Things to think about before buying a tourism business
Wayne Carew, principal & senior advisor with MRSB Mergers & Acquisitions, lets readers in on a few must-dos before jumping into the role of tourism operator
If you are a would-be hotel, theme park, B&B, campground or seasonal restaurant owner, headlines like these probably get your heart racing: ‘Canadians eating out more than they cook at home’, ‘PEI campgrounds enjoy record summer’ or, ‘This is the year of the theme park!’. Ok, I made these up, but we’ve seen ones like them. While these highlights are definitely good news for local tourism, they by no means tell the entire story, especially to those who are considering getting into this thrilling but sometimes unpredictable business.
First, let’s talk a bit about financing. A financing institution’s willingness to lend you money to buy or start a business depends on several factors, not least of which is how long it might take you to repay what you’ve borrowed. It can sometimes be difficult as an owner to adhere to a short payback period because the cash flow period (the time during which your business is taking in more than it spends) can be as short as two to four months. Of course, if your campground or water park is so wildly successful during the summer months that you can easily spread that income over a year’s worth of payments, you’ll have no problem. But the taciturn business cycle that is so common to tourism operations, and so shrewdly approached by lenders, is not something to be taken lightly.
One potential solution to the problem of limited lending power is to go through a government agency instead of the bank or lending organization. If your business doesn’t fall into the ‘must see/must do’ category, securing a provincial or federal government loan or grant could be your ticket. Make sure to do your research, and to enlist the help of a consultant or advisor if you feel the application process is over your head or will take up too much of your time. Many government processes are highly competitive, so you will want to do it right the first time.
The Cavendish Boardwalk is just one part of a lucrative cluster of businesses lining this popular beach destination
I’ve spoken to many a would-be owner who had quite a glossy view of what owning that hotel or string of cottages would be like. Words like ‘idyllic’, ‘cozy’, ‘beautiful’ and even ‘relaxed’ slip into the lexicon like oars into the cool waters of a pristine lake. If you think I’m being a little too starry-eyed with my wording, it’s because I’m making the point that romantic language has little to no place in business ownership, just as it has a limited place in professional blog posts. As an old business colleague used to say, sometimes entrepreneurship can be “an affair of the heart, not of the head”. What this all means is that you as potential owner need to reel in the fantasies and focus on the realities of your potential situation. Sure, you may have the occasional sunny morning when you lean idly in the rustic doorway, sipping coffee and marveling at how wonderful life is. But you’re far more likely to be spending your mornings hunched over budget sheets, providing slapdash training to a new employee or fishing something slimy out of the kitchen sink – for the third time. As long as you’re ok with it not being all roses, you might just have what it takes!
Think too about whether the business you’re considering is part of an already fertile ‘cluster’. For example, Matt Jelley is a highly successful entrepreneur who chose the renowned Cavendish Beach area in which to open his newest operation in 2006, Shining Waters Family Fun Park. The businesses surrounding the park make up one of the most lucrative tourism stretches in Atlantic Canada, and each business lends itself to one other, so to speak. Families can spend Saturday at the beach, do some quick shopping, eat at one of the local restaurants that evening, then hit Shining Waters on Sunday before heading home to New Brunswick. Another piece to Jelley’s success story that shouldn’t go unmentioned is that fact that he already owned two theme parks in Atlantic Canada before launching his new venture. He knew the market, he had years of hands-on experience behind him and the funds to back it all.
One last thing to think about is how long you plan to stay in the business. Unlike flipping houses, flipping tourism businesses doesn’t work the same way. In my opinion, if you’re going to do it, do it for long haul. Make the most of the business over 10 to 20 years and leave it better than you found it. Teachers are often ideal candidates to own tourism operations as they make a steady income for working fulltime most of the year, then have a few months during which they can potentially devote their time to making a seafood restaurant, B&B or cottage getaway shine. And during months or years when the business isn’t exactly thriving, they can lean on their salary and wait out the storm.
This post isn’t meant as a doom and gloom forecast of what may happen if you aren’t perfectly suited to life as a tourism operator. After all, we live in a province that makes much of its income on people visiting our shores ‘from away’. The industry remains strong and vibrant here, with many success stories and several regional clusters to take advantage of. My main bits of advice starting out would be to do a lot of research, speak to those already in the business, prepare your funding source(s) as far in advance as possible and have some kind of windfall or backup plan, just in case. Oh, and make sure you really like to meet new people, hear their stories and spend a good chunk of every day being social. Because that’s pretty much what showing people a good time on PEI is all about.