The all-important settlement day preparation
Organised chaos is sometimes the best way to describe the settlement of any business sale transaction.
But why does it have to be this way? Settlement day in most cases is a very busy day for both the seller and buyer of a motel. In everyone’s haste there are many items that can easily be overlooked prior to settlement day. Upon the sale of a motel the broker should always contact the seller and buyer prior to settlement to discuss the settlement process and what they are required to do to ensure all goes smoothly on settlement day.
Some of these items include but are not limited to the following:
Banking/utilities – An Eftpos machine must be applied for early as this is often a problem at settlement, where this has not been processed in time. The last thing anyone wants after settlement is to be using the old manual swipe machine and/or the new owner’s funds going into the seller’s account until the new machine arrives. The transfer of accounts such as telephone, product and service suppliers, including food & beverage and advertising suppliers of the business, etc. Insurance should already been put in place from when the contract was originally signed.
Settlement statement – The seller’s solicitor will produce a settlement statement which the buyer must be agreeable with. This will include all the items that require transferring and account finalisation at settlement. For example, property rates for the billing period remaining, advertising for the period remaining, etc. The final amount on this statement will be adjusted for the date that settlement occurs.
Plant and equipment – All plant and equipment must be in good working order. It is often mentioned that reasonable working order is satisfactory however this is just a play on words and for the sake of goodwill, the plant really should be in good working order anyway. Therefore all air conditioners, ceiling fans, televisions, clock radios etc, must be in good working order. If these items are not in good working order the buyer may hold up settlement until the outstanding items are rectified. This does not include replacing dated equipment, if that was as inspected. Fair wear and tear is a natural part of life and is accepted, however a buyer is not buying a motel business to take on the seller’s problems. Repair and maintenance issues within a motel are the responsibility of the seller and should be taken care of well before settlement day.
Employees – Employees should have been informed of the settlement day well in advance and made to feel comfortable with their new employer. There are a number of different ways that outstanding employee entitlements are handled at settlement which should have been dealt with upon the contract of sale being entered into. It’s as much the case of making the employees comfortable with the new operator and that their position is secure. The fear of change is often the driver of any employee issues at this time.
Residence – The residence should be thoroughly cleaned by the seller with the carpets being professionally cleaned prior to settlement day. The buyer’s furniture is often moved in on settlement day, however this can be completed prior to, if both parties are comfortable with that arrangement.
Income & expenses – Income and expenses from the night before are the seller’s property and from the time of settlement onwards are the buyer’s. Therefore these costs will be incurred the morning of settlement day and the income received also that morning.
Stocktake – Stock can be counted either the night before settlement or the morning of settlement. If there is a large amount of stock to be counted, then the night before is preferable so that settlement is not delayed. If only a small amount of stock then the morning of settlement is suitable.
Settlement day is an exciting day for both buyer and seller for different reasons, a new challenge for one and the next chapter/or challenge for another. When both parties are not stressed and panicking, and the transaction goes through smoothly, it is a win/win for all.
