What's it Worth?

What's it Worth?

What's it Worth?

It doesn’t matter what is being sold, we want to know what it is worth.  After listening to the advice of others and completing one’s own research, if the correct decision to sell is going to be made, then one needs to determine for themselves what they realistically believe the motel business is worth in the current market at that time.

The important word here is “current”.  Too often those considering selling get hung up on what a business was worth historically.  Again, this goes for anything, houses, cars, you name it.  If the business was worth $1m three years ago, it may be worth more (or less) now.  Three years ago may as well be ancient history!  Further to this, what it may be worth in three year’s time, is also irrelevant.  What the business is worth today, is what the market is interested in, and what a potential seller should be focused on.

The question at hand is rarely easy to answer.  There are a few ways to go about it that can make life a lot easier.

Have the most recent Profit and Loss Statements been prepared by the Accountant for sale purposes? -  This will provide the basis for which the value of the business/property can be determined.  Without these documents being prepared and being accurate, there is very little that can be done to form an accurate value for a business.  The key here is that the Profit and Loss Statement is prepared ‘for sale purposes’, so that the motel business can be readily compared with the market sales evidence.  This is in order to get the most accurate information to get the most accurate result.  In other words comparing apples with apples.  Providing financial statements requiring someone to edit them with adjustments is not ideal.  It gives opportunity for them to be questioned and unwarranted concerns created over the data.

What have other similar motels in the region sold for? – Find out what other motels in the region have sold for.  This is not easy to find out as there is no program or database that contains this information specifically, unlike residential or commercial property which can be readily accessed at the click of a button.  In order to find out this information one must speak to reliable people within the motel industry in order to get accurate information rather than rely on rumours of what the sale price may have been, which we often find is inaccurate.

How does this motel compare to the motel’s that have sold? – Comparing the properties and business components is vital and is a major consideration.  Are they of a comparable size, standard, unit type, location, clientele, construction, etc.  If the motel is leasehold then the lease terms will also need to be compared carefully. For example, the tenure remaining, annual rental, terms, etc.

What capitalisation rate will be appropriate for this motel? – After having considered the above, it can be determined what “cap” rate the market is going to expect for such a motel.  If the motel is exactly the same as another which has sold, then that makes this question much easier to answer.  In reality, this is never the case.  Therefore, one must consider the differences between the sales evidence and the subject business/property, and determine the appropriate adjustment to the cap rate that the market will make.  This is not the easiest part of this process, as the market’s perception to the differences needs to be calculated.  A basic example is, if two motels are almost exactly the same, however one is deemed by the market to be in a slightly less desirable location, how much will the market adjust the cap rate taking this difference into consideration?

Make sure the information you gather is reliable - Contact professional’s who are specialists in their field as they are the people who know their industry and are the best to advise on and achieve the best for their clients.  The motel industry is no different.  Specialist Accountant’s, Solicitors, Bankers, Valuers and Brokers are in the best position to advise on matters within the motel industry.  If one is selling a house, go to those who specialise in residential sales.  If one is selling a business, go to those who have the direct experience and knowledge within that field.  Dabbling in the sale of this and that, does not make one an expert.  Making the correct decision can save a business owner not only financially but also emotionally, as the sale of a business can be an emotional and expensive rollercoaster ride if not handled correctly.

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