Tips to ensure a smoother management rights sale
Your management & caretaking agreements are one of the most important assets to your business. Be sure you consider the following before you list your business:
- Do the agreements need to be topped up?
- Are there indiscretions in the agreements that need to be rectified?
- Are there any relevant facts an incoming manager would want to know about?
- What is required to assign the agreements over to a new manager?
These are the most important assets to your property management business. Remember these documents are likely to be audited thoroughly by the buyer’s accountant. When was the last time you audited your 20a’s. The things to consider when reviewing your 20a’s should be:
- Are they legal and have they been signed by both parties?
- Have both parties received a copy?
- Are they are all assignable? If not, do you know why the owner did not wish to sign the assignment clause?
- Do your fees and charges, that you are actually charging, match the agreed amounts in your PAMD 20a’s.
- In your business how many 20a’s do you have? How many are self managed or managed by an outside agent? How many owner occupiers reside in the complex?
When your management rights business is on the market, buyers will often request a copy of your P & L. Getting your business financials prepared by an industry expert will give your business’s net worth far more creditability in the eyes of the buyer. Buyers are wary about going to contract on a business where the financials were prepared by the business owner.
Managers residents are often priced with a premium placed on the property and often contracts are contested by the buyer over the price of the unit. Therefore it is a good practice to have your unit valued prior to listing as this will help your sale in two ways:
- As the value of the unit is set by an industry expert, the buyer will find it difficult to negotiate a better deal.
- When your management business does go to contract you’ll be secure in the fact that the buyer will have less issues with finance.
When selling a management rights business you are also selling a working office. The office is made up of your office assets and your inventory or stock. In preparing your business for sale you should prepare an assets register and a list of your inventory. It is recommended to keep this up to date as buyers will want to know what office assets are included and what inventory will be left.
Currently, 70% of buyers buying into management rights businesses are new to the industry. Quality business and work place health and safety procedures can assist you in dealing with the transition between yourself and your buyer. Ideally an experienced manager should be able to take over from you in your business and run it the same way you do.
Your business may require staff to operate efficiently or you may be employing somebody to carry out some of your work for you. It is recommended that you have a register of the staffing hours and the work they are responsible for. Some of the work your employees conduct may not be required on your Profit & Loss. However, we recommend consulting your industry accountant to discuss this breakdown.
Often it’s not what you say that makes a buyer walk away from your contract, it’s what you didn’t say or forgot to mention. Best practice is to discuss these issues openly with your broker before they start to show any prospective buyers your business. Remember no business is perfect. Handling these objections or issues with the buyer is one of the reasons you employ a quality broker. “What else are they hiding?” is a question you never want asked.