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Preparing your motel for sale - Are you ready to sell?

By Amy O'Donnell07 Aug 2019

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Read this if:

You want to know the key things you should do before you list your motel for sale to make sure you stay ahead of any problems:

Speak to your accountant

Your accountant helps in two areas.

The first is to understand the tax issues before going to contract.  You need to make sure you are across the issues with:

  • acquisition and disposal dates;
  • capital gains tax implications;
  • tax planning around those and potential superannuation contributions. 

If you are selling a freehold going concern, the apportionment of price is also important. This becomes a function of balancing preferred tax position needs as against the buyers borrowing position (where values are important).

The second is to come up with a set of sale figures for the financial performance of your motel business.  If this is prepared in a professional manner it will both assist your agent in the sales process and also your buyer in the financial due diligence. 

Buyer’s accountants love tearing apart inaccurate vendor prepared figures, and quite often this can be justified because the seller has made mistakes.  If your accountant has prepared the figures it is also easier to iron out any issues through an accountant to accountant conversation. 

Business paperwork

A buyer will need to be informed about what it is they are buying.  During the legal due diligence process they will want to see all relevant paperwork.  This will include:-

  • the lease;
  • any variations to it;
  • franchise / licence agreements;
  • liquor licence;
  • food licence;
  • key supply agreements – like internet, phone etc;
  • any asbestos register;
  • any agreements with any companies to provide rooms;
  • details of advertising;
  • the last star rating report (if there is one);
  • details of employees.

Why not get it together now?  It is going to be asked for and you might as well deal with it without the time pressure of a 14 or 21 days legal due diligence period hanging over your head.

If you have any doubts about anything in your paperwork deal with it now. 

The due diligence will uncover any issues anyway, so if you deal with it now it will avoid having an untidy conversation half way through the contract process. 

Assignment of service agreements

It will be a given that the buyer will take assignments of the key business documents – like the lease / franchise etc.

But what about the service agreements?  Are they assignable?  Are any for a fixed term, meaning the buyer has to take them or you have to continue paying the costs?  What does the provider need?  Are there any adverse costs clauses in them?  Will it be an assignment of the existing agreement of the creation of a new one?  Do they need training / handover?

Again – knowing the answers to these questions now is better than dealing with them two days before settlement in a panic.

Inventory

You will need to prepare a detailed inventory of chattels and equipment that will be included in the sale.

The simplest way to define what needs to be included is to understand the difference between fixtures and fittings.  Fixtures are affixed to the land and automatically go with it and fittings are anything else – which then need to be on the inventory.

Rather than getting all legalistic about it, picture getting the motel, tipping it upside down and shaking it.  Anything that falls out of it is a fitting and needs to be on the inventory!

Choosing an agent

You can sell the business yourself. You can also do your sales figures and legal work.  And you may well get something in each of those roles critically wrong.

It is also essential you choose an agent that specialises in the motel industry.

A good agent helps sorts things out when things go wrong in the transaction – as inevitably will happen.  It might be a renegotiation of the figures.  It might be explaining an issue with a lease or a franchise agreement that the buyer’s lawyer doesn’t like.  It could be presenting a proper package to the landlord. 

Negotiations of commercial terms that are lawyer to lawyer are painful.  Agents get on the phone to each party directly and sort things out. 

Your landlord

If you are a leasehold business, deciding when to tell your landlord about your intention to sell your business can be a tricky question. 

You should check your lease to see if there is a clause which gives your landlord the first right of refusal on the business.  This means you have to give your landlord a chance to buy the business on terms no less favourable than you would offer to a third party.  If the landlord does not take that offer up you can sell to a third party.

Be alert, but not alarmed.  Getting organised means you will promote confidence in your buyers and minimise the chance of delays and complications arising at a later date.

Ideally, you have some understanding of your landlord.  Put yourself in their shoes.  If you were presented with the buyer to run the business how would you react?  What would you ask?  What would you want to see?

Prepare with that in mind.

We are always more than happy to run our eyes over your documents and help you to ensure that you have everything in order.

Other things you may be interested in downloading our guide to selling a motel - access it here.

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