Preparing Your Motel Business for Sale
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This was a very informative workshop with many points raised and many questions answered by the professional brokers. The key points being; Profit & Loss accounts, Chattels, Presentation and Leases.
Profit & Loss Accounts
It is from these accounts that the purchaser will calculate the return they will get on their investment and therefore the accounts need to be accurate and presenting as much profit as possible. A purchaser or their accountant will expect 3 years accounts not just last years, so you need to ensure your accounts are showing the best profit for the three years not just the year you decide to sell. If you take cash from your business and people are looking for a 20 to 25 per cent return, then every $1 you take out costs $4 or $5 on your sale price. $20 dollars in your pocket is $100 off your selling price.
Chattels
When selling it is important to have a complete and up to date chattels list available. The purchaser will want to see this in order to assess the business and a delay in receiving it sometimes looses your buyer.
Presentation
This is paramount when purchasers are looking at a motel. Any deferred maintenance should be completed. Fix that leaky tap so the purchaser doesn't wonder what else needs doing that they can't see. Clean and tidy, so it all looks pristine and orderly. A disorganized and dirty complex may make the purchaser think the reason is that the motel is too much work and put them off buying it.
Leases
Leases were the major topic in regards to the length of the lease and terms in them. Currently The Motel Assoc of NZ is working on a draught motel lease to try and replace the old ADLS leases and others which are not motel specific . This new lease will be availabe to new properties as those with existing leases in place cannot be changed unless by mutual agreement.
It is becoming common for new leases to be 30 or 35 years in length and most buyers are looking for at least 20 years. Extensions can be granted by lessors but this is usually at a cost per year. There is no set figure per year as it is an individual agreement between lessor and lessee and each motel is a unique business so age & condition must be taken into account. Buyers are insisting on leases over 20 years so it is important to ensure you can extend your lease. This does not have to be done at sale time and can often be negotiated as a part of a rent review. A trade off for a rent increase could be the lessor extending the lease.
For more information on any of the above you can contact one of your professional accredited motel Brokers John or Kathie at John Griffin Realty Ltd., Hamilton.
