Owners wages are not part of profit
Often, brokers handling the sales of newsagencies add back owners wages to the profit of a business before determining the selling price. For someone who has not purchased a newsagency before this can provide a false view of what the newsagency is worth. They see a ‘profit’ of $150,000 a year and think that is a nice return. Once you factor in that the husband and wife running the business together put in 100 hours a week, the real net profit of the business is under $50,000.
My view is that the multiple, if used in setting the sale price of a newsagency, should be based on real net profit and that real net profit must reflect a fair wage for the owners time working in the business.
I have seen recently situations where the add-back approach results in new newsagents paying over the odds and wondering, three or four months in, why they are not making the money pitched by the vendor and their broker.
I appreciate that this is a contentious issue. It is, however, something we need to discuss and resolve. The financial health of our channel depends on new newsagents joining us on fair and equitable terms.
