Southwest Florida (and all of Florida for that matter) is a very seasonal place. Starting in October our population swells with retirees and vacationers from northern climates where the weather has just turned cold. This is great news for our local economy as businesses are packed, wait times at restaurants climb exponentially – so profits rise. It stays this way until the spring when the weather improves for the northern latitudes. Then local businesses feel the pinch of the approach of the off-season summer. The tourists and retirees are gone, so the year-round locals are all that’s left.
This seasonal rise and fall in business happens in many places, so if you are trying to buy or sell a business, you will need to understand what this seasonality means in terms of a business deal.
You will have to realize that the numbers during a peak month are not the numbers for every month, and likewise the months on the low end of the profit spectrum shouldn’t necessarily scare you away. Buyers who are coming to a seasonal area from an area without such fluctuation need to look at the numbers on a yearly basis instead of on a month-to-month basis. If every year the business is slow in July and August, but then rebounds and does well for the remainder of the year, then the business is probably in good shape.
Most sellers want to sell their business in the slow months, just after the busy season has ended – thereby taking the lion’s share of the yearly profits when they go. Although this is a smart move financially, most buyers won’t agree to take the wheel with a handful of bad months directly in their path. As a seller, you will need to be realistic about a closing date and be willing to negotiate with a buyer so that both parties end up happy. This is especially true if you will be offering seller financing, as you won’t get paid if the business folds in the first few months after the ownership transition. You will likely need to give up a few lucrative months so the new owner will have enough cash flow to keep the doors open.
The message here is you will need to consider the cycles of businesses in a seasonal area before misinterpreting numbers or trying to set closing dates that will benefit you alone. By allowing some room for negotiation both sides can end up with a fair deal.
Do you have a seasonal business that seems to scare away buyers when they look at the slow months? Are you looking at businesses in a seasonal area and want to know what is acceptable in terms of fluctuation? Please feel free to leave us a comment or question, and we would be happy to help.