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View Full Version : Due diligence while buying (or selling) a haunt.



Rocky Mountain Terror
01-17-2010, 07:44 PM
While in business school, I learned a lot about buying an established business. However, a lot of these rules are hard to figure out in the haunt industry. Can anyone offer advice on evaluating the purchase of an established haunt?,

Rocky Mountain Terror
01-17-2010, 08:06 PM
Specifically, id like to know more about evaluating depreciation of props, etc. Requesting audited financial statements, obtaining a certificate of good standing, obtaining company credit reports and tax returns. All required for a proper due diligence.

Jim Warfield
01-17-2010, 08:31 PM
In the final count it all comes down to your own ambition and creativity.
Buying a tool doesn't make one a craftsman.
When buying something consider what price you could ever sell it for if and when that day came, then pay alot less for it.
Around here some suckers have paid way too much for propertys when they should have looked up past selling prices of their place and the ones similar to it, guess what? Prices here don't go up much if at all, but people coming here from the rest of the world think prices go up automatically all the time.
It really hurts to buy a place for $250,000 that you can't sell for $50,000 and this was happening here long before the more recent financial calamitys and bail-outs, ex cetra.
A legal document is only as good as the people signing it.

Rocky Mountain Terror
01-18-2010, 05:40 PM
I agree Jim. The current housing market is a GREAT example of why one should do their homework (due diligence) before investing in anything, whether itís buying a home, or buying a haunt.

I am working on a part of my business plan titled "Entry Strategies." One thing that many people have advised me to do is to figure out numerous entry and exit strategies, in order to plan for every case scenario. In the case of entry strategies, I am developing a "Scenario A," "Scenario B," and "Scenario C." As I am not one to put something that sounds good on paper, and then decide to figure it out later, I want to thoroughly go through and understand each case scenario. I feel that if I do this, I will be able to fully be able to weigh the pros and con's of each decision, and determine the best Scenario for the market I am entering.

In regards to the "buy" scenario, I feel that it would give me a platform in which I could establish myself quickly in this market, as opposed to time it would take to establish myself if I start "from scratch." As a result, I could potentially build capital faster and start engineering the haunt design I envision company having.

As I mentioned above, I know that this scenario has its pro's and con's, and is therefore only one of many scenarios I am exploring. This has proven to be a successful strategy for many haunters though. Look at Kelly Allen and Raycliff Manor.

By the way Kelly, I'd love to hear your advice on this one!!!!

And for that matter, I'd love to hear from EVERYONE who has purchased a haunt.

I have not seen this addressed as much as I believe it should on this forum, and I believe it could only stand to benefit both buyers and sellers of haunts!!!

Darkangel
01-19-2010, 10:59 AM
Is due-diligence a new term you just learned or something? J/k lol

Rocky Mountain Terror
01-19-2010, 12:27 PM
Its a basic business term. You could also call it "doing your homework" or "research."

I'm just looking for insight from people who have bought or sold a haunt before. And i'm sure a lot of other haunters would benifit from this kind of information also.

Darkangel
01-19-2010, 12:32 PM
I know you posted some great questions I'm just joing with you. Good luck!

DA

Jim Warfield
01-19-2010, 06:50 PM
When two parties end up across from one another in court over a sale gone sour, does the Judge find in favor of the seller because the buyer was stupid and didn't use "Due Dilligence"?
This might be how I heard that term used?

Rocky Mountain Terror
01-19-2010, 07:18 PM
More or less, I just want to know how to determine the actual value of a haunt as opposed to the asking price. In real estate appraisal, we use comparables and depreciation factors(i use to appraise.)So now i'm trying to find a similar method for haunts.

Nightgore
01-20-2010, 08:29 PM
We're also looking at purchasing another haunt company/event here in town and what we've done is:

-Asked and looked at past attendance counts with bank deposits as proof. Haunters like to over-exaggerate what they do as far as attendance goes. So, ask for statements to back up what they're telling you!

-Look at assets other than props, costumes and masks. Does the haunt have an established reputation? Good or bad? Location? Anything you can use to your advantage business wise such as copyrights and trademarks! Sometimes this could be worth the total value of the purchase alone!

If your buying a company that's already established, ask around and get a general idea of what kind of reputation you'll be working with. You may have to dump some serious money into marketing to get people to come back... or dump serious marketing money for people whose never heard of it!

-Look at past pictures, themes, floorplans... etc. etc. See what you like best and what works. Try not to re-do everything but use what worked for the public and make it better.

-Look at where you think the business could use improvement and work towards that. Some events have awesome haunts but not so awesome websites... and some vice-versa... see what kind of capitol you'll need to make the event as a whole great.


Overall... look at it as potential profits. It'll take MONEY to buy a seasoned event, but you'll also want to update it and make it better. So, do your work in the accounting portion of it all and see what will work best for you!

-Tyler

mindtumor
01-21-2010, 06:26 AM
Are you looking to purchase name along with the haunt? Are you going to operate out of the same building the haunt is in now? Or are you literally just buying the walls, props, and equipment?

