Information: Relevant and Transparent
- Posted By Andrew Morgan
When it comes to the operation of any business, being able to access financial data is paramount. How can a business owner know what is happening within the business if information is not available or it is unknown how to access it from the system?
It may be the case where the system being used can produce one hundred reports that all provide different information. That is great, but often I see business owners/operators really only finding three or four of these as being the most useful on a regular basis. Simple examples may be a profit and loss statement, a daily/monthly income or occupancy report, or a Wages Report. There are many more of course that provide relevant and useful information on a daily basis.
Accommodation programs are accessed daily by most motel operators and are nothing new, they have been around for decades. They provide many and varied reports for the motel operator. Access to these reports at the click of a button in the office or even off site via mobile access have changed how to operate an accommodation business. This is a far cry from the “good old days” of the manual booking system book where looking down the columns by date or room number and vice versa on the side, was seen as such an easy system. Imagine when being away from the motel and lugging around the book in today’s society where every customer wants what they want right now!
Beyond the operational side of things let’s consider when one is selling their motel business, the importance of the ability to access said reports is without question. If someone involved within the sale process needs a report of some kind as part of their enquiries, due diligence or whatever, saying no or not being able to provide it, is not an option, if one is serious about selling. Whether the potential buyer of the business is a “Mum and Dad” investor or Corporate Entity, at various stages of the process, someone is going to ask for many and varied reports to provide information and support commentary or data supplied.
Imagine telling a potential buyer of a business that they may not have said report because of “any old poor excuse can be inserted here”. Whatever that poor excuse is that one wishes to insert in the previous sentence, it will not be accepted by a prudent investor, or their advisor, employees, or anyone else involved. Where there is a commercial decision to be made and therefore a level of risk involved, said poor excuse will not be acceptable and the potential investor will either walk away or seek to reduce the purchase price to take into account the additional level of risk that needs to be accepted. I will qualify that the type of reports that are being considered here are those relevant to the business not to the business owners that are of a personal nature. Thankfully it does not happen too often but every now and again we do witness potential sales or contracts of sale not proceeding (when there is no real reason they shouldn’t) due to lack of reporting or inadequate financial data being supplied.
A common due diligence item conducted today is providing “back end” access to one’s booking system and other programs to allow potential buyers and their associates to investigate the business operation from this perspective. Years ago this was not the case, however with advancements in relevant industry programs, this can now assist in making the due diligence process easier and run more smoothly. It goes without saying that not having these industry programs in place makes life a lot more difficult for the prospective buyer to gain access to the required data.
Moving on from the program side of things, making sure all income goes through the bank account is a must for so many reasons. Of course, all business owners do this so it goes without saying, however for any that do not, this is to the detriment of the sale process and ultimate result trying to be achieved. If a business owner mentions that there is a cash component to a business, it is not something that has any bearing on the price able to be achieved. It does not exist and cannot be considered. Investors will immediately become closed off to this notion as it is not something that can be confirmed or check in any way.
All employees and contractors should be fully accounted for and documented within the business. A wage component (depending on the type of motel business) would typically be approximately 12% of the accommodation income of the business. This will vary from motel to motel depending on size and other factors, but is a good place to start. Therefore when a prudent investor is considering the wage component required to operate the business and the percentage is showing 2%, red flags will go up. Alternatively if higher at say 20% of income, then again, questions will be raised.
All the above items simply add up to making sure all is in place and organised within the business and above board. If so, the sale process and due diligence should be a breeze.