Commencing exit planning for a motel business is never on anyone’s mind until they are ready to get out.
It really should start as soon as one takes over operating a business, but this is the last thing on a new motel owner’s mind at this point. No doubt a plan is in place for a three, five, or 10-year tenure; however, this is the extent of the exit planning strategy. This article follows on from a recent article published in Resort News under the title ‘The Five-Year Plan’.
It’s one of those things that everyone puts on the backburner. Why not, it’s a long way down the track, “we just took over and have a five-year plan, so why worry about that now?”. The problem here is that right from day one, when taking over the operation of a new business, any plans or initiatives in relation to the motel or business is going to affect the exit process when the time comes.
The planning of a major refurbishment needs to include the owner’s exit plans for the future. If one is planning to complete a major capital outlay for refurbishment, then selling the business or property next year is not going to reap the benefits that the refurbishment will offer. The invested capital funds may not even be able to be recovered in the sale value if the increase in trading from these refurbishments has not been realised. Exit planning is therefore a required consideration at the time if any possibility of selling was within say the next two years.
Initiatives being put into place that will build the business up over time require a discussion on exit planning. Again, is the investment in these initiatives going to be worthwhile? If we are considering selling in one year, the benefits may not be seen until after we are gone. For example, the capital outlay for a large road sign may be significant; however, it may take some time to see a return on this type of investment. Establishing and building relationships within the industry will take time and will not see an immediate return; however, over time it will be very beneficial to the business. Further to this, having the right professional advisors in place to facilitate the exit plan will take time. Building relationships with one’s accountant, solicitor, broker, financial planner, and others will all help to create a stress-free exit.
The style of operation needs to be considered. If the new owners plan to work the business fully themselves to save on wages and other operating costs, then an exit plan in say two or three years may need to be commenced as the operators will in all likelihood burn themselves out doing this. Alternatively, if a management team is employed to manage the motel, then an exit strategy with a much longer timeframe is needed to commence. Again, the trap of thinking “that is in the distant future, and does not need to be worried about now” is a danger.
The preparation for exiting a business is physical and mental. A motel is a business like any other, and if there is no planning in place for selling the motel then this will negatively impact on the sale value able to be achieved. If no planning has commenced and for whatever reason, one day, a business owner decides that they want to sell now and move on, what has been prepared? Preparation for sale should start when the business is acquired or commenced. Many things can be dealt with on a short-term basis, such as preparing financial statements and physical data. However, planning for the sale will help the process to go more smoothly and achieve a higher sale price within a shorter timeframe.
The mental side of exit planning for a motel owner has many benefits on a personal level. Over the years, we have witnessed much unnecessary panic and concern by owners selling their businesses when they are not mentally and physically prepared. They are then placed under pressure by all the parties involved in the process to have matters attended to immediately when they may not have been ready or prepared themselves for what was required during this time.
Those organised owners who have prepared themselves, and planned for the sale process, find themselves under much less pressure and give themselves every opportunity to enjoy a smooth and seamless transaction.
Andrew Morgan is a Specialist Resort & Motel Broker & Partner at Queensland Tourism & Hospitality Brokers & he writes the monthly Motel Market column for Resort News