Selling - Enquiry through to Inspection
- Posted By Andrew Morgan
The sale of any business is a process. Some transactions involve more detail and difficulty than others and therefore require a lot more involvement and management. To start the new year off, in this issue we consider the start of the sale process of a motel, from the initial enquiry or introduction to the business, qualification of that enquiry to the physical onsite property inspection.
Enquiry & Qualification
Once the initial enquiry or introduction of a potential buyer to a motel property or business that is for sale is made, the process commences with the enquirer supplying information to the seller or seller’s broker about themselves and what they are looking for. This can be both verbally and via written format utilising a Confidentiality Agreement. This forms part of the initial qualification process by a broker. One component of the broker’s role is to ensure that a business’ confidential information and data is not provided to those who have no real intention of buying the business.
Any business relies on retaining the value of its goodwill component by keeping secure its financial data and sensitive information such supplier sources and client lists for example. No seller wants their confidential data being supplied to unqualified buyers who may not have genuine intentions of buying that business. What is the point? Anyone selling their motel should work on the premise of seeking fully qualified buyers, meaning fully funded individuals or entities that have genuine intent to buy. There are many ways to achieve this position, and discussions with a specialist motel broker as to how they will handle this process can provide comfort in this regard. This will save considerable time and money for the seller over the course of the marketing campaign and retain the confidentiality and security of the business’ assets.
Once a prospective buyer has been fully qualified, one can have confidence that the sensitive business information that they are providing will be handled appropriately. In being realistic, there are no guarantees of this as some may do the wrong thing accidentally or on purpose if that’s the way they are inclined. No level of qualification can guarantee how someone will behave in the future. That being said, the adoption of Confidentiality Agreements should be standard procedure, to assist with the highest possible level of confidentiality being maintained. Any buyer enquiries that refuse to sign or avoid signing such a document, effectively have qualified themselves as spurious in nature. Immediately, those that should not be provided access to sensitive business information have been exposed and can be handled appropriately.
Physical Property Inspection
Assuming all the appropriate information has been supplied to the prospective buyer and all the relevant business data is in order, the next stage of the process may be the physical onsite inspection of the property. As opposed to the residential real estate industry where the advertising of how many inspections have been conducted is seen as a positive thing, the sale of a business is quite the opposite. The number of property inspections conducted should be as few as possible, if the business data and compliance is in order and the buyer qualification process is completed correctly. The “more the merrier” is not best practice for the sale of a business, as opposed to a residential property. Only fully qualified buyers (financed with genuine intent) should ever gain access physically or financially to the backend of a motel business.
Upon physical inspection a potential buyer wants to look at the good, the bad and the ugly for as long as they like. Often a seller wants a buyer to have a quick look around, say “yes we will buy it”, and leave so as to avoid any employees or customers finding out that they are selling. It can be an awkward situation when the seller, broker and buyer are talking about sensitive business specific information and a staff member, customer or supplier walks through the door. The busiest times of the motelier’s day are therefore simply not suitable for conducting an inspection, and all parties need to be acutely aware of the sensitive and confidential situation that they are in. Unfortunately this is not always at the forefront of a prospective buyer’s mind.
The motel broker should arrange a mutually suitable time for all parties for an inspection of the property, taking into account the busy and quiet times of the particular motel business. These times will vary from motel to motel depending on the type of clientele and income departments the business has. Buyers will inspect a motel at whatever time suits them, however for the seller, for specific times of the day, it is inappropriate to carry out a thorough inspection. The motel broker should manage the process effectively to avoid any disruption to the business as a result of the inspection. The percentages would confirm that most buyers do the right thing when it comes to the physical property inspection. Only the minority will not, such as arriving in reception unannounced, wanting to look through the property and speaking out of school in front of customers or employees. Some may stay at the motel unannounced as a paying guest, having a quiet look around without disturbing anyone, which is quite acceptable of course.
The seller of the motel business can be involved in the physical inspection or can leave it to the broker. This being said, normally the broker would be in attendance at inspections and should control the inspection so that there are no unexpected issues that arise. The property needs to be an open book, with the seller being as transparent as possible and allowing inspection of the entire property, where possible.