by Andrew Morgan
05th July, 2017
Tips for selling motels - cover all bases
Putting oneself in the shoes of a buyer considering purchasing a motel is a great place to start when preparing for the sale of a business. Prior to offering a motel to the market preparing the data and information that a Seller would require or like to see if they were buying is a good way to go. It is really looking at the sale process from another point of view, rather than being fixed only on the final result.
Identify the important items that any prudent buyer will require and present these in a professional manner. A potential sale will often be ruined upon the initial enquiry or five minutes before the Contract of Sale is due to settle without the Seller being fully prepared. The latter is a very expensive exercise for all concerned if a Contract of Sale collapses at that point simply due to poor preparation. It seems a real “no brainer” not to be fully prepared for the questions one knows will be asked. The easy way to try and avoid this is to “hope that won’t be asked for”. Big mistake in the commercial world when one knows it’s coming.
The entire sale process is one which takes many twists and turns and good management of the sale process from start to finish (especially preparation) will ensure a successful settlement. Upon deciding to sell a motel one can focus on the most important matters that will influence the buying decision of the market. There is no benefit in spending time or money on areas that are not going to draw the interest of a potential buyer or satisfy their buying motives. What is the information that will influence a buyer to take action which a Seller has a level of control over?
- Having all the documentation/information available in an accurate well presented format that a buyer acting reasonably should expect is paramount. Prior to offering a motel to the market many items can be attended to and certain information prepared. Some of these things include but are not limited to:-
- Accountant’s Profit and Loss Statements – three years figures if available is generally requested by a Purchaser. All other items aside, a motels value is a direct reflection of its profitability.
- Plant and Equipment List – a comprehensive list of all the chattels that will be sold with the business e.g. Beds, televisions, fridges, kitchen equipment, etc
- Lease or Rental Agreements – chattels under lease or road signage agreements, garbage removal, etc
- Lease Document - if the business is a leasehold offering, not inclusive of the land and buildings
- Occupancy Rates - per month for the last 3 years if available
- Monthly Income Split up by Department – e.g. Accommodation, Restaurant, Bar, etc
- Current Tariff Schedule - and the last time they were increased and by how much
- Property Rates Notice – Last two received
- List of Recent Property Improvements –Refurbishment items or large repair and maintenance items
- Agreements - copies of any agreements with external parties such as chain affiliations, service providers, booking agencies, etc
- General Information – on the day to day operation of the business such as the booking system, social media, office hours, employee details, etc.
- 2/. Presentation
- Motels with good quality presentation always achieve higher sale values. 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 issues being completed, and gardens and trees being trimmed back. Obviously cleanliness is important in the day to day running of a Motel but it is also important upon an inspection by an interested Purchaser. 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.
- Purchasers will discount the price that they are prepared to pay for a Motel if they can see repair and maintenance issues throughout the property. A small cost upfront to fix and tidy up these items (touch up painting, mouldy tile grout or silicon, worn floor coverings, etc) can make for an increased price come sale time.
- More major items that are often raised as concerns by Buyers which deter them from paying the asking price or making an offer at all, include not having split system air conditioners installed, poorly painted surfaces, damaged/dated bench tops, sagging beds, and bathrooms in need of full renovation (showers, tiles, vanities). These items can be expensive and require a large capital outlay, however reinvestment back into the property can pay dividends. The alternative can be a much lower price than expected. Very few buyers want to take on a seller’s problems.
- 3/. Marketing
- The decision to market a Motel for sale via advertising is an important one. The simple fact that the more genuine potential buyers that know the property is for sale creates a more competitive market. It gives the Vendor the opportunity to obtain the highest price possible and smoothest sale process through spirited market bidding. Some Vendors prefer not to advertise a motel for sale. This is ultimately an individual decision for a Vendor. Many do not want the name of the business disclosed via advertising, which again is the individuals own decision.
