by Andrew Morgan, QTHB
28th May, 2020
Tips for selling motels: “Take the time now”
Going into anything unprepared is generally a mistake.
Not having everything in order, whether it be from a paperwork point of view or a physical asset, being prepared is going to end up resulting in an unprofessional presentation. Preparing for the sale of a motel should be happening all the time, not just when it is questioned that maybe now is the time to sell. Once the decision is made to sell, if the ongoing preparation has been done over time, it will be a simple process of putting all that prepared information together and being able to hand it over to the relevant party.
|Andrew Morgan, QTHB
There is no easy way out here, one is either organised and ready to hit the market or they are not. Providing a professional presentation of a motel business or property to a prospective party carries a lot of weight. It confirms to them that whatever they want to look at within the business to satisfy them of its accuracy will be easy, problem free and true. It confirms that the business is being operated well and a seamless transition to them as the new owner will make their life easier, as opposed to taking on someone else’s problem.
Any seller wants to achieve the highest price they can, in the shortest time they can, with the least amount of hassle. This is really only achieved through solid preparation leading up to the business or property going on the market. It requires the preparation of not only the physical asset but also the business asset and what relates to it. The preparation of the buildings will include completing any renovation works or repair and maintenance issues. Keeping the lawns and gardens manicured and renewing old painted surfaces. The preparation of the business will include a lot of different matters; however, the main area will be the financial side of the business.
Those who have all their financial statements up to date and have occupancy and accommodation data available at the tap of a key, will present professionally in the eyes of potential buyers.
The old saying about putting yourself in someone else’s shoes and seeing things from their point of view is very relevant here. A seller of a motel business should always put themselves in the shoes of a buyer. Prior to offering a motel to the market, preparing the information that you as a buyer would require or expect to see is easy to do. Look at the sale process from the buyer’s point of view, as opposed to being fixed on the 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 the last hurdle simply due to poor preparation. There is no excuse not to be fully prepared for the questions one knows will be asked, as opposed to trying to avoid them.
The entire sale process is an up and down one. 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 (again, putting yourself in the buyer’s shoes). What is the information that will influence a buyer to take action in which a seller has a level of control over?
Having all the documentation/information prepared, available in an accurate and well-presented format that a buyer acting reasonably should expect is paramount. Attend to the following prior to offering a motel to the market:
- Accountant’s Profit & Loss Statements – the last three years will be requested. All other items aside, a motel’s value is a direct reflection of its profitability.
- Plant and Equipment List – a comprehensive list of all chattels sold with the business e.g. beds, televisions, fridges, kitchen equipment, etc. These are tangible assets seen as holding a high-value.
- Lease or Rental Agreements – chattels under lease, road signage agreements, etc.
- Lease Document – if the business is a leasehold tenure, not inclusive of the land and buildings.
- Occupancy Rates – per month
- Monthly Income Split up by Department – e.g. Accommodation, Restaurant, Bar, Tours, etc.
- Current Tariff Schedule – include the last time they were increased and by how much.
- Council Property Rates Notice – last two received.
- Online status – social media presence as well as online booking options.
- List of Recent Property Improvements – refurbishment and large maintenance items should always be documented and available.
- External Party Agreements – copies of any agreements with external parties such as chain affiliations, service providers, booking agencies, etc.
- General Information – on the daily operations, such as the booking system, social media, office hours, employee details, etc.
Physical asset presentation
Fix any issues or problems with the land, buildings or plant and equipment as potential buyers do not like sellers attempting to pass on their problems.
Motels with good quality presentation always achieve higher sale values as buyers realise they do not need to invest further capital immediately after buying. If a buyer believes that $100,000 will need to be spent due to neglect the offer made will be discounted by three times that. Minor items often make all the difference such as small repair and maintenance issues being completed.
Cleanliness: it is important in the day to day running, but it is also very important upon inspection. Cleanliness goes a long way, whether the motel is five years’ old or 50 years’ old, a clean and tidy motel will impress.
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.
Marketing - advertising or not
The simple fact that the more genuine potential buyers that know the property is for sale, creates a more competitive market. It gives the seller the opportunity to obtain the highest price possible and smoothest sale process through spirited market bidding. Some sellers prefer not to advertise a motel for sale, which is a personal decision for each. Many do not want the name of the business disclosed via advertising or photos of the signage or front of the property.
‘You cannot sell a secret.’ However, this does not mean go and tell the world that XYZ Motor Inn is for sale. The market is an ever changing dynamic and what worked a year ago may not necessarily work now. In a quieter market a seller 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 the right buyer’s attention.
Off market campaign: this is a method of sale that includes not advertising to the masses that a business or property is for sale. It involves direct contact by the broker with known potential buyers only. Both parties knowing the heightened level of confidentiality expected by all involved with such a process.
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!
The qualification of potential buyers is an absolutely necessary but difficult and uncomfortable matter in offering a motel to the market. Providing a business’ confidential documentation to a buyer who is not fully qualified is a big mistake. Only a fully qualified buyer can complete the transaction. If a buyer 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 buyer in a manner that is not intrusive or argumentative. That is not as easy as it sounds.
It is a waste of the seller’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 buyer not being able to finance the transaction. It is difficult where buying and selling is concerned for a seller to speak candidly with a potential buyer. Considerable time and money are saved at this point in the process where the qualifying and requalifying of the buyer is carried out.
Motel industry specialists
Accountants, motel brokers, financiers, and solicitors: Make the right decision based on adequate research as preparation. It will cost a seller thousands of dollars and a lot of grief and frustration if specialist 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 and as smooth a transaction as it can be? Specialists who are fully qualified, fully accredited (business brokers should be fully accredited with the REIQ Business Brokers Chapter), 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, minimising costs and a smooth transaction is the goal.
Do not believe that he/she who provides the highest sale price appraisal is the best person for the job. They are most likely not the right person. As an example, having an agent who does not specialise in selling motels provide an appraisal on a motel business, may get the highest appraisal value, but is that really the goal here, to list the business for sale and have it sit on the market at too higher price and gain no interest? The result will be a lower sale price and higher costs throughout the transaction.
Ask relevant questions while considering a professional accountant, motel broker or solicitor for the sale of your motel:
- What motel sales have you personally handled lately?
- How many years have you been specialising exclusively in the motel industry?
- 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?
The sale of a motel (or generally any business) involves a lot more moving parts, 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, cashflow, etc.
If an investor is looking to buy an industrial shed, their interest lies in knowing what the lease details are, rental and standard of the shed structure. They have little or no interest in who the current owner is, their trustworthiness or what their historical financial background is.
These matters are important to a buyer 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.