How to buy your own golf course
Purchasing an golf course is a life-long ambition for some and a spur of the moment decision for others. Whatever motivates you, it is essential to ensure that your purchase is soundly researched with input from specialists in the field. Here's our quick guide to the process...
1 The Purchasing Structure
There are basically two different ways the business could be acquired.
- A purchase of the assets including goodwill. This is the more straightforward route and is less risky as none of the existing business’s liabilities are taken over. The due diligence exercise should be much quicker and the purchase agreement half the size! The downside to this route is stamp duty, which could amount to 4% of the purchase price.
- A purchase of the existing company by acquiring its shares. This is the more risky route as you assume all the liabilities of the existing business, both known liabilities and any others that may materialise at a later date. The due diligence exercise will be a much longer process and the purchase agreement will be full of warranties and indemnities that the vendors will need to give. The major advantage of this route, however, is that stamp duty on the purchase of shares is only charged at ½%. On a £1.5m purchase, this route would save £52,500 compared to the asset purchase!
2 Tenure & Possession
Generally a golf course will either be a freehold or a leasehold property.
The purchase of a freehold property is generally simpler and there are fewer restrictions on its future operation. When purchasing a leasehold property, ensure that you fully understand the lease. How long is left on the lease; what is the user clause (ie what can you do with/how can you operate the property); what rent is payable; on what basis is the rent reviewed; can it be assigned? For both freehold and leasehold properties check whether all aspects of the business are operated in hand, or whether some are leased or franchised out to a third party. If any part of the business is operated by a third party, can you get it back?
3 Location
The majority of golf businesses (unless they trade as destination resorts) need an adequate population in the local area (typically a 20 minute drive time) to sustain their operation. Check the local demographics carefully, including any seasonal fluctuations. Also consider whether the method of operating the golf course (eg members club or pay and play; top end of market or cheap and cheerful) is appropriate for the local market/demographics.
4 Financials
A full understanding on the financial performance of the business (historical trade and future trading potential) is essential. Copies of the past 3 years audited accounts and up to date management accounts should be obtained. These figures need to be compared with benchmarking data available on golf courses to assess performance. This process should highlight any areas of weakness in performance, which can be discussed with the vendor to gain a further understanding of any issues and growth potential. Golf courses are cash businesses: check whether the accounts show a true representation of the actual level of trade at the Club.
5 The Business Plan
As with any business, it is important to have a Business Plan in place covering the next 3-5 years. If financing is required, the banks will request sight of the Business Plan as a first step. Without a Plan, how do you know where you are heading? Research is the key to The Business Plan which will include, inter alia:
- Objectives and Strategy
- The current Marketplace
- SWOT Analysis (Strengths, Weaknesses, Opportunities and Threats)
- Sales and Marketing plans
- Organisation and Management
- Operational summary
- Financial forecasts – cash flow and profit
The key, perhaps, is to decide upon the rational for purchasing the golf club – as an income generating business or for the kudos of owning a club – and the level of return on investment required as a result.
6 Due Diligence
It is important to carry out a full due diligence exercise, which should be undertaken by professionals advisers. It will cover areas such as course condition and related issues; environment issues; planning; licences (water abstraction, sale of liquor); health and safety compliance; employment rights and any contractual issues; tax compliance; VAT compliance; PAYE and NIC compliance; legal disputes; valuation; etc. etc. It is a lengthy exercise but a necessity to ensure that you are paying the right price for the Club and that there are not going to be any nasty surprises once you have completed the purchase.
7 Employment Rights
The team of people working at the golf course, apart maybe from the condition of the course, are its most important asset. Key team members will be essential for a smooth transition to the new owners. Obviously, there will be uncertainty among the team and nobody likes change, but the key is to manage the changeover to bring the team on board at the earliest possible opportunity. Employees’ rights are protected under the TUPE regulations regardless of the route taken to acquire the business, but many employees do not understand this and will need reassuring.
If you are thinking of acquiring a golf business and require professional advice, contact Ben Allen at HLL Humberts Leisure on 01962 835 960 for a confidential discussion.