overnight options.
Price Rationale The current sales price is dead-on with this company's recent appraised value of $168,000. That figure was calculated by multiplying the company's recent cash flow by 2.24 (a typical rule-of-thumb multiplier for a miscellaneous service business). The deal includes $50,000 worth of retail inventory and $13,000 of equipment. But one expert warns that this deal makes sense only with a high down payment and financing over five years or more. That's because recast earnings, at their current level of $73,500, must cover owner compensation and taxes as well as financing costs. Assuming you pay yourself a skimpy $30,000 salary and the company stays in its 25% tax bracket, you'll wind up with a 13% return on your investment (if you stick to the proposed sales-and-financing arrangement). That's better than most mutual-fund investments, but not quite up to this expert's target of a 20% to 40% return on investment. To get there, negotiate for longer-term financing -- or that old standby, a lower sales price.
Pros Kayak with sea turtles instead of swimming with corporate sharks, and wear a bathing suit to work.
Cons Your customers will all be richer than you are -- if the economy stays healthy. -- Jill Andresky Fraser
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Inc. has no stake in the sale of the business featured. The magazine cannot confirm the accuracy of financial or other information offered by the seller. Inquiries should be directed to Michael Capuano, American Pacific Realty, 808-874-4008.