by Jonathan Hanaghan, Resort News Contributor
09th May, 2017
Thinking of buying a management & letting rights business?
This article is aimed at first-time buyers entering the industry. I will now go through a basic staged plan to assist with the process. This list is by no means exhaustive but a general guide.
Some of you may require a more detailed approach or, if you’re lucky enough, maybe even a simpler approach.
Step one: do your homework
Review as many businesses as you can. Get a feel for the type of complex that ideally suits you. You may want a permanent with minimal office and garden hours or you may be chasing a dollar and wanting to purchase a larger short-term complex or perhaps something that has been run down and is in need of some TLC.
Step two: find out what your budget is
Seek advice from an industry specialist financier or finance broker to determine how much you can borrow and what your budget is.
Step three: find the right complex and negotiate price
This will solely depend on your circumstances. Discuss your offer with the applicable agent and hopefully you will have a verbal agreement. It’s not uncommon for the offer and acceptance process to take some time.
Step four: engage an industry specialist accountant and lawyer
You will need both to assist you with the process but immediate priority needs to be the establishment of a business ownership structure. This can be either as a sole trader, partnership, company or trust or a combination depending on your circumstances. Taxation and asset protection circumstances generally weigh in heavily with this choice. Typically, your accountant will establish the structure then your lawyer will document the contract and advise you on the details.
Step five: sign the contract
Generally speaking, the contract will contain three major conditions. Firstly, income verification, secondly finance and thirdly legal due diligence (which also covers body corporate approval).
Making sure you understand each is crucial.
Step six: income verification
Your accountant will complete the income verification in accordance with the contract for sale. This will be for a recent twelve-month period (or projection if off the plan) with the view to verifying an actual net operating profit figure as specified in the contract. This profit figure is usually the number the vendor’s accountant has calculated for the same or similar period. Owner letting agreements are also checked and any variances in letting pool numbers during the verification period are also reported.
Step seven: obtain finance
Your financier will require a copy of the income verification report and various other documents. Your financier may also require amendments to the body corporate caretaking agreement following a recent court case.
Step eight: follow your solicitor’s advices
Your solicitor will guide you through legal due diligence including obtaining body corporate approval.
Step nine: statutory and licensing requirements
Make sure all applicable ATO registrations are in place as Australian Business Numbers can take up to 28 days to be processed. OFT licensing can also take longer than expected so make sure this process is well advanced.
Step 10: record keeping
Careful consideration needs to be given to record keeping for the trust and general bank accounts. We recommend specialised software be purchased or leased. Advice from your industry recognised accountant should be sought before just going with ‘what the vendor was using’.
Step eleven: hand over process
You will need to negotiate the handover process with the vendor, which commonly is one week prior to and one week following settlement. Try to extract as much knowledge from the vendors as possible during the agreed period. I also recommend having a coffee or similar with the chairman/chairwoman of the body corporate as soon as possible following settlement. After all, the body corporate committee can be your strongest advocate or your worst nightmare.
In summary, always stick to and take advice from your industry experienced accountant, financier, solicitor and sales agent and the purchase process should run as smoothly as possible. Good luck to all those readers looking to purchase sometime soon!