MindWerxKMG
01-21-2010, 07:02 AM
I was about to ask the same question. Are you looking at buying an existing business or a used haunt? There is a difference.

Buying a used haunt is like buying a used car. Unless you have the opportunity to test drive it, i.e. see it in operation and inspect all of the components, don't do it! You could end up with trailers full of rotting plywood and deteriorating foam latex props. Do not trust photos or video. See it in person.

Jim Warfield
01-22-2010, 07:08 PM
WHERE Can I get that truckload of half-rotted plywood and rotted latex masks?
Sounds like a "turn-Key" operation to me!
If the semi has rotating axle bearings I could drag it and set up at Transworld!
It's the "Nostalgia Tour!"

Rocky Mountain Terror
01-23-2010, 11:33 AM
Thank you all for your responses.

Jim, you crack me up! lol. I didn't think about it that way. I want to have a gothic haunt that looks run down, but definitely don't want the "nostalgic" half-rotted plywood and rotted latex mask look. lol.

IF I were to purchase, I would only be purchasing the haunt, as I all ready have a name for the haunt (which is not Rocky Mountain Terror, that will be the company name), a storyline, and a theme.

In all actuality, I really don't want to purchase a used haunt. I would like to start from scratch and build my own vision. The reason I am even entering this into my business plan is to show potential investors and lenders that I have explored all avenues of entering the Haunt Industry. As well, if I can't find the money I need do do it my way, I might have to look into the purchasing of a used haunt just to get entered into the market, and build and transform it into my vision from there.

I am loving all of the cautionary statements that you all are giving me. I was asked by one person who will potentially (HOPEFULLY, fingers crossed!!!) be investing in my haunt venture, if I had explored this option. To him, it seemed to be the most rational way to go. This person however, knows very little about our industry. To be able to go back to him and tell him, via the advice of many experienced haunters that there are many pitfalls to this idea (I'm using the "Nostalgia Tour!" comment when I talk to him Jim, lol.) , should show him that starting from the ground up is the way to go.

There is a new haunt in my area that came up with a solid business plan, risked everything they had, and built the haunt or their dreams last season. I have to say, It is BY FAR the best haunt Denver has EVER seen!!! Not only were they successful, they were profitable in their first season! Now, I don't intend to risk as much as they did, nor do I believe that this result will happen for everyone. However, this case study, along with the advice everyone here is giving me, should be enough to convince my potential investor that buying a used haunt is not the best way to go.

But, just because this is not my ideal option, I still want to be ready and knowledgeable on the subject if a great opportunity ever presents itself, or if I don't end up getting the money I need to start from the beginning. Thanks Tyler for all of your advice. If you don't mind, I would like to use some of what you said in this option of my entry strategy section of my business plan.

Jim Warfield
01-25-2010, 06:35 AM
Your building time figure closely but then add alot of unforseen hours because they WILL be there!
Unless you have a talented, ambitious crew of construction-experienced tool weilders(Might want to check, 10 fingers? Anybody have a severe limp? Do they know what those smallest lines on the ruler are? Some people don't!)
If you have your own shop and room to take your time, if you are doing this work mostly yourself time and money will become an issue if you are renting workspace or making stiff mortgage payments as the time zipps passed..."It's OCtober-All ready!"..and no possibility of taking in any $$...not done yet.
Friends or relatives have their own time-sucking agendas in life and extra worktime becomes precious for most of us and that is the way it usually is....
One of my biggest things I found I had to learn and accept and work around was this very trait I have just described..it is Your Passion..but probably not so much theirs.
I assumed for years that I could find a good number of people to work the haunt with me because if for no other reason..it's fun! (And I pay them)
Wrong.
This is also the most common, basic reason a haunt will fail if the owner has to hire a manager to run the place while the owner is away at another business or a second haunt.
This Passion to do this will carry you beyond the normal mental and physical limits because..it's Yours! The Money driven aspects will come in second place.

Raycliff Manor
01-25-2010, 05:34 PM
I just returned from vacation so I apologize for not having responded sooner. Here are questions I recently received via email and my replies. I'm currently working on responding to more than 600 emails and getting caught up on a number of projects I left pending when I headed out on vacation so I hope this helps!

Question: I have been looking into having a company build my haunt. Can you provide any insight into the company you used and what your recommendations would be in pursuing something like this?

I prefer not to disclose the company we went with as it was a long time ago now and the bad experience is water under the bridge at this point. I would, however, suggest that you request references from anyone you are considering and make sure to really investigate how well the reference knows the haunt builder / business owner. You don't want to find out later that the reference is just a good friend saying what they believe you want to hear. Ask solid questions as to what all was entailed in the work they had done by the builder and ask them to be specific. Make sure to ask about fire and safety code compliance; this is critical!

