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Friday , August 18 2017

Selling your accommodation business – how hard can it be?

Selling any type of business is usually quite different to selling a house. The vendor of a residential property, having appointed an agent to take care of things, generally has very little further involvement until the time of negotiating over price and terms etc.

Vendors for motels and other types of accommodation businesses however, whether they be freehold or leasehold, are usually involved quite a bit throughout the transaction. Genuine purchasers will have many questions and requests for information which can only be obtained from or via the current operator. Also, once an agreement has been signed, the seller has to get busy in preparing an up-to-date list of chattels and a schedule of contracts which need to be assigned to the purchaser.

Having gone to so much trouble in assisting the process, one may wonder why engage a broker or agent in the first place – why not sell privately? There will always be situations where vendors have successfully sold their own property or business and it has gone quite smoothly, but we believe that this may be the exception. A number of factors come into play:

• Qualification of the buyer

A good agent or broker should be skilled at asking the right questions to make sure that potential purchasers have in fact the means and motivation to buy, before divulging confidential information and consuming everyone’s time. (Failure to obtain the necessary information is not acceptable if it is because the right questions have not been asked, however in some cases it can be because the answers given are not completely truthful.) It is usually more difficult for a private seller to directly seek information as to the purchaser’s circumstances and motivation than it is for independent third-party to do so. This is the first step and clearly one of the most important if the sale is to ultimately succeed.

• Exposure to the wider market

We sometimes hear of buyers approaching moteliers “’out of the blue” and making an offer. The acceptance of such an offer supposes that it is good or fair market value, yet often without the benefit of the same opportunity being offered to the wider market.

As market conditions improve, it becomes perhaps easier to sell and more tempting to do so without incurring the cost of commission. Brokers’ fees though can be less significant overall if the sale price is not otherwise maximised by ensuring that all potentially interested parties have had the opportunity to make a bid when informed that the vendors are considering an offer.

There is a rigorous process to be followed in the real estate industry when agents are aware of a potential multi-offer situation. This is intended to ensure that the purchasers are not aware of the intentions of their competitors and are advised to make their first offer the best offer, on the understanding that they may not have an opportunity to enter into further negotiations. In other words, if the vendor is going to counter-offer it will only be back to one party, usually the one who has made the best offer.

• Financial information

Interested purchasers often say that they intend to talk to their bank manager. This sounds reasonable, however it is sometimes the case that the banker with whom they are dealing is not necessarily up to speed on current lending ratios and security requirements for this particular industry.

Even within the same bank, various guidelines can be offered by different branches or individuals. Brokers dealing in this industry on a regular basis, are aware of the equity ratios, repayment terms, security requirements and – most importantly, the right people to approach for specific proposals. A great deal of time can and has been wasted, and opportunities lost, through not being well informed in this area.

• Technical aspects

Contracts for sale in this industry need to be drafted using specific terms and conditions relevant to the type of sale. The standard Law Society/Real Estate Institute business sale and purchase agreement covers the main points common to most business sales, but in addition to those, there are generally a number of specific conditions for the accommodation industry. If you have a private buyer, then your lawyer could certainly draft the agreement, along with the legal costs associated with that.

In most cases, the first draft of the contract is likely to be changed, sometimes quite a bit throughout the process and could involve many hours of legal time. Still a lot less costly than commission though, however wasted money if the sale does not proceed.

The preparation of contracts is part of the service brokers provide, often a number of times with various buyers before a successful agreement reaches confirmation.

Your broker can tell you whether the terms of your lease provide for the landlord to have first right of refusal to buy back the business and, how best to approach that. They will also outline the procedure required to obtain the landlord’s consent to assignment of the lease to the purchaser. With the broker acting as a go-between on these matters, this should reduce legal time and costs.

In summary, the brokers who specialise in this industry bring their skills, knowledge and experience to the process – the objective being to provide sellers with better financial outcomes and a smoother path to success.

http: Selling your accommodation business – how hard can it be?

Written by Kelvyn Coffey, Coffeys Tourism Brokers