Am considering purchasing a KOA (asking = 1.7m) in a busy, seasonal area but am doing lots of research prior. Would like to hear from owners on their experiences or opinions of purchasing a popular (franchised) camp vs independently owned. Any thoughts on any aspect of camp ownership from owners or financial folks would be much appreciated. Thanks. : )
Hi campinngal, Ask why they are selling it. Lot's of folks seem to downgrade KOA for being "pricey" for the value received. I'd check everything very carefully. For example the electrical pedestals. I'd check every outlet to see if they are wired correctly.
Apparently, they want to pursue another business endeavour. However, this could be a code word for anything (low profits, burnout, too much work, etc.). I like the idea of having the support of the KOA system am also leary of having a "big brother" looking over my shoulder. Also, the KOA's tend to be more spendy and some campers can't justify it. There's so much to consider and my mind is bursting with all sorts of new real estate and financial terms. Thanks for your input, Piano.
QUOTE(campinngal @ Sep 29 2009, 03:15 AM) [snapback]19322[/snapback] Apparently, they want to pursue another business endeavour. However, this could be a code word for anything (low profits, burnout, too much work, etc.). I like the idea of having the support of the KOA system am also leary of having a "big brother" looking over my shoulder. Also, the KOA's tend to be more spendy and some campers can't justify it. There's so much to consider and my mind is bursting with all sorts of new real estate and financial terms. Thanks for your input, Piano. Email me and I will get a man and his wife to help you.What I think you are saying is you dont know what you dont know.I am ful time now and home base in Texas.A lot of new parks have opened and the folks are from different back grounds.The people I will have talk to you are good people that like to help others. When I showed him this subject he asked things no even mentioned here.Email @ fultimerrv@yahoo.com
In my opinion, asking why they are selling is like kicking the tires on a car, it will tell you nothing. The reasons people sell are virtually limitless. If the actual reason is a business problem, they will not tell you. If it is a personal reason, they may be embarrassed to tell you or feel that by telling you they may turn you off as a buyer. Make your decisions based on research. If it is due to business problems, those problems will turn up when you examine the financial data and match it up with bank statements, credit card deposit statements, utility bills etc. If it is an infastructure problem, you will discover it when you inspect the property. You can also check the financial statements and see if a lot of money has been spent on plumbers and electricians, if so, talk to them and see if the problems are fixed or is there an ongoing problem. You may want to hire outside expertise if you are uncomfortable or unfamiliar with the financials or are uncomfortable making inspections of wiring and plumbing. Due Diligence is the key to properly buying any business. On the KOA vs Independent issue, the fact that KOA is considered too expensive by some is not necessarily a problem. It is to your benefit to get more rental money per site. People that pay a higher price don't cost you any more than the people that pay a lower price. Many people also equate price with quality, it is not always in your best interests to be the low cost provider, you will tend to get the low cost users. This could potentially effect your other revenue centers such as campstore, firewood sales, propane sales, food service sales, gamerooms etc. Remember, you are buying a business not starting a charity and profit is not a dirty word. Finally, if you buy a KOA you are not obligated to maintain the franchise, parks drop the affiliation all the time. If it doesn't work for you, you can move in another direction. However, due to KOA protecting franchise territories, you cannot easily become a franchisee in most areas, so think long and hard about dropping because you probably could not get back in.
KC, You are a wealth of information and I so appreciate you taking the time to respond. I am thinking that I need to take a class in purchasing a campground before going any further. We have a campground that we absolutely LOVE that is for sale right now, and may not be available later on, but I'm leary about jumping the gun here until we're fully educated on this big investment. Thanks again.
A friend of mine bought a KOA campground about ten years ago. She kept the KOA affiliation for a year or two but dropped it after that. She said she had to pay KOA 10% of her gross receipts (not net), plus an annual fee, plus maintain store items that never sold and otherwise comply with requirements that she did not think made business sense. By dropping the KOA affiliation, she could lower her prices to better compete with other local parks. For all I know, however, different parks work out different deals with KOA. -- Dave
At a minimum, I would request to see their books and have a CPA (or equalivant business consultant) review. This is normal in most cases where an individual is wanting to sell their business. If they cannot prove a positive cash flow from their balance sheets, the reason they are selling is probably obvious. If they do have positive cash flow, look at their payroll. If they cannot keep employees on the payroll, this maybe another reason why they are selling. You would want to ask if there is available workforce in the area, etc. In either case, before you invest 1mil, you need to look and see if the business is worth the money. Good luck.
I'm in the same boat. I'm looking at 2 different parks, one used to be a KOA and can be converted back if desired and the other is not a KOA and cannot be converted to a KOA due to one being within close proximity. The one that can be converted is over $2mil, and the one that cannot is slightly over $1mil. Their nets are roughly the same, and the cheaper one is only open 6 months versus the other which is open 12 months of the year. I was really excited about the support network offered by the KOA, especially with us wanting to run the park remotely after the first season. But, now I'm torn between which to decide on. Anybody have any experience in a similar situation, by chance? I'd love to hear your viewpoints...thanks in advance for your help.
