I have been in the tropical destination scuba diving business for 20 years now, and have been involved in owning, running and finally selling scuba dive centres, liveaboards and resorts.
I am writing this because it seems to be a recurring theme throughout discussions with new investors/entrepreneurs and business buyers into the Destination Scuba Diving Business. Many of these people have long diving history, thousands of dives, and are VERY successful business people in their “real lives’
It’s a mistake to base ANY company on only its tangible assets, scuba diving businesses especially. The size and success of a scuba business and the real profit comes in the high quality and ease of the lifestyle of its owners.
That is why 99% of all scuba business owners in tropical destinations are there.
They want to live the lifestyle on the island and dive whenever they want to.
I don’t know ANY liveaboard or dive resort or dive centre owner in any tropical destination who decided to start the business (or buy it) because it would give them the best ROI financially on their investment. (none of them have been THAT stupid, to put it bluntly). The the diving business is not filled with MBA’s and business degrees, the people who are driven to those courses and degrees have other things that make them happy (I hope!).
Now that’s not to say scuba businesses don’t make good money. That would also be erroneous. Just that a high financial ROI of other businesses is not the deciding factor in choosing to join the scuba dive business.
The REAL profit from owning a scuba dive centre in a tropical destination (I can’t believe that I have had to persuade people of this!), is the life in the tropical destination itself. The second factor is the freedom to dive everyday if you want. (that last bit is VERY important!).
Location, location, location!
Most dive businesses consist of little more than a couple of compressors, a few boats, and few sets of scuba gear in the Asset Register. Maybe a building (that has been substantially adapted to the specialist business, and would require significant investment to convert to anything else!), maybe a vehicle or 2, maybe a wharf or dock on the ocean. Point being, if you add all these up on paper, it doesn’t add up to much at all in dollar amounts.
I see dive centres for sale listing all their “equipment” all the time on forums and websites, right down from having “2 dive boats” to having “16 pink snorkels”. Really? Does anyone really actually think that this kind of list in anyway values the dive business? Anyone in the dive industry just laughs at listing o-rings, snorkels, masks etc. We know how much we buy rental gear for, especially disposable items like masks and snorkels…
The value of the business is the BUSINESS itself and the lifestyle it will give the owners, and not a sum of its tangible assets. Or indeed of its financial balance Sheet or P&L. Now, to ignore the financials would be folly of course, but they cannot be the PRIMARY reason to buy any Small/Medium Scuba Business on a tropical island.
I also hear a lot about ‘growth potential’ in these discussions and sales negotiations. This has its pros, but also some major cons. To re-iterate why we all come to live in Paradise, we did not come hear to work like a work-mad entrepeneur, 7 days for years… We come to live “the life”. Therefore expanding the company to have 5 dive centres, may indeed not be a worthwhile goal, especially if requires more work from you (and lets face it, it WILL!).
You do not move to live in Fiji to work 7am-6pm, 7 days, 365 days a year in a job!
The dive centre will have many contracts and relationships with the resorts and hotels around it that will have taken years to establish. This is not do-able in a short period.
The real strength of the company comes in intangible assets that really cannot be bought any other way. Seriously REGARDLESS how much money you think you can throw at it…
The bottom line of the tropical dive business is the high quality and ease of life of the owners to live, work, dive and enjoy themselves on a tropical island.
The best dive businesses have long-term staff that do all the heavy lifting and grunt work, and leave the owners to manage as and when they choose. You do not want to need to be in ‘the office’ daily, regardless of how much fun it is the first few months. It is YOUR business, to supply YOUR lifestyle, Not a job you got in the tropics.
(side note if you do just want a job in the tropics, that’s doable of course. Head over to the PADI Employment Boards and see lots of jobs on offer. Again lifestyle being the driving factor, not earnings!)
Most of the tropical dive business unfortunately don’t ever achieve this level. The owners have effectively bought themselves or built themselves from scratch a “JOB”. And not an easy job by any reckoning. They are up at 6am in the morning, 7 days a week, 365 days a year. Days off? Ah yes they remember them in the “real world” they came from.
Even some of the ‘so called’ tangible assets such as the online assets and customer database are in reality a time-earned asset. You really can’t just throw a lot of money at a struggling or brand new dive business and VOILA there you go! These things take years to build up momentum, followers, trusted status.
To set up a new dive business from scratch is relatively easy if you have a wee pile of cash… Walk into BAUER or COLTRI, buy a compressor, find a boat owner, get a contract to use the boat for scuba diving, buy 20 or 30 scuba cylinders from Cramer Decker, and a few sets of gear from Scubapro. Et voila, instant dive centre? Not really huh? Now you have got yourself a small business with no history, no customer base, no hotel contracts. Then you have to work out all the places to source better (or more cost-effective) gear, work out the best way to maintain/repair the compressors when they need it (oh yes and where to get cylinders fixed in the meantime…)
SO for the next 5-10 years you will be working DAMNED hard to establish it, with all the struggles and set-backs of any SME except with the added risk and dangers of doing it in a foreign country. EEEK!. Mostly not what people are looking for in their “dream life on an island”. All too common though…
Now this “dive centre from scratch” sounds fun to some. And in Sydney or San Diego, I would probably have a blast at it myself. However we’re talking about a tropical island here, a foreign country, not our own country. Do you speak the language of this island? Do you understand the law (ALWAYS different from your own, believe me). Have you ever done business in, lets face it more than likely, a 3rd world country.
So the analytical way to look at this is to face facts.
You will be buying a dive centre in a tropical destination for 2 real reasons:
- to live a high quality and relatively easy lifestyle in the tropics
- to dive everyday, or indeed as often as wanted
Other reasons, that support the 2 primary ones above are:
- to have a higher standard of living with the lower cost of living
- to have more quality time with kids
- do less housework and laundry
- live the life, take some risks, and live free in the tropics!
So what IS the REAL worth of a scuba dive business… Same with every product, effectively it’s worth whatever the market is willing to pay for it.
But do not be fooled by thinking that any Seller is going to be shanghai’d with analysis of their Asset Register, Balance Sheet or P&L for the last year into making the business worth only a couple of thousand dollars for the “2 dive boats” and “16 pink snorkels”.
That analysis works when buying a run of mill business in the real world, but just doesn’t add up to the life on offer in the tropics.
Location, location, location!
Bottom line: the Buyer and Seller need to sit down over a bottle of wine or a cup of coffee outside the dive center (on location) and have an honest face-to-face discussion about the LIFESTYLE that is being sold. Without being on site, it is IMPOSSIBLE for anyone to judge the value of this.
(then you can do an analysis iof the finances to see if the business can indeed support that lifestyle… another story all together)
And then negotiation on the price can begin…