Preparing an Accommodation Business for Sale: Don't Leave it to Chance

Posted By Andrew Morgan

Some like to have a “little flutter” now and then and others like to have a “serious punt”. Whether it be a high stakes game of poker or flipping a coin to determine who is right or wrong. Either way, it’s a gamble.

One possible definition of the word gamble could be, not preparing a business for sale properly before going to the market. Leaving it to chance as they say and hoping for a good outcome. That all sounds too risky. Even a little bit of planning and preparation by a Seller must improve the odds of achieving a better outcome than the alternative. When selling a car, a service, good clean of the interior and exterior wash prior to offering it to the market will achieve a higher price in a shorter time. As opposed to being able to write “wash me” on the rear glass and the engine winding and winding before it finally starts. The price a prospective buyer is prepared to pay for one offering, over the other, will be very different. This preparation helps to stack the odds, hopefully in the seller’s favour.

Motel business sales are no different, however, having customers through the door daily with the added assistance of a good booking system with quality reporting should in theory, not require a major effort prior to offering to the market. Preparing for the sale of a motel is most likely being completed inadvertently every day, not just when it is 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 information together and being able to hand it over to the relevant party. Providing a professional presentation of a motel business and physical property to a prospective buyer brings credibility and assists to create a smooth process, as opposed to one of constant delays resulting in angst, more questions and potentially distrust. It confirms that the business is being operated well and a seamless transition for the new owner will make their life easier, as opposed to purchasing someone else’s problems.

Every seller wants to achieve the highest price they can, in the shortest time they can, with the least number of issues. This is only achieved through 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 matters. 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 other will be compliance and everything that goes with it. Items such as an Asbestos Report, pool safety certificate, signage agreements, online contracts/agreements, customer contracts/agreements, telecommunication agreements, food licence, liquor licence, etc.

An easy way to start the preparation for the sale of a motel business is to put oneself 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 focused 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 just 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 initial 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, and hope they don’t eventuate.

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 oneself in the buyer’s shoes). What is the information that will influence a buyer to act, which a seller has a level of control over?

1. Documentation

Have all the relevant documentation and information prepared, available, and in an accurate and well-presented format that a buyer acting reasonably should expect. To avoid unnecessary delays, ensure the following information is ready to go at the stroke of a key prior to offering a motel to the market:-

Accountant’s Profit & Loss Statements – the last three years will be requested. All other important pieces of information aside, a motel’s value is a direct reflection of its profitability.
Monthly Income Split up by Department for the last year – 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
Latest Insurance Policy – including policy premium
Online status – social media presence as well as online booking options
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 – average occupancy rate per month for the last year
List of Recent Property Improvements – refurbishment and large maintenance items should always be documented and available.
External Party Agreements - copies of agreements with external parties such as chain affiliations, service providers, booking agencies, etc
Employee Details – basic numbers in each area is enough early on – cleaners, reception, management, food and beverage, etc
General Information – on the daily operations, such as the booking system, social media, office hours, employee details, etc.

2. Buildings and Chattels

Cleanliness - important every day in a motel business, whether there is a potential buyer inspecting the property or not. Cleanliness goes a long way in making an impression, whether a motel is young or old, a clean and tidy motel tells the story that it is being looked after.
Fix any issues or problems with the land, buildings or plant and equipment (chattels). Potential buyers do not like sellers attempting to pass on their problems due to lack of investment and care.
Motels with good quality presentation always achieve higher sale values as buyers can see they will not need to invest additional capital immediately after settlement. If a buyer believes that $100,000 will need to be spent due to neglect, the offer made will be discounted by more than that. Minor items often make all the difference such as small repair and maintenance issues being completed.
More major cost items that are commonly raised as concerns from buyers will deter them from paying the asking price or making an offer at all, including not having split system air conditioners installed, poorly painted surfaces, damaged/dated cabinetry, damaged or old floor coverings, sagging beds and bathrooms in need of full renovation (showers, tiles, vanities).

3. Marketing

When selling anything, some say “You cannot sell a secret”. However, this does not mean go and tell the world Morgan’s 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 quiet 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. Be aware of confidentiality. Make sure you protect the goodwill of a business by only dealing with genuine qualified buyers.
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.
Creating a competitive market 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. This leads to the next point.
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. Depending on the market status, this is often an excellent way to enjoy a good selling experience.
Internet – Any successful marketing campaign will include a 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 relatively cost-effective source of marketing that remains in place long after the newspaper has been thrown in the bin. 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. Qualification Process

The qualification of potential buyers is an absolute requirement but can be a 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 concern. Only a fully qualified buyer can complete the transaction. If a buyer does not have the funds to buy, does not have the genuine 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. No one 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. 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. Time and money can be saved at this point of the process, where the qualifying and requalifying of the Buyer is carried out.

5. Motel Industry Specialists

Any agent can make claims that they can sell a motel (or any property or business). However, will it be at the highest price that could be achieved and as smooth a transaction as it could be? Specialists who are fully qualified, fully accredited (business brokers should be fully accredited 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, minimising costs and having a smooth transaction is the goal.
Don’t 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 achieve the highest appraisal value, but that is not the goal. To list the business for sale and have it sit on the market at too higher price and gain no buyer interest. To what end? The result will be a lower sale price and higher costs throughout.
Accountant, Motel Broker, Financier and Solicitor – make the right decision based on adequate research as preparation. Simply put, it will cost a seller thousands of dollars and a lot of grief and frustration if specialist professionals are not employed for the job.
Ask relevant questions – whilst considering a professional for the sale of your motel:-
- What motel sales have you personally handled and over what period of time?
- 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?
- Seek references from those within the industry
- Are you fully accredited with the relevant industry authority?

The sale of a motel (or 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/grow 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 the historical financial background is. These matters are important to a buyer of 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.