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Buying a dating agency

Interview with...

Roland Stringer (started business with his wife, Anne)
Age:
48
CV:
Accountant
Business name:
RSVP
Goods/services:
Dating agency
Location:
Midlands
When bought:
Two years ago
Price paid:
£500,000
date

Adam Bannister: Why a dating agency?

Roland Stringer: We'd always worked in business to business, so we wanted to do something that actually touched end customers for a change.

We wanted to do something that actually touched end customers for a change

We looked around for something with a track record of decent returns and a regular level of revenue.

We've been used to working with consultancy-type businesses, where you have to actively go out and get new business all the time. This was more of a going concern.

AB: And why this dating agency in particular?

RS: It probably has a more sustainable business model than the others.

AB: How so?

RS: All our members pay a monthly fee, whereas with most dating agencies you pay a fee up front and that's it.

AB: How do you justify charging monthly payments?

RS: We're one of only two or three agencies in the UK offering events and we offer far more than anyone else. We arrange meals out, cinema trips, dances, a couple of grand balls... Last weekend we did parachute jumping and this weekend we're doing some helicopter flights.

AB: How many staff did you inherit?

RS: We employ about 15 people, about half of which were there when we took it over. The general manager, who ran the business day to day for the previous owner, volunteered to stay on and has been really helpful.

AB: Tell us about how you financed the deal...

RS: We invested about 20% of our own cash and the rest was debt-funded. It's a mixture of bank loans and loans from the vendor.

AB: How did you decide on this form of financing?

RS: We suggested it. It's a technique that I'd seen used mainly in MBOs [management buy-outs] at big companies.

There isn't much in the way of assets with RSVP; the value is in the 15,000 lifetime members. It's therefore quite hard to raise money on, and secondly, we wanted to retain the vendor's support.

We stay in touch with the vendor and all payments have been met on time.
With so many business deals, the deal gets done and you never see or hear of the vendor again.

Although that deal was done two years ago, vendor loans would be even more effective in today's market, where sellers have to lower their expectations of what the buyer can afford. If you're a vendor it can help with your tax bill and provide other benefits.

AB: How much did your accountancy experience help during the deal?

RS: Hugely, on two levels, really.

One, we were able to assess the business ourselves, to see value first hand. If a lawyer or accountant does it on your behalf, how do they know if the business is right for you?

Secondly, our experience allowed us to explore innovative ways of putting the deal together. Vendor loans are a good example of that.

 

AB: How much research did you do?

RS: A lot. We put together a comprehensive business plan with not just financial forecasts, but market research too - where the opportunities lay, what the competition was like, what the prospects were for offline agencies versus online.

We had a day-one plan so that on the day we took ownership we had a list of things we could accomplish pretty quickly.

AB: Such as what?

RS: There was quite a lot of work to do on unifying the branding. The previous owner had lots of things designed by different designers so it was a bit of a hodge podge.

We also invested heavily in technology, in a new network and new membership system.

AB: Any problems encountered in the buying process?

RS: The level of security required by the banks is pretty daunting - having to do personal guarantees, having to execute all the documents.

Also, we were buying a sole tradership, which means you can't do things like transfer the bank account and contracts because they're personal to the sole trader.

A lot of customers and suppliers don't want to know when you turn it into a new company, whereas if you just buy shares in something they wouldn't even notice that it's changed hands. So my advice to potential vendors is to incorporate long before they decide to sell.

AB: Would you do anything differently if you bought another business?

RS: I'd probably do even more research.

There was one particular assumption we made about our ability to sell dating services to the over-55s that turned out to be flawed. We should have tested that assumption in the market with maybe a survey, although it's really difficult with the timescale you're working to.

AB: What are your goals for the business?

RS: I would like to see us continue to innovate and have more strings to our bow than our competitors.

I think we, as an industry, have to persuade over-50s - men in particular - that this is an acceptable and effective way of finding a partner. It's perfect for them: they've got the time and money to invest in it.

We may also want to expand beyond the heart of England into Leeds and Manchester.

AB: Any advice for business buyers?

RS: Probably the most important thing is to bear in mind that it's a negotiation. Go in there with a clear view of what you think the business is worth and why.

Don't be afraid to ask for things. The vendor probably thought it was cheeky of us to ask for a vendor loan - but they agreed to it.

And do your research really thoroughly. Test any assumptions, ideally by asking your marketplace.

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