Buying a business: Post Offices

What is it and who is it suited to?

There are approximately 19,000 across the country employing around 70,000 people. Brand new post offices are rarely opened, unless new communities are built up, as they do not go into competition with each other. It is more likely that existing ones will come onto the market.

Despite the lack of ‘new’ opportunities, it is one of the most popular avenues that potential businessmen and women explore. One in four people buying a business are looking into this sector.

What is it?

Despite the fact that most of us probably use one at least once a week, it may not always be clear what post offices actually do. A post office branch often forms part of a large shop or store, like newsagents or your typical village store.

The Post Office is a business that is changing. There has been a good deal of turmoil in the industry in the past year over the actual role that post offices will fulfil.

The payment of state benefits, traditionally carried out by the Post Office could possibly be passed over to the Universal Bank, based in Post Offices. This will enable all benefits will be paid directly into bank accounts. With the introduction of Horizon, which will computerise the Post Office’s system, this is not a business to go into if you are not prepared for the possibility of change.

In total, the Post Office can offer over 170 different services. These include mail and distribution services, banking, payment of benefits and other information.

There are two different types of business. The first type are branch offices – these are those you find on your high street, which are owned and run by Post Office Counters. There are around 1,500 of these. This number is also made up of branch offices that are franchised by Post Office Counters. This means that you, as franchisee, buy the Post Office ‘brand’, and the business is your responsibility, but you receive training and support from them. You will also follow their directives.

Then there are sub-post offices that are run by businessmen and women. There are approximately 17, 500 sub-post offices in the UK. These vary from those that are open five days a week and Saturday mornings, or those that only open for three hours a day, three days a week.

The sub-postmaster owns the license to his office. There are roughly 50, 000 postal assistants also employed across the country.

Who is it suited to?

We’re not talking catwalk perfection here but image and presentation are important. In many communities, the sub-postmaster is a hugely respected position. Your business needs to be attractive and welcoming.

As Derrick Evans, who is retiring sums it up: “A smile costs nothing.” One of Mr Evans’ sons, with whom he runs the business is noted for his humour, and is thought to be a real draw for the customers. You don’t have to have your customers rolling in the aisles, but people won’t return to a miserable establishment.

The days can also be very long and you will spend hours on your feet. Some days and periods will be particularly busy, for example Mondays and Thursdays when pensions tend to arrive, and the Christmas period is also another fraught time for postal workers.

In terms of age, you should be between 21 and 60 years old. That is not to say that as soon as you hit 60 your dream must evaporate, but your chances of selection will be less. Bankruptcy is also another area where prospective candidates may fall down. If you have a criminal record its probably also best that career-wise you look elsewhere.

As for qualifications, Derek Burgoyne, a partner in Bruce & Co, a business agents in Edinburgh, which deal with post office sales, argues that its more a case of possessing common sense. “You have to be numerate, but then you probably wouldn’t consider it if you weren’t. It’s really more to do with common sense. The Post Office gives you full training before you start as well.”

Working in a post office effectively requires a ‘selling’ role, and banks will often prefer you to have come from a service-driven business, as Phil Lett, mid-corporate manager at Barclays‘ explains: “It shows us that you’ve already got what it takes.”

Although the Post Office is introducing Horizon, a new computerised system, they do offer comprehensive training and tuition until you have mastered it. So, if your computer skills are limited, you still don’t need to worry.

Derrick Evans has this advice: “As long as you have enthusiasm, initiative and patience, and let them know you’re there, then you can do it. You have control of the ball, and you can drive your post office forward.”

Research

You should bear in mind that approximately one in four people who make contact with business agents are considering buying into a post office business. So it’s a popular choice and competition can be tough.

You really need to decide what sort of post office you want to consider running. As Bruce Sprosen, associate director at Humberstone‘s, a business transfer agents in Halesowen, West Midlands, explains: “People buy for a large number of different reasons, they have different priorities. The businesses themselves come in different shapes and sizes, with environments varying from housing estates to Cotswold villages.”

Mike Carr, group managing director at Everett Masson & Furby, an agent in the West Country adds: “Look for the lifestyle you want. In a rural location, it may all be roses around the door, and the sub-postmaster is generally looked up to.” You really need to decide the location and size of your post office before you do anything else.

Research is also vital. Without that, you won’t get very far at all. The Post Office will not consider any applicants who have looked in detail at what is involved. “You need to have analysed the business and retail sides of your post office and have planned some sort of marketing campaign.

“You also need to have identified your competitors’ strengths and weaknesses. Planning ahead is also important with an eye to any changes or modernisation needed,” Sprosen says. The bottom line is, you need plans drawn up and quotes obtained. You need to know where you want to take your business.

And remember an important word in the post office’s vocabulary – postmasters receive ‘remuneration’ rather than salaries. It means the same thing, but mention ‘remuneration’ and you will sound much more clued up.

Rules and regulations for running a post office

It may seem like you’re walking into a minefield and to some extent this depends upon your plans for the business. Tony Bevan is buying the Paignton harbour business from which Derrick Evans is retiring. In his case, he requires a liquor license for the off-license section of the shop. This will not be a problem as he currently runs an off-license business.

