Selling Your Guest House or Bed & Breakfast?

Before putting your property on the market, it is advisable to take some time to consider what you need to do to get the best possible price for your property. Forward planning will also enable you to minimise the time it takes to sell your property and the headaches involved. 

Plan Ahead 

Is the business "fit for sale"? Have a good look at it. 

Most importantly look at the earnings and potential future earnings. Not only will higher profits mean you can ask a higher price, but they may also influence the new owner's ability to obtain finance. If possible, be prepared to give prospective buyers financial records for the last two to three years. 

Make sure your accounting and bookkeeping systems are well organised and easy to understand. There is no greater turn-off for a potential buyer than a pile of unorganised paperwork to sift through! 

Are all your takings going into the till? How much of your B&B's grocery bill are for your own consumption? The same accountant who was legally helping you to hide your earnings may now be insisting that you disclose them! 

Do you have an exit plan? Where are you going to live once your property is sold? 

Consider capital gains. How will you be affected? You may not end up with as much as you thought you would. Is there an alternative to selling? Perhaps you could lease your premises? 

Do your housekeeping and maintenance! Make sure your buildings, gardens, plant and equipment are in good condition. A simple coat of paint may add thousands to the value of your property. First impressions count. Make sure your Inn is looking its best before you put it on the market. 

Pick Your Team 

Sound professional advice, support and excellent planning are required for a successful outcome. Your accountant and lawyer may be the most important people involved in the sale of your property. Are they qualified and experienced enough in selling a business (especially a hospitality property)? If not find people who are. Can your accountant advise you on how to get the best price for your business? Can they advise on reducing your tax liability? Are there alternative forms of financing available to avoid or lessen Capital Gains Tax? 

Selling without an Estate Agent or Broker 

The seller of any business has normally spent a lot of time, money and energy building a successful enterprise and will often have an emotional attachment to the property. This is especially so in hospitality properties which often reflect the personality of the owner. This emotional attachment can lead to an owner having an unrealistic idea of the property's value. A proud owner is also likely take offence at a prospective buyer's innocent comments about a property. An insulted seller does not make for a smooth negotiation process! 

When selling a business it is often in the seller's interest to keep the sale confidential. Once a business is openly on the market it can affect staff morale, customers may go elsewhere, suppliers may withdraw credit and banks may start calling in loans. For this reason a "For Sale" sign in the front garden may not be in the sellers best interest. 

It is possible to sell your property without the assistance of an estate agent or broker. Indeed, savings can be made by avoiding sales commission. Selling your own property takes time and energy. If you are good with people and can emotionally distance yourself from the process, the benefits may outweigh the disadvantages. 

Selecting an Agent 

If you have decided that you do not have the expertise, time or desire to sell your own business, the next step is to find an agent. 

You may approach your local estate agent if you feel they have the necessary experience and expertise. There are also numerous reputable business brokers that will have more experience in dealing with the "business" side of the transaction.

If you are really serious about selling your inn, and you are lucky enough to live in an area that is serviced by a professional Inn Broker or Hotel Broker, you can get all the services you need under one roof: 

• Competent advice on pricing and presentation; 

• Exposure in the right places and in the right way; 

• Preparation of a prospectus on your property; 

• Database of aspiring innkeepers seeking to buy an inn like yours;

• Qualification of buyers; 

• The knowledge and experience to put together a workable agreement of sale and negotiate the twists and turns before, during, and after the deal is struck. 

Once a business is advertised for sale there are several types of people who will respond: - · 

• The Competition - Interested in seeing what you're up to.  

• Tyre Kickers who have no intention of buying your property but  want to snoop around and waste your time.· 

• Genuine Buyers who don't have the financial ability to purchase your property.

• Genuine Buyers with Finance. 

The seller will obviously only be interested in the last group, those with the intention and ability to buy. A good broker should be able to separate the serious buyers from the time wasters before they even view your property. If you are selling the property yourself, be prepared for lots of time-wasters. 

In South Africa, estate agents, business brokers and hotel brokers must be registered with the Estate Agents Affairs Board, have a valid fidelity fund certificate and are governed by the board's code of conduct. 

Your broker will assist in explaining the steps of the transaction including mandates, confidentiality statement, offers and contracts. Although your agent may be quite knowledgeable, do not expect him to take the place of an attorney. Always have a competent attorney prepare and review the legal contract to purchase. Always have your accountant go over the final purchase transaction prior to signing a contract to sell. 

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Set a Price 

The market value of a property is the price that a willing buyer will pay to a willing seller on a specific date. 

Valuing a residential property is relatively easy using the Comparative Market Analysis method (comparing prices of similar properties recently sold in the neighbourhood). However setting a price for your hospitality product is not so easy. In effect you are selling a property plus a business. The greatest weight is normally given to the value of the property. Comparisons can be hard to find as almost every hospitality property is unique. 

The method used to value your property will depend on the health and history of your financial statements, plus the condition and location of the real estate, improvements, and business. 

As a rough guide you can value your hospitality property by using the following formula: -

Selling Price = Property Value + Furniture, Fixtures and Equipment + Value of the Business + Goodwill

Property Value 

 Most people will have a rough idea of what their property is worth. It is advisable though to get professional assistance from a valuer, Inn broker or experienced estate agent. Most agents are quite willing to give you their assessment for free in the hope that you will ask them to sell your property for them. Maybe get a second and third opinion, just to be sure. 

Furniture, Fixtures and Equipment 

Establish the replacement value of everything that you will sell together with the inn. i.e. items that are necessary for the continued operation of the business. 

Business Value - There are various methods used to value a business. Your accountant should be able to assist you, or you could employ the services of a business broker. 

Goodwill - This is the most difficult component to value. A seller may attach a high value to goodwill, whereas a buyer will probably come up with a much lower value. Factors such as how long the business has been in operation, repeat clientele, confirmed future bookings, reputation, awards received and the trade name all contribute to goodwill. 

There is a risk of overpricing the property and if it remains unsold for some time, rumours may start that there is something wrong with it. In this instance a seller may have to reduce the price. 

Sellers may also undervalue their property. "I only paid R200 000 for it 10 years ago, how can it be worth R3 million now?" 

Factors affecting price: 

• General appearance - Type of accommodation and size of property. 

• Age of property

• General condition 

• Recreational facilities e.g. pool, tennis courts etc. 

• Location

• View. 

• Legal restrictions e.g. building clauses etc. Room for expansion? 

• Relative scarcity - Demand and supply. How many B&Bs are for sale? How many people want to buy one. 

• Availability of audited financial statements.

• Profitability and/or potential future profitability.

• Seller's willingness to take some interest in the business after the sale. This may include training the new owners, accepting payment in instalments or even retaining a share in the business. 

Finance

Unless you are lucky enough to find a cash buyer, any potential purchaser will need finance of some kind (normally from a financial institution). Before putting you property on the market, consider whether you will be able to provide seller finance to a buyer. Consult your accountant and lawyer and make sure they explain the advantages and disadvantages of seller financing. 

Feel Good about the Sale 

If you have any concerns or lingering doubts about the sale, do not sign any contracts until you are sure that you are entirely happy with the transaction.

The above guidelines are meant to assist you in the sale of your property. Always consult your accountant, legal advisor, or a real estate professional specializing in the hospitality industry.

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