06 Jan 2014
Words
Tim Admin
Be Prepared: Maybe the Scouts Were Right
The Scouting Movement motto is most commonly known as Be Prepared It is no coincidence that this motto can be shortened to B. P. and Robert Baden-Powell, the founder of the movement, used to shorten his surname into B.-P. Selling a management rights or motel is all in the preparation and that preparation starts the day you purchase the asset. Be it the integrity of financial records, the sustainability of business practices or the relationship with the body corporate or landlord, all operators would be well advised to approach the day to day management of the business with the ultimate sale in mind. There are a number of potential speed bumps on the road to a successful sale. Typically they revolve around:
- Validity of agreements and letting appointments
- Reliability of financial records / P and L for sale purposes including allowances and add backs
- Relationship with individual owners, committee, body corporate
- Value of unit and/or office
- Multiplier or Return on Investment on NP for sale purposes
- Validity of Lease
I strongly recommend that any known glitches in agreements, leases, licenses or letting appointments be remedied as soon as possible. It’s going to come up in due diligence so why not fix it now. Likewise the preparation of a Profit and Loss for sale purposes. A comprehensive report by a reliable industry expert accountant is a powerful marketing tool. The use of annexures to the report that explain add backs, expense and staffing assumptions can also provide immeasurable reassurance to a potential purchaser. With management rights the value of the manager’s unit and/or office can be a point of some contention. My recommendation is to have an industry expert valuer prepare a valuation report at the time of listing the property. Of course, it’s also essential to ensure the report is completed in a format that would be satisfactory to an intending lender. Taking the time to prepare for the sale will ultimately achieve the best price with the least hassle. Just as importantly, it makes the finance process that much smoother when the speed bumps are ironed out before they become major problems. Just as importantly, purchasers get nervous when they hit a speed bump, and that’s never good.
