BUYING A KENNELS AND CATTERY

Christopher Armstrong

LOCATION

Without the right location the business cannot succeed. It is necessary to have a sizeable catchment area in the immediate vicinity if all year round trade is to be attracted. A superb facility in an isolated position will attract a small number of appreciative devotees but the majority will look for a facility on their doorstep and will not travel over far. Twenty-five miles is probably the most anyone will travel and five miles is likely to be the norm.

ACCOUNTS SCRUTINY

Insist on seeing the accounts for the last five years. They must exist because it is a legal requirement that they are kept for five years. A profit and loss statement will not show the full picture and only accounts audited by a reputable firm of accountants will provide an accurate analysis and give reliable indication of growth and future prospects.

COST BENEFIT ANALYSIS

When preparing your business plan it is well worth paying an accountant to do a "Cost Benefit Analysis" to make sure you are buying a viable proposition. The agencies that sell kennels act for the vendor and are not going to go out of their way to draw attention to shortcomings. The agent's primary interest is to achieve a sale and earn a commission. You must not allow yourself to become mesmerised and blind yourself to realities. You must not get into a situation that will be a continual financial struggle.

BUILDINGS - BUYER BEWARE

Perhaps the most critical factor in a cost benefit analysis is the state of the buildings. Are they an asset or a liability? Modernisation or replacement is expensive and the true costs need to be known. The novice will probably be surprised at how expensive it is to provide buildings and how specialist they require to be. Buildings should meet the new rules and be functional and workable. There is specialist advice available on this very important aspect of the purchase. Many kennels have had little or no investment in recent years and the owners may be seeking to dispose of a liability before the licence is withdrawn.

PLANNING PERMISSIONS

Some older kennels have expanded over the years with additions sometimes erected on a DIY basis which may not in all cases have had planning permission. It is essential that this aspect is properly verified.
It is the intention to purchase and then carry out a rebuild or refurbishment it is advisable to obtain planning permission prior to the exchange of contracts on a purchase. At the very least discuss your ideas with a Planning Officer to gauge reaction.

CONSULTANCY

Consider obtaining advice, and if possible a visit, to an intended purchase by a consultant or an experienced kennel owner to obtain an independent opinion. If you pay a fee for this it could be money well spent. Someone who has been in the business for several years is much more likely to spot potential problem areas. A consultant will do a professional survey and audit and provide a detailed report. For details visit www.kenneldesign.com.

ENVIRONMENTAL CONSIDERATIONS

Be alive to possible environmental problems over drainage, waste disposal and disturbance to neighbours from noise. This is an area of rapidly increasing sensitivity and could become a trap for the unwary. You should seek advice from the local Environmental Health Officer. The septic tank may be working today but if it fails tomorrow you may not be allowed to replace it and will be required to install a sewage treatment plant with attendant costs which are likely to be in the region of £15,000.

FLOOD PLAIN

Check if there are implications for your intended purchase. Draining and insurance are relevant points. Visit www.homecheck.co.uk for flood plain advice and area details.

FINANCE

Expect to have difficulty borrowing money to enable a purchase. Banks may be hesitant to lend large sums and may want to see a managerial track record. Their concern will be the difficulty that would arise if the business failed and they had to recover the loan. There are financial advisors with appropriate experience in the kennels and cattery field that you can approach.

GOODWILL

Do not pay very much for so called "good will". It may not exist or may be linked to the reputation of the vendor. It is not a tangible asset and therefore banks will not accept it as collateral.

FRAUD

Make no allowance for so called "undeclared income" within the claimed turnover. It may not be what the vendor claims but more importantly it is high risk and attracts heavy penalties from the Revenue if found out. Disaffected customers may inform the Revenue of so called 17.5% discounts for cash, i.e. VAT avoidance. If the vendor is prepared to cheat the Revenue, what might he be doing to the purchaser?

ANNUAL INSPECTION REPORTS

Contact the inspector, who will almost certainly be on the staff of the local Environmental Health Officer, ask to see the last report and ask if there are likely to be any significant issues raised in the future, e.g. compliance with the Model Licence Conditions.

LOCAL STRUCTURE PLAN

Visit the local planning office and look at the structure plan to see if there are any plans or proposals that will have a bearing on your intended purchase.

MARKET RESEARCH

A useful exercise is to plot all the local kennels and catteries on a map so you are fully aware of the competition. The list of competitors will be found in Yellow Pages and most public libraries hold the full range of directories. It is advisable to visit the most immediate competitors. If they have been modernised and your intended purchase has not, then you will have a difficulty to overcome.

CALL ON NEIGHBOURS

If the prospective purchase has progressed to the point that you are seriously considering going ahead, it could be worthwhile to call on any close neighbours to the property and introduce yourself. In this way you are likely to learn of any problems or disputes.

SELLING ON

Remember that the time will come when you have to sell on what you are buying today. The fact that the turnover looks acceptable today is not sufficient if the buildings are coming to the end of their economic life or are already time expired. What state will they be in when you have to sell them? Far too many establishments have facilities that fall far short of the standards set by the Model Licence Conditions and will be costly to modernise or rebuild. There is a new Animal Care Act on the horizon; if it comes about and incorporates the Model Licence Conditions as law this could have far reaching consequences.