- “You cannot sell a secret”. The market is an ever changing dynamic and what worked a year ago may not necessarily work now. In a quieter market a Vendor and their Broker will need to be more proactive with their marketing initiatives to make something happen when potential buyers are not presenting themselves.
- Target Market – in determining the target market for a product one needs to consider the value of the business/property, the locality, the size (number of units in the complex), the sales income, size of the residence, and the various products offered by the motel (food and beverage, unit types, conferencing facilities, etc). Accessing the target market via the right marketing initiatives will gain this market’s attention.
- Internet – Any successful marketing campaign will include a large representation of online marketing options. The first place a potential buyer will look for a motel to buy is on the internet. This is a cost effective source of marketing that remains in place long after the newspaper has been thrown in the bin the next morning. It provides the opportunity to include text about the business but also many photos of the property that can attract a potential buyer’s attention. A picture tells a thousand words!
- 4/. Motel Industy Specialists
- Accountant, Motel Broker, Financier and Solicitor – Make the right decision based on adequate research as preparation. It can undoubtedly cost a Vendor hundreds of thousands of dollars and a lot of grief and frustration if professionals are not employed for the job.
- “We can sell your motel!” This is a term often heard by Motel Owners within the industry, and it may be true, however will it be at the highest price that could be achieved? Specialists who are fully qualified, fully accredited (business brokers with the REIQ), have many years direct motel accounting, motel sales and motel legal experience within the industry, and who have a proven track record of successful motel sales should only be considered for the job, if obtaining the highest sale price possible and a smooth transaction is the goal. These items mentioned are some guarantee of getting the best service possible from each specialist field.
- Ask questions – Whilst considering a professional Accountant, Motel Broker or Solicitor for the sale of your motel, ask questions.
- What motel sales have you personally handled lately?
- How many years have you been specialising exclusively in the sale of motels?
- Do you work full time selling motels or only part time due to other business interests/involvement?
- What are your formal qualifications?
- Are you fully accredited with the relevant industry authority?
- 5/. Qualification
- The qualification of potential buyers is a necessary but difficult and uncomfortable matter in offering a motel to the market. Providing a business’ documentation to a Purchaser who is not fully qualified is a big mistake. Only a fully qualified Purchaser can complete the purchase of a Motel. If a Purchaser does not have the funds to buy, does not have the want to buy, or does not have the ability to buy, then there is no point providing confidential information about a Motel business to them. The last thing anyone wants is their personal information and business’ goodwill such as major client lists, suppliers, contracts, agreements and other data being available to competitors or those who may use this information for their own personal gain. Many sellers do not take this area of confidentiality as seriously as it should be. Security of goodwill protects the value of the business. The difficult questions must be asked of a potential Purchaser in a manner that is not intrusive or argumentative. This can be easier said than done!
The role of the Motel Broker here is imperative. It is a complete waste of the Vendor’s time and money going down the path of providing confidential information, conducting inspections and signing Contracts, only to find out that the Contract falls over due to the Purchaser not being able to finance the transaction. It is difficult where buying and selling is concerned for a Vendor to speak candidly with a potential Purchaser. Considerable time and money are saved at this point in the process where the qualifying and requalifying of the Purchaser is carried out correctly to ensure the transaction is a smooth one, for all concerned.
The sale of a motel (or generally any business) involves much more than the sale of other property types. Potential buyers are looking for many different things such as, a strong business, future potential to improve the business, quality presentation, the history of the business, the honesty, integrity and trustworthiness of the Seller (particularly where financial statements are involved), the size of the residence, etc, etc. However some of these items carry a lot more weight than others. For example if an investor is looking to buy an industrial shed, their interest will lie in knowing what the lease details are, the rental and standard of the shed structure. They have little or no interest in knowing who the current owner is, whether he/she is trustworthy or what their historical financial background is. However these matters are important to a purchaser buying a business, as the Seller is relied upon for much more than just offering their property to the market. Their credibility can be paramount to the transaction progressing.
Andrew Morgan - Partner QTHB