Rely on certified financials! - Buyers’ Guide 5 of 6
Posted: November 10, 2023
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#5 of 6 – Rely on certified financials!
When evaluating a business's financials, especially Profit and Loss statements (P&Ls), it's essential to consider the accounting practices employed by the company. To ensure accuracy and reliability, it's best to seek certified financials prepared by a qualified accountant. These figures are usually provided by the seller through their bookkeeper. Keep in mind that discrepancies in operating costs may arise due to misplacement or intentional manipulation, such as unreported cash or fraudulent activities by managers or owners. Reviewing bank deposits and tax returns can help gauge the true financial picture, as tax returns often indicate the minimum income reported by the business while expenses may be inflated to minimize apparent profits.
To obtain a clearer understanding of the business's actual profitability, adjustments to the P&Ls may be necessary. Removing operating costs that would not apply to a new owner is a common practice, but it might require cooperation from the seller to comprehend this process.
The ultimate goal is to identify the net profit, the amount left after settling all operating costs and bills. It's important to note that mortgage details are currently unknown but should also be taken into consideration during the evaluation process. High-interest rates can significantly impact the amount available for the new owner, and with an expected rise in camping rates in the coming years, acting sooner rather than later may be wise to secure a more favorable purchase price. This is because waiting for interest rates to decrease might lead to higher park values, potentially making the campground unaffordable in the future. Purchasing now and considering refinancing later when rates decrease could be a viable strategy.
Pricing a campground can be challenging due to the uniqueness of each property and the scarcity of appraisers familiar with the resort industry. To overcome this, reputable appraisal companies with extensive coverage and comparable data can provide valuable insights. Regardless of the type of business or campground, the bottom line, representing the net profit, remains a crucial factor in the evaluation process.
While resort properties might not be favored by all banks, there are lenders willing to provide financing for such ventures. Finding a bank that understands the value and potential of the campground business is crucial for securing the necessary funding.
In summary, when assessing a business or campground for purchase, it's essential to rely on certified financials prepared by a qualified accountant and consider making adjustments to the P&Ls to arrive at the actual net profit. Acting promptly to acquire the property before interest rates rise further can be advantageous. Utilizing reputable appraisal companies and finding understanding bankers can facilitate the process of purchasing your dream campground.