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Tips For Selling Motels ( 22/08/2005 )
As Seen in Resort News Liftout Information Feature - Issue 108,
August 2005
Written by Andrew Morgan, Partner, Queensland Tourism & Hospitality
Brokers
Many Motel Owners make the mistake of taking their Motel to the market
to sell, well before they should. There are many items that must be
considered and completed prior to offering a Motel to the market. The
sale process is one in which a Buyer must be kept informed and
satisfied throughout, in order for the highest possible price to be
achieved. A Buyer that has delays in either receiving information or
is given the wrong information will either not buy the particular
Motel or will not see the full value that may be offered in that
particular Motel Business.
There are a number of items that a Seller needs to prepare or have
prepared, prior to listing with a Professional Motel Broker, who then
would put their Motel to the market to achieve the best price. These
items include but are not limited to the following:-
1. Accountant’s Profit and Loss Statements (for the last 3 years if
possible)
2. BAS Statements
3. Income Figures Split Up by Month and also Income Department (such
as accommodation, restaurant, bar)
4. Plant and Equipment List
5. Property Presentation
6. Monthly Occupancy Rates
7. Lease or Rental Agreements
8. Lease Document (if applicable)
9. Property Specific Information
10. Latest Property Rates Notice
11. Current Tariff Schedule
12. List of recent improvements completed to the property.
Accountant’s Profit and Loss Statements
This is definitely the most important item on the agenda. This
information is what a potential Buyer, their Accountant, Financier and
Valuer is predominantly using to determine the value and viability of
the Motel Business. This information should be immediately available
upon request providing the Buyer is a fully qualified and genuine
Buyer. Any delays in providing figures often results in a Buyer
becoming nervous, asking themselves why there is a delay, and then
moving on to look at other Motel Businesses that are available.
Ideally a minimum of 3 years figures is requested, however this is not
always possible in some cases. Therefore, it is best to provide as
many figures as possible in order to satisfy a genuine Buyer’s
questions.
The presentation of these figures is also important and should include
not only the Profit and Loss Statement, but also the Accountant’s
Notes and Explanations of any excluded figures (such as Interest and
Depreciation) and also the Accountant’s Disclaimer. Poorly presented
financial statements reflect on the business and diminish a Buyer’s
interest in a property.
Some Vendors are concerned that they will be required to provide their
Taxation Returns to a prospective Purchaser, however this is not the
case. Part of the Motel Broker’s role it is to fully explain to a
Buyer that Tax Returns are not required to be provided as they include
private information of the Vendor’s affairs that might not relate to
the particular motel business. The Vendor’s Accountant will provide
an Abridged Profit and Loss Statement from the Vendor’s Tax Return
that should include all the Income and Expenses related to the Motel
Business. It should exclude all other private and personal income and
expenses that do not relate to the Motel Business. Once again a
Professional Motel Broker will peruse these financials and make any
necessary adjustment not already made, prior to providing them to any
qualified Buyer.
BAS Statements
Since the introduction of the GST, Buyers and their Accountants now
request that BAS Statements be provided by the Vendor in order to
confirm the Income of the Business over the particular period of
time.
Income Split Ups
It is important to provide a split up of Income figures for each
income department and for each month of the year. The split up of
income by department confirms to the Buyer how much income is derived
from accommodation, restaurant, bar, conference room, telephone, tours
and any other income areas of the motel. The split up of income by
month confirms to the Buyer the months of the year producing the
highest and lowest levels of income. It also determines which months
are stronger for each income department. E.g. December may be high in
food and beverage due to the restaurant and conference room being
booked out for Christmas Parties, etc. The income split ups are also
important for the Buyer as they are used to prepare cash flow
statements that the Buyer’s Financier requires in order to provide
finance for the purchase.
Plant and Equipment List
It is important to prepare an up to date Plant and Equipment List as
soon as the Motel is placed on the market. Not having this list
prepared can result in delaying the preparation of a Contract of Sale
and ultimately losing the Buyer to another Business. This list must
include all plant and equipment that is used in the day to day
operations, and that is required to operate the Business. This list
is exhaustive but typical items include beds, televisions, fridges,
computers, computer programs, stationery, kitchen equipment and
utensils, and cleaning equipment to name a few. It generally does not
include any personal items in the owner’s residence and it is
important not to include any personal items on this list that do not
stay with the motel. Once items are placed on the list and provided
to a Buyer, they will be sold with the Motel.
Property Presentation
To maximise the sale price of a Motel it is imperative that the Motel
presents as well as it can upon an inspection by an interested Buyer.
Minor items often make all the difference such as small repair and
maintenance items be completed, and gardens and trees being trimmed
back so as not to be overgrown and untidy. Obviously cleanliness is
important in the day to day running of a Motel but it is also
important upon an inspection by an interested Buyer. Cleanliness goes
a long way, whether the motel is 5 years old or 50 years old, a clean
and tidy Motel inside and out will impress.
Other Information
Other details required to be provided include monthly occupancy rates,
any lease or rental agreements that will be required to be attached to
or mentioned within a Contract of Sale. A lease document (if
applicable) will need to be provided and will form a condition of a
Contract of Sale as to its satisfactory nature. Another important
piece of information that can help maximise the sale price is a list
of recent improvements to the business and property. The latter will
assist in satisfying a Buyer that the business and property has been
maintained and not neglected over recent times.
Qualified Professional Advice
The use of the services of specialists in the motel field is paramount
in the sale process. If the best possible price and the smoothest
transaction is to be achieved for the Motel sale, a specialist
Accountant, Solicitor, Motel Broker and Valuer make all the
difference.
The sale process needs to be as trouble free as possible for both the
Buyer and Seller, otherwise the probability of the sale collapsing is
high. Suitably qualified and experienced Professionals know how to
handle objections, problems and concerns of a Buyer that arise
throughout the sale process and can resolve these matters immediately.
The last thing needed is minor concerns becoming huge problems
through bad professional advice. Often issues arise throughout the
sale process that were not expected and if a Buyer is left to their
own devices, these issues can become major problems resulting in a
Contract of Sale collapsing. On many occasions these issues can be
resolved easily and the sale can go through with the minimum of fuss.
An inexperienced or unqualified Professional will often be unable to
resolve the problem and the Vendor loses a sale that can cost a lot of
time and money.
Prior to putting your Motel on the market make sure that the
Professionals you are engaging in the sale process are suitably
qualified and experienced in the sale of Motels and are specialists in
the Motel sales field. The sale process should be a successful
experience both financially and personally for the Vendor and suitably
qualified Professionals will achieve this for their clients.
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