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Buyers Trial Period & Newsagencies

Buyers Trial Period – Not generally applicable in Newsagencies 

The REIQ standard business contract mentions the potential of engaging a Buyers Trial Period.  As most newsagencies have a number of years of clear financial history, and offer the ability to perform a comprehensive Due Diligence on those records, Buyers Trial Periods are rarely accepted by a newsagency seller.

Buyers Trial Periods are only common to the food industry and other business types where cash takings are not as diligently recorded, or less than one years financial history is available.

As per the Standard Conditions of Contact (second edition), a buyers trial period can only start AFTER Finance, Lease & Due Diligence are satisfied or waived if accepted at all by the seller.

To help further understand why these are not offered in Newsagency Purchases :-

Buyers Trial Periods have to nominate an average weekly sales value to expect.

This is normally the annual sales divided by 52 weeks.

In a newsagency however, during any 2 week period, any of the following may or may not occur potentially significantly effecting the expected average trading result.

Any lotteries jackpot or superdraw will inflate sales for one or more weeks

  • The following week to a jackpot or superdraw normally experiences depressed lotteries sales due to the prior spend-up
  • The banking following any jackpot declines due to lotteries prizes paid
  • Whether delivery customers (if applicable) are billed during that 2 week cycle or not
  • Potential for delivery customers to have paid by subscription instead of being billed for delivery “sales”.

“Sales” would at the very least, have to be defined by the POS reports verified to end of day balances, ex-prize payments or eftpos cash-outs, not net banking.

Given the daily & weekly standard fluctuations of a newsagency trade due to the above factors, and seasonal influences, the above is generally why Buyers Trial Periods are not accepted in newsagency contracts, as referencing any “average” is extremely difficult to apply to newsagencies when only taken on a weekly basis.

Being an “average” by definition, there will be weeks above this figure, and also certainly weeks below this figure, so to isolate any 2 weeks can provide unrealistic expectations.

Whilst not diminishing a buyers right to verify the business profitability and performance, a comprehensive accountants due diligence can provide significantly more information, than a limited snapshot of sales.

We recommend in every case the buyer to engage a Due Diligence.