Buying an existing post office

[LJ75]

Hi all,

My husband and I are in the early stages of considering a change in career/lifestyle and are researching the possibility of buying a post office/retail business.

We would be looking to sell our house and using the equity (roughly £170,000+) towards buying the business.

We have looked at a business which is being sold for offers around £400,000 which is generating a turnover of over £200,000 p.a, net profit of £50,000 and has 2 part time staff who are able to run the business in the owners absence.

I am wondering what the possibility would be of being able to raise finance for the remaining £230,000 bearing in mind that neither myself or my husband have expertise in this sector. Will the fact that their are existing staff who can run the business be of help to us when drawing up a business plan or is it likely that we will be turned down for finance on the basis that we have no prior experience?

Any help/advice would be greatly appreciated.

Thanks in advance!

 

[Talay]

At first glance, the numbers don't add up. Not even close.

I suspect the £50k is inclusive of the owners working. Add in that "salary" and you are break even at best; 2 part time staff cannot run a business.

Where is the post office salary ? not a post office anymore ?

The £400k is mind boggling but it could be the bricks and mortar - is it ?

Not enough detail here.

 

[LJ75]

Sorry for not giving enough detail in my earlier post.

Sales for the last financial year were £205,000, gross profit £55,000 with post office earnings of £16,000 giving an adjusted net profit of roughly £50,000.

The business is run by a husband and wife with 2 part time staff and an annual wage bill of £15,000.

The £400,000 price includes 3 bedroom owners accommodation.

Apparently there is scope to increase sales by extending the opening hours however the business is being sold as a 'lifestyle opportunity'.

 

[Talay]

So there you have it really. It is a property, upon which you might / should be able to raise a mortgage but the income element of it is quite low and the Post Office salary of £16,000 is fully offset by the part time staff. I think the salary is quite low but you can look here for lots of additional information, including lots of post offices for sale http://www.nfsp.org.uk/Buying-a-sub-post-office
and https://de5.i-grasp.com/fe/tpl_postoffice14.asp?newms=se

Businesses being sold are always, repeat ALWAYS bid up by (often) clueless / unscrupulous / less than candid etc. agents who night on always say that every single business being sold has the opportunity "to increase sales" when the current (and often previous) owners tried for years and years and failed to do so. Suddenly, you, with no experience, have the magic touch, in their eyes of course !

Do not trust a single word. Repeat ad infinitum. Get it tattooed on your hand, your wife's head etc.

Let's say the accommodation is worth £200,000 if it were stand alone. Were it not a Post Office, perhaps the retail part of the business is worth £100,000. That means you can account for roughly £300,000 out of the proposed £400,000.

Thus, what they are asking you to pay is £100,000 for a business (ex the Post Office) which they say makes a net profit of £50,000 (but has no wages for owner labour). If that means 6am starts and 10pm finishes 7 days a week, that is a very poor rate of return isn't it ? Remember also that stores don't fill themselves, you need to spend hours getting the stuff to sell.

What works very well near me is a small Post Office inside a medium sized local convenience / grocery shop which rebranded last year to Costcutter. I know the owner and it has helped his logistics, particularly ordering, to have to delivered from the Costcutter network. He works part time in both the shop and the Post Office as does his wife but largely they are assisted by young adults and a couple of village ladies.

However, if his were in a run down area as opposed to an affluent village, I suspect his business model would fail or struggle as people here value the convenience and care not too much about the higher prices. I think you will find that critical.

 

[Paul Norman]

Talay is correct. If the property is worth £400k, go ahead. Buy the property. And see if you can establish a business there.

The existing business appears to be making zero profit, in the real world. I would want to understand in some detail whether that is because it has been run down, or whether it is because the business there is not viable.

Do lots of research. And lots of due diligence.

 

[PaulThompson]

We can look at the funding options for you, in terms of costs etc., see if it's viable - The value is relevant but the ability to pay the mortgage and survive is also just as important.
Some "lifestyle" businesses are termed thus because they will never amount to anything more than they presently do. There are some though, that with an imaginative owner can really flourish and grow.

 

[Feldon]

I was a sub postmaster for two years and quite frankly i wish i had never taken it on. This was between 2005 and 2007, although i did manage to sell the business and get my money back. The Post Office has slashed services over the last 10 years, its management structure is out of the dark ages and treated me like an employee even though i was self-employed. I had quite a high salary office at £65K plus the profit from a gift shop but after paying wages, rent and rates i was left with around £30K before drawings which was o.k and i did increase sales over the two years i ran the store, however i could see a time that reduced services, increased rent and rates would drive that profit down.

It also takes a long time to be approved by the Post Office, trained and to complete the sale, mine took 5 months to buy and 4 months to sell, bear in mind the Post Office have to approve anyone you sell the business to.

You will also be responsible for any losses / gains of Post Office stock, including cash, so nay mistakes by you, your staff will make you liable. There has been a long running train of thought that there is a glitch with the P.O's Horizon computer system which has meant a few branches showed a loss which was a computer glitch which meant that some where left owing thousands or even ended up in prison. I did read a while back that they had finally admitted that there might be a glitch in the system but not sure if it has been fixed or not.

I spent almost half my time counting the stock and reconciling the P.O. balance sheet which has to be done weekly. Personally i would think very carefully before going down this route, go and speak to half a dozen current Sub-Postmasters and ask them for their experiences first, wish i had.

I recently contemplated buying a Convenience Shop and doing the same as you and selling the house and buying a freehold shop with accommodation but discounted it as although it had good profits i would have been tied to the shop 7 days a week, from 7am to 9pm with little time to enjoy life.

 

[Talay]

Great post Feldon, highlighting exactly the pitfalls of this type of business. Caveat emptor !

 

[LJ75]

Many thanks for the replies, they have been really useful and given us a lot to think about.

 

[Karimbo]

post office sounds like a terrible business to be in. you buy into this and youre going to sweat your arse off for next to no return.

 

[TMGG]

Another point about retail/post offices - having to deal with the public. Just the odd moron customer can ruin your day/week/year.