If you are seriously considering selling your vacation rental business and you want to garner maximum value, there are several steps you should take before moving forward.
More time spent preparing the business for sale is certainly better than less, but there are a number of steps you can take within the months prior to posting your business for sale. The following information provides key points to consider to make the sales process a success:
The purchase and sale process should be a formal business transaction.
Negotiations do not always result in the successful sale of the business. Always begin with a well-constructed nondisclosure agreement (NDA) to include a non-solicitation provision. Do not consider parties unwilling to execute an NDA, no matter the relationship. A transaction advisor can help navigate this process, ensure the business sells for maximum value, and provide access to market rate terms/deal points.
When preparing your business for sale, it is important to smooth out any rough spots prior to marketing the business for sale.
The key is to tackle those areas that diminish the value or could hamper the sale prior to going to market. In certain cases, vacation rental managers (VRMs) may be missing contracts, have poor assignment language, or have underfunded trust accounts. It is rare that a transaction advisor cannot help a seller work through a best-practice approach to remediate these issues. Disclosure is also important—prospective buyers will appreciate open and honest communication about these issues. No matter the issue, problems will surface, and it is always better to attack those issues versus sweeping them under the rug.
Vacation rental purchase and sale transactions are grounded in finance.
Those companies with consistent and increasing financial performance fair better in the sales process than those that are unorganized and underreported. When creating and preparing financial statements, consistency and accuracy are paramount. The majority of vacation rental company owners generally prepare their financial statements with an eye toward reducing net income in an effort to improve the company’s tax position. This presentation, however, is at odds with what a business owner wants to depict in the successful sale of a business. The goal when selling the business is to maximize the net income of the operation, as vacation rental businesses are generally sold on a multiple of earnings. Therefore, it is imperative to normalize the income statement and add back those expenses that are germane to the business. This is one of the many areas where a transaction advisor can help in the sale of the business and ensure that everything is positioned for maximum value.
Would you want to buy your business?
Are there qualitative issues surrounding your business? Is your business too dependent on one distribution channel, one employee, or just a few homeowners? Although there is plenty of technology to help create efficiency, there is no substitute for hard work in day-to-day operations. Ensuring that your business puts forth a quality product is the center point in any operation. Conversely, being overly dependent on certain revenue sources or allowing a single employee to yield absolute control or leverage over the business or a potential transaction is problematic. Creating a well-rounded marketing plan and reviewing your organizational structure will ensure that your business is not painted into a corner when it comes time to sell.
Selling a vacation rental business is a material event that you should thoughtfully consider before moving forward. Prior preparation, along with a focus on certain key areas in the business, will help ensure the business is poised for maximum value.