How to value a Tenerife Business

Almost all small businesses in Spain do not declare their full income to the taxman, and this can make valuing a Tenerife business quite difficult. This article is a guide for buyers who need to assess the value of a business for sale in Tenerife.

There are two reasons why accounts submitted to the taxman may be ineffective as a valuation tool. The first is that many small businesses operate in the Modulo system and only need to provide the bare minimum of tax information. Often these business owners do not keep any unofficial records of their business transactions either.

Other Tenerife business owners may be paying tax based on their profits, however they are very likely to keep two sets of books. Small businesses often have a high level of cash transactions, so it is not that difficult to hide a certain amount of revenue.

In both cases, the official accounts are not good guides to the real worth of a business as they do not include many transactions on both sides of the balance sheet. Therefore a buyer of a Tenerife business is forced to do some of his own research in order to accurately assess the profit and costs.

The best (and only) way to do this is to visit the business and watch the flow of customers and their purchases. A buyer should make the time to do this over a period of days in order to get as accurate a picture of trade as possible. When they have accumulated enough figures, these will then need to be weighted by a variety of factors.

If the business services the tourist market, then trade may vary substantially from day to day. For example, most flights to the UK leave on Fridays and Tuesdays. So both these days will tend to be quieter if many of the business’ customers are British tourists.

The area that a business is located may affect the profit margin on each transaction. Those in highly competitive areas such as Playa de Las Americas and Los Cristianos may have a lower profit margin than businesses with lower levels of competition in areas such as Golf del Sur. By the same token, businesses in busy, competitive areas may have a higher volume of trade than those in quieter areas.

A buyer will also need to take account of the time of year that he is assessing the business. Tenerife tourist seasons mean that the numbers of tourists vary over the course of the year. So if you are reviewing a business in May, you may have a completely different picture of the trade than if you had visited that business in August or December. If a business is focused on a particular nationality, then you may want to drill down the tourists statistics further.

After you have made an assessment of the business takings, you will need to compare these figures with the submitted accounts and the ‘black books’ that the business owner may provide. Talk to your Tenerife business sales agent to see what might be declared, and what may be kept in the black. For example, although much of the revenue may be undeclared, so might some of the costs, such as staff wages.

By the end of this process you should have a much clearer picture of the Tenerife business that you are considering purchasing. It is very useful to discuss your findings with your business sales agent who will be able to help you reach an assessment of the true value of the business.