We have traveled a lot over the last 20 years and try to avoid KOA's. It is not just the price per night. If it is for a one night stop, why pay for what you don't need. If it is for a week or longer, we can usually find a better RV Park, more suitable to large rigs, at a lower price. Some KOA's are old, need work, need 2 sites consolidated into one for large rigs and don't have 50amp electric service. Find the website for Broke Mill RV Park, new, in Del Rio, Texas. 70' pull throughs. A rally room, and that is a big selling point. Check out the reviews at campgroundreviews.com. We just left 2 Rallys. The first had 12 rigs and the park had a small rally room. They are building a new one that is fully enclosed and larger. At the second, we had 84 rigs. Rally's bring in money. They last from 3 to 7 days. Think about things like that when looking at a potential park to buy. If the park is not on a city sewer system, expect a visit from the EPA. We know people that bought a CG back in the late 70's and had to install a complete second septic system. I am a retired accountant. By all means, hire someone to not only look at the books and potential revenue stream but also pick a CPA that is a RVer. (No, I am not looking for work.)
Thanks John...I'd love for someone to review the parks I'm looking at it, but I've been told it really needs to be someone in the state in which they're located, so they understand all the state and local laws.
Always ask to see actual federal tax returns. Many small businesses do business "off the books" even in these days of credit and debit card. I would be very careful of putting a lot of stock in what people claim "off the books". When we sold our lodging business nearly 4 years ago, we had others telling people some really inflated figures on cash received. Also owning a business and not running it on a daily basis can lead to a lot of trouble. I expect running a campground is very time consuming job and finding very good help is hard. One thing you also must consider is the litigious society we have and one successful suit can wipe you out.
I don't think anyone has mentioned this but I would consult a commercial property Realtor. They would have a pretty good handle on the businesses in their area.
QUOTE(ravencr @ May 6 2010, 01:42 PM) [snapback]21965[/snapback] I'm in the same boat. I'm looking at 2 different parks, one used to be a KOA and can be converted back if desired and the other is not a KOA and cannot be converted to a KOA due to one being within close proximity. The one that can be converted is over $2mil, and the one that cannot is slightly over $1mil. Their nets are roughly the same, and the cheaper one is only open 6 months versus the other which is open 12 months of the year. I was really excited about the support network offered by the KOA, especially with us wanting to run the park remotely after the first season. But, now I'm torn between which to decide on. Anybody have any experience in a similar situation, by chance? I'd love to hear your viewpoints...thanks in advance for your help. If the limited facts you have provided are true, you are way overthinking the process. What possible justification is there for paying double for a park that has a longer season and the same net income. Either the higher priced park is overpriced or the lower priced park is a heck of a deal. That OR, the lower priced park is in a less desireable area, has major infastructure problems or some other major factor driving down the value. KOAs primary value is in marketing, they aren't going to run the business for you. The offer nothing in operations support that could possibly be worth one million dollars. My bank has financed dozens of RV parks over the years and the number one criteria is always profitability. Capitalized rate of return (Cap Rate) is the number one thing to look at when comparing similar properties. Take the net income (before income taxes, depreciation and interest) and divide it by the selling price. The lower the number, the less attractive the deal. You should be able to get a Cap Rate of at least 9% . Lower than that, the park won't cash flow. Unless the park is a candidate for a big turnaround, low cap rate deals should be avoided. As a financial institution, we would be very concerned about your plans to run the park remotely. Unless you are an experienced park operator, such a plan is inviting financial failure. Any park consultant will tell you the performance of an owner operator park is superior to a managed park. In my opinion, managed parks are for the experienced park owner only. If you don't intend to be involved in the day to day operation of a relatively small RV park (and a 1 to 2 million dollar park is relatively small) I think you will find you are making a mistake. (unless you are financially able to lose $500K or so, in which case, why are you considering an RV park in the first place?). If you are going to move forward and are uncomfortable in evaluating the parks, hire a park consultant. A google search will reveal several. They do not have to have local knowledge, part of their service will be to research local laws. RV parks are relatively the same wherever they are located.
Hello everyone, Thanks for the help. The park that can be converted to a KOA has a 11.9% Cap rate. The other cheaper park did have some major infrastructure issues, so we've decided to pursue further the other more expensive one. As far as running a park remotely, we'll be running it in conjunction with the existing staff on-site for this first season, then planning to run it remotely from there.
