Tips for selling management rights:
What were the red flags or areas of concern when you acquired the business, and what might you be able to action prior to even listing for sale to ensure a smooth process and minimise risks of a reduced sale price or failed transactions due to administrative or other issues which could be rectified before you start the sales process.
Key issues, easily avoided, include:
By Lel Parnis, Principal, Holmans
Review your letting appointments
Dust off the reports you commissioned when purchasing the business and read them. The legal due diligence and financial verification reports you obtained upon purchase should contain valuable insights into what the buyers’ advisors may highlight during the sale process.
Ensuring your agreements are all up to date, completed and signed, and contain the correct licensee details is a relatively simple step often overlooked prior to listing management rights for sale. All management charges should be authorised in writing and ideally a current, signed or initialled schedule of fees and charges should be filed for every unit in the letting pool to ensure no issues during the financial verification on sale.
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If you fail to plan you plan to fail Net profit for sale
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Agreements not signed and dated by both parties.
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Incorrect licensee and signatories.
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Incorrect format of agreements (Form 6 vs PAMDA 20a, current version etc.).
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Missing charges (cancellation fees, new charges, increased rates) from addendums/ fee schedules.
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Current schedule of charges not included with owner agreements.
Keeping your letting appointments, including addendums and schedules of fees and charges, organised, ideally in soft copy along with other owner correspondence, reduces the risk of issues arising during the financial and legal due diligence process on sale.
The sale price of your management rights will be based upon a multiple of the adjusted net profit for a recent 12-month period, the more recent the better. And the better your bookkeeping records, the smoother your financial verification process will be. It’s not rocket science, but the preparation of a profit and loss statement for sale purposes is not entirely intuitive and is subject to adjustments specific to the management rights industry. Against the best advice from industry professionals, some management rights owners continue to prepare their own profit and loss statement when they go to sell, particularly in long-term letting. Whilst this approach may save on professional fees, it is likely to increase the likelihood of a sale contract falling over or
Accountants to the accommodation industry. 07 5430 7600 or
accom@holmans.com.au
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