Insights from a Business Valuer: Essential Steps for Successful Business Sales and Purchases
- Posted By Jenny Chellew
When it comes to selling or purchasing a business, understanding the valuation process and preparing the necessary documentation are crucial for a smooth and successful transaction. Andrew Kemp from Acumentis, a national valuation and advisory business, has provided valuable insights on the important aspects that business owners and buyers should know. With a team of experienced valuers and a strong local presence in North East Victoria, Andrew emphasises the significance of value creation, suitable presentation, transparent financial accounts and engaging industry consultants. In this blog, we explore the key points raised by Andrew, shedding light on the vital considerations for both sellers and buyers in the business market. Whether you're looking to sell your business or make a strategic purchase, these insights will help you navigate the process with confidence and maximise your chances of a successful outcome.
Briefly, what does your business do?
Acumentis is a national valuation and advisory business with 45 offices across metropolitan and regional Australia. Locally, Acumentis has evolved from the Albury based valuation business Cosgraves Property Advisors and the former eastern Australian business of Taylor Byrne.
Local expertise includes valuers with significant experience in the hotel, motel, caravan park and tourism sectors with instructions throughout New South Wales and Victoria from our office in Albury/Wodonga.
Valuation instructions within these sectors vary, with valuation purposes including mortgage security, sale/purchase advice, rental assessments and determinations, partial interest assessments (i.e. Lessor’s and Lessee’s Interests), financial reporting, family law, expert witness etc.
What is the one, most important thing you wish your clients knew about a valuers role?
The most important thing to consider if a valuation is required is to not be afraid of the process.
Think of value creation within your own business and property – the valuation will take care of itself.
The process of valuation is an interpretation of the market based upon a detailed analysis of business metrics (revenue and profitability – EBITDA), property improvements, location, property sector dynamics and the wider comparison to market transactions, demand and supply.
Business and property owners should be working on, as well as within their businesses/properties to maximise value by analysing internal metrics, marketing and promotion, implementing changes/improvements and maintaining strong business records and accounts.
If value creation is maintained, this should not happen:
What are three things would you want your clients to know about the process of selling?
Suitable presentation of your property and business.
Clear, detailed and transparent financial trading accounts for preferably five historical financial years. The lack of suitable trading history will place doubt in a buyer’s mind and potentially result in a discount to value being offered. Also ensure all relevant licences, approvals and compliance issues are current.
Engagement of suitably experienced industry consultants, i.e. agents/brokers, accountants, lawyers, building professionals etc.
What are three things you would want your clients to know about the process of buying?
Fully research the property/business, its local micro and macro markets and insist on obtaining the data above mentioned.
Seek advice from independent consultants such as valuers, to provide initial advice.
Engage suitably experienced industry consultants in a timely manner, i.e. if you require finance, ensure banking/finance brokers and valuers are engaged early enough so as to not place pressure on exchange and settlement timings.
From a valuer’s perspective, what are the most important things your clients need to prepare for you in order to be ready for sale or purchase?
It is during this valuation process that all participants in the process, i.e. owners/operators, landlords/tenants, accountants, legal advisers, brokers, finance brokers, bankers etc., remain aware of the requirements of the valuation process, timing and documentation needed.
Unfortunately, as an industry, we continue to find that the timing of our instructions is often left to the last minute which can result in unnecessary stresses in terms of transactions, financial settlements, negotiations and a lack of documentation.
However, in order to avoid potential “red flags” during the process, it is essential to provide timely and detailed documentation at the start of any valuation instruction.
A summary of the minimum data required for a valuation in most cases in the accommodation sector include, although may not be limited to the following:
Profit and Loss Statements: Ideally the most recent five years, where trends and movements can be illustrated and suitably explained. Accounts can be internal, although preferably by a third-party accountant, with enough clarity as to the relevant inclusions, i.e. are there other businesses included in the statements? Operating expenses are to be itemised and not consolidated, which limits a valuer’s ability to analyse on a line by line basis and subsequently compare “like for like”. “Red Flags” may appear if ongoing operating expenses cannot be verified.
In addition to Profit and Loss Accounts, accommodation providers, via their on-site reservations systems, should provide details of revenues, categorised by accommodation type (e.g. for a caravan park - revenue per cabin type, site type, or a motel – revenue per room type, food, beverage). This internal reservation data should then provide further comfort and analysis ability when compared to the annual P&L accounts noted above. Significant variance between internal reservation revenue data and recorded P&L accounts will raise “Red Flags”.
Detailed occupancy data for the same periods as above, normally maintained on a monthly basis, is also required to again provide clarity of operational revenues i.e. RevPOR, and is also used as an analysis tool when assessing suitable operational expenses i.e. laundry and wage costs per occupied room. In terms of Caravan Park operations, occupancy data is sometimes not available, with revenues per site type per annum a sound analysis tool of the property’s operation.
Noting the labour-intensive nature of some accommodation businesses, normally the largest operating expense, it is further required that detailed rosters and wage summaries are provided to again provide suitable analysis on a room night or unit/site basis. Discussion of wages “off the books” can generate another “Red Flag”.
In assessing a maintainable net operating profit (EBITDA), the above detailed documentation is vital. A deficiency in data provided, or available, does place limitations upon analysis and potentially impacts value due to the perception of risk, to which the market will suitably price.
In terms of partial interests, i.e. lessor’s and lessee’s interests, the above data remains, and forms a vital part of our analysis of suitable market rental levels. In addition the above, in such cases, full disclosure of lease documentation, variations, renewals etc., is required.
By taking Andrew's advice to heart, business owners can proactively work on value creation within their own businesses, ensuring that the valuation process takes care of itself. For buyers, the importance of conducting in-depth research, seeking advice from independent consultants, and engaging experienced industry professionals cannot be overstated.
We extend our gratitude to Andrew for his valuable contributions to this discussion. If you would like to speak with Andrew, he can be contacted at Acumentis Albury Wodonga – 02 6042 4555, [email protected]
With his insights in mind, we hope that business owners and buyers can approach their transactions with confidence and achieve the best possible outcomes.
This blog was produced by Jenny Chellew, an accredited business broker with a focus on the tourism and accommodation industry. With a wealth of expertise and a passion for assisting clients in this sector, Jenny provides valuable insights and guidance to help you navigate the world of business buying and selling resulting in the best possible outcome for all.