Selling: Enquiry through to inspection

By Andrew Morgan, Motel Broker/Partner, Qld Tourism & Hospitality Brokers

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 kick off the new year, in this issue, let’s 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 and 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 are 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 its financial data and sensitive information, such as supplier sources and client lists, secure. No seller wants their confidential data supplied to unqualified buyers who may not have genuine intentions of buying the business. What is the point? Anyone selling their motel should work on the premise of seeking fully qualified buyers — fully funded individuals or entities that have genuine intent to buy. There are many ways to achieve this, and discussions with a specialist motel broker about how they will handle this process can provide comfort. 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 they are providing will be handled appropriately.

However, 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, adopting confidentiality agreements should be standard procedure to assist with maintaining the highest possible level of confidentiality. Any buyer enquiries that refuse to sign or avoid signing such a document effectively qualify themselves as spurious. Those who should not be provided access to sensitive business information are immediately 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 are in order, the next stage of the process may be the physical onsite inspection of the property. Unlike in the residential real estate industry, where advertising the number of inspections conducted is seen as a positive, the sale of a business is quite the opposite. The number of property inspections conducted should be as few as possible, provided the business data and compliance are in order and the buyer qualification process is completed correctly. “The more, the merrier” is not best practice for the sale of a business. Only fully qualified buyers — those with financing and genuine intent — should gain access, physically or financially, to the backend of a motel business.

Upon physical inspection, a potential buyer wants to examine the good, the bad, and the ugly for as long as they like. Sellers often hope a buyer will quickly look around, say “yes, we will buy it,” and leave, avoiding any employees or customers finding out they are selling. It can be an awkward situation when the seller, broker, and buyer discuss sensitive businessspecific information, and a staff member, customer, or supplier walks through the door. Therefore, the busiest times of the motelier’s day are simply not suitable for conducting an inspection, and all parties must be acutely aware of the sensitive and confidential nature of the situation. 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 depending on the type of clientele and income departments the business has. Buyers may wish to inspect a motel at a time convenient to them. However, for the seller, specific times of the day may be inappropriate for a thorough inspection. The motel broker should manage the process effectively to avoid any disruption to the business as a result of the inspection. Most buyers do the right thing during physical property inspections. However, a minority may not, such as arriving unannounced at reception, wanting to inspect the property without prior notice, or speaking out of turn in front of customers or employees. Some buyers may stay at the motel unannounced as paying guests, quietly looking around without disturbing anyone, which is acceptable.

The seller of the motel business can participate in the physical inspection or leave it to the broker. Generally, the broker would attend inspections and should control the process to avoid unexpected issues. The property needs to be an open book, with the seller being as transparent as possible and allowing inspection of the entire property, where feasible.