QUOTE(ravencr @ May 10 2010, 07:45 AM) [snapback]22020[/snapback] Hello everyone, Thanks for the help. The park that can be converted to a KOA has a 11.9% Cap rate. The other cheaper park did have some major infrastructure issues, so we've decided to pursue further the other more expensive one. As far as running a park remotely, we'll be running it in conjunction with the existing staff on-site for this first season, then planning to run it remotely from there. That is a good cap rate. Sounds like a solid deal. Be sure to verify all the income and expense numbers with bank statements, Credit card processor statements, utility bills, tax records, license records etc. You should be able to verify between 90 to 95% of the numbers. If not, get out your tackle box become something is fishy. If you choose to convert to a KOA, you will need to increase the operating income by around $35,000 to maintain that profitability level. That is because you will pay operating royalties to KOA in the amount of 10% of the registration revenue (my guess is registration revenue for the park is around $300,000 to maybe $350,000) On top of that, KOA's software will cost you near $5,000 a year. Then you will have the upfront costs of signage, franchise fees etc. You will also have to stock the store with KOA required merchandise, for some KOA's that is a good thing, it makes your store profitable, for others, it is a total waste (If the park is close to a real supermarket or shopping area for example) . Before you pull the trigger on a two million dollar deal, I would still talk to a campground consultant and get the real scoop on remotely managing a park. Contacting some other park owners who manage from a distance would also be a good idea. It is not an easy thing to do and the odds are the parks performance will suffer, especially if you do not have a "go to" management team already in mind. Hiring management off the street is a big risk. It can be done, but it can also lead to a disaster.
QUOTE(kcmoedoe @ May 10 2010, 12:53 PM) [snapback]22024[/snapback] That is a good cap rate. Sounds like a solid deal. Be sure to verify all the income and expense numbers with bank statements, Credit card processor statements, utility bills, tax records, license records etc. You should be able to verify between 90 to 95% of the numbers. If not, get out your tackle box become something is fishy. We plan to do this, for sure during the contingency period. QUOTE If you choose to convert to a KOA, you will need to increase the operating income by around $35,000 to maintain that profitability level. That is because you will pay operating royalties to KOA in the amount of 10% of the registration revenue (my guess is registration revenue for the park is around $300,000 to maybe $350,000) On top of that, KOA's software will cost you near $5,000 a year. Then you will have the upfront costs of signage, franchise fees etc. KOA and others I've spoken to that have converted to KOA's after purchasing their parks have ranged from 15-40% increase in revenue. According to the last 74 parks KOW has brought on, they're 1st full year was a 40% increase with the first 5 full years being 19%. Given a 20% increase on revenue, we'll be making more money, and you only pay royalties on new business, not existing or past visitors, which is nice. QUOTE You will also have to stock the store with KOA required merchandise, for some KOA's that is a good thing, it makes your store profitable, for others, it is a total waste (If the park is close to a real supermarket or shopping area for example) . I'm not familiar with this requirement, but will definitely ask KOA. QUOTE Before you pull the trigger on a two million dollar deal, I would still talk to a campground consultant and get the real scoop on remotely managing a park. Contacting some other park owners who manage from a distance would also be a good idea. It is not an easy thing to do and the odds are the parks performance will suffer, especially if you do not have a "go to" management team already in mind. Hiring management off the street is a big risk. It can be done, but it can also lead to a disaster. I agree...a good manager will be key. Have any campground consultants in mind?
QUOTE(ravencr @ May 10 2010, 10:58 AM) [snapback]22025[/snapback] We plan to do this, for sure during the contingency period. KOA and others I've spoken to that have converted to KOA's after purchasing their parks have ranged from 15-40% increase in revenue. According to the last 74 parks KOW has brought on, they're 1st full year was a 40% increase with the first 5 full years being 19%. Given a 20% increase on revenue, we'll be making more money, and you only pay royalties on new business, not existing or past visitors, which is nice. I'm not familiar with this requirement, but will definitely ask KOA. I agree...a good manager will be key. Have any campground consultants in mind? You will pay royalties on all your reservation income. Not past income, but if a previous customer comes in after you franchise, you will owe the 10% fee. All registration income after franchising will be considered new revenue. You will want to independently verify KOAs numbers. a 40% increase in revenue would be very very high. Possible if the park was seriously upgraded when converted, but slapping a KOA sign out front without materially changing the park won't generally generate that much increase in revenue. There are a number of very competent campground consultants. I like Homer Staves of Staves Consulting. Don Dutton also does a great job.
QUOTE(ravencr @ May 6 2010, 02:42 PM) [snapback]21965[/snapback] I'm in the same boat. I'm looking at 2 different parks, one used to be a KOA and can be converted back if desired and the other is not a KOA and cannot be converted to a KOA due to one being within close proximity. The one that can be converted is over $2mil, and the one that cannot is slightly over $1mil. Their nets are roughly the same, and the cheaper one is only open 6 months versus the other which is open 12 months of the year. I was really excited about the support network offered by the KOA, especially with us wanting to run the park remotely after the first season. But, now I'm torn between which to decide on. Anybody have any experience in a similar situation, by chance? I'd love to hear your viewpoints...thanks in advance for your help. It is my opinion that the best parks have hands on owners.
QUOTE(brep @ May 11 2010, 05:14 PM) [snapback]22062[/snapback] It is my opinion that the best parks have hands on owners. I second that. Very different 'feel' when the owners are out and about. B)