To be a sub-postmaster also effectively requires a license from the Post Office. Providing you don’t have a criminal record, or have been declared bankrupt, then this should be no problem.

Your contract is between yourself (the subpostmaster) and Post Office Counters, and it can be terminated with three months. The National Federation of Subpostmasters negotiates contracts. There is no age limit for retiring, and neither is there a limit to the time you can hold your license.

The Post Office sends out a booklet to subpostmasters every week outlining details of changes to be made regarding the day to day running of the postal business. Because the Post Office holds such an important role in many communities, there are a thousand and one rules and regulations. The ones with which you need immediately concern yourself are outlined above.

How much does it cost to run a post office?

Much depends on the size and location of the business, some illustrations are shown in the box out below. However, banks and lenders judge post offices to be sound investments.

Tony Bevan, who is buying a post office in Devon, has had to put up 20% of the total price, and in his case, Citibank have seen to the rest. Generally speaking, post offices are seen as a safer investment than most businesses.

Phil Lett, a mid-corporate manager with Barclays‘ explains: “The Post Office Counter are very selective of their franchisees. In that way, we’re pretty comfortable with their decision but we do need to be satisfied with their credentials. This is the case with any startup. With post offices though, it has a proven track record – it is a template that works. The franchisee buys into that template.”

Coming with this proven track record, banks will generally lend about 50%, but can consider upwards to around 70%. Mike Carr of business transfer agents Everett Masson & Furby warns: “For mortgages, go to a bank that specialises [in post offices]. If the sale includes accommodation with the business, get a split domestic and commercial mortgage, otherwise you can’t get all the tax relief on the business.”

Town or Country?

A quick look at a sales paper gives you a rough idea of how much post office businesses are selling for these days.

Swansea suburbs: £149, 950

A £18,500 freehold business with a 3 bedroom family home on a busy main road into the city. The shop takes over £5,000 per week from sale of groceries, news and sweets. Total gross income over £80,000. Reconstituted net profits over £30,000.

East Sussex village: £229, 950

A £19,000 freehold business with 3-bedroom accommodation, near the coastal town of Rye. Weekly shop takings are around £4,000. The year-end net profits are approximately £40,000. With planning permission to enlarge shop and living accommodation.

South Somerset town: £72, 500

A £35,700 post office also selling cards and stationery, based in town centre. Weekly sales of £700, with 33% Gross Profit. Post office hours only. Secure leasehold with possibility of 2 bedroom flat above the business.

How much can I earn from a post office?

If it’s a small village post office, it won’t be as much. It also depends what services you offer.

These services vary – very few post offices these days merely sell stamps. Post offices will usually sell cards and envelopes and other stationery. But it can go much further – incorporating village stores, mini-marts or small supermarkets. This could include kitchen cupboard essentials, milk and dairy products and perhaps wine and spirits. For that, you would obviously need a license.

Many businesses offer facilities so that you can send faxes or do photocopying. Internet facilities may also be offered. Newsagents are common additions to the post office business, selling newspapers and magazines, chocolate and cigarettes.

Sub-postmasters find these services that they offer are extremely lucrative, often catching the eye of the customer who has only come in to buy a stamp. Obviously, the size of the business and the services offered varies but you could earn you anything from £1,000 upwards each week.

You are paid according to each transaction that you carry out. For example, for each pension that you pay out you will be paid at the rate of 12.8p. At smaller sub post offices for example, you can’t carry out as many transactions as you can on the high street.

You also receive an assigned office payment that is a fixed sum. This won’t be affected by how much ‘traffic’ you deal with over the counter, but will be adjusted following annual pay negotiations between Post Office Counters and the National Federation of SubPostmasters.

Payment is paid in 12 equal instalments; if you have a larger post office, payment will be monthly, based on the transactions carried out two months previously. Derek Burgoyne of business agents Bruce & Co reckons that the average remuneration is around £12,000. “For the first year only, the Post Office withhold 25% of your earnings, for things such as training and tuition.”

Increasingly, National Lottery ticket machines are post office fixtures. While Camelot will normally give 5% of all transactions to the retailer, if you are running a machine in a post office, this figure is actually 4%.

In the longer term, the better the business does and the higher the remuneration, the more your business will be valued at. Post Office Counters cover phone bills and give holiday allowances, with a register of ex-subpostmasters to cover your absences.

Tips for success

• When you’re looking for your post office business, make sure you find a competent agent and solicitor experienced in the purchase of post offices. You are buying a business, not a three-bedroom semi, and the processes are not the same.
• Money, money, money. You’ll see a lot of it in your post office transactions, but you need to watch your own pennies, especially in those first tough months. “Keep a tight ship and watch your overheads, especially early on. Costs with no return, like better quality carrier bags, can escalate,” says sub postmaster Derrick Evans.
• You need to be prepared to put in the hours. Opening hours are likely to be of the 9am – 5pm variety, plus Saturday mornings. But, of course, your working day will be longer.
• Smile. As the postmasters we’ve spoken to confirm, it’s definitely a people-oriented role. As Derrick Evans explains: “It’s the simple things like good service and making the shop hospitable. It doesn’t cost anything to say hello.”