Make sure you check with your local officials and know the requirements so you can present them to the builder and have it written into the contract that they will build in compliance and comply with inspections during the building process. Include in the contract that you will not be held to the balance due on the contract until the haunt has passed all necessary inspections. Also, be sure to include the completion date and include penalties that will be taken off the balance due for each day late on completion. I'd ask Larry Kirchner if he has any used attractions for sale, or if he knows of any. You could wind up saving a bundle on purchasing used as opposed to buying new. I'll also say that, unless you have access to some incredibly talented artists who are able to creatively build and paint sets, you will probably not be able to produce an attraction for the same price you may be able to find one used. Again, I'd look to see if you can locate a used attraction built by Halloween Productions or another top haunt builder for sale. Check for auctions taking place around the country as well!!!

In regard to your question about starting out with approximately 3,500 square feet, starting out with 3,500 square feet is great! You can always increase the size of your attraction and the number of actors, but it can really hurt you if you start out too big and you have to downsize your attraction or staff. Quality is a far greater consideration than quantity and you can develop your attraction throughput and scenes in such a manner that your guests get a good show length with great quality without having to start off too big right out of the gate. This will also help you minimize your staffing and other overhead requirements until you know what your attendance will be and the financial investment it will justify. If you are going to lease a building to begin, you are better off committing to a smaller, and less expensive, least at first. As you grow your attraction and improve it, your fan base will grow as well.

Question: You also mentioned with your business you received bank financing. Was it hard to convince a back to take a risk on this type of project no matter how good the business plan is?

In the present economy, obtaining loans can be tricky. Does this mean it can't happen? Absolutely not! Our first loan was not an SBA Loan. Of course we owned an inn and used equity in the property as collateral for the loan. Any lender will want to know the loan can be secured by collateral and will normally require an investment of good faith on your part. I do believe that under our current President, there are going to be additional SBA loan opportunities with Obama's commitment to small businesses. Although you will probably have to operate the business a year or two before you'll be able to be approved for an SBA loan, that doesn't mean you shouldn't begin trying right away! Talk to the banks in your area that provide SBA Loans. Find out what opportunities are available right now. Also, contact SBA for your area directly and find out which lender writes the largest volume of SBA loans. This will be the lender you want to really start developing a relationship with as they will be the most likely to be able to slip higher risk SBA loans in with their other loans. As you build your relationship with the loan officer, even if you are not approved right away, invite him or her out to your attraction and provide complimentary VIP Tickets. Let the loan officer see your passion and your progress. This is something the lender can "sell" to SBA! Most of all, if this is really your passion, don't let anyone talk you out of it! Be willing to do your homework and always keep the vision of what you want to materialize clear so that it can motivate you!

I highly recommend building a manifestation board with pictures of attractions that inspire you. Include pictures of outside and inside, and pictures of long lines of people waiting to enter. Imagine this as your attraction and feel the joy it brings! This is an extremely effective tool in motivating and manifesting!

Anyway, I wish you all the best in your journey! Be good to everyone you encounter and treat them with respect and fairness. Maintain a positive attitude and a willingness and desire to help others. It's your life, make it a GREAT one my friend!

Happy New Year!

By the way, I just realized that I didn't clarify. We did ultimately get an SBA loan, once we were able to show a few year's of being established with attendance growth each year. Last year we obtained a second SBA loan to make significant enhancements to the Raycliff Manor attraction and to add a second new attraction, "Raycliff Carriage House".

Remember, it's not as much about the destination as it is the journey so remember to enjoy the ride! ; )


Kel

DetroitGrass
02-06-2010, 08:55 AM
I have bought a lot of used props from old haunts. Most of them have taken a beating literally. Macho teenage boys like to punch things when they get scared. I do not know the Equation others use, but I look at the wholesale/discount price of the item new and expect to pay around 33% of that. Then I look at the damage, and determine if it is fixable or if it can be hidden. Lastly, I look at can I build it cheaper myself. There are a lot of unemployed haunters dying to make some quick cash building props. If I had money, I could probably hire 3 or 4 professionals year round.

One thing I hate is props you see at the Halloween store. I want to see original props. If the haunt has been around for a few years, I would suspect that the props have the "been there done that" feeling. So when buying someone else's haunt, you have to ask yourself, how can you keep the haunt new and exciting.

It seems to me that the haunts in your neighborhood are weak, as the newcomer just came in and stole the market. I would not want to build on someone else's bad reputation. I would suspect that another new haunt in the market could have the same success with the right marketing. I would say the key is location and marketing. Is it close to the freeway? Do you have mascot or recognizable gimmick? Target your audience through the radio. That will get them in the door! Having a good haunt and word of mouth will most likely be the cause of the next years success.

It is difficult to buy a permanent location and only make profit a few months out of the year. If you lease it will be cheaper, but you will have to tear everything down, store, and rebuild later. Oh the Joy.

Also, the old haunts may have been better because of actors. I would dig a little bit and see what people liked about the haunt.

I would look at what I could afford by stating how much you want to spend per square foot. I would then want to determine how many actors vs animitronics you are going to use per room. Then I would look at the cost of decorations, not being afraid to buy things from salvation army/junk yards.