Property focus – maximise your asking price

If you decide to sell your hospitality business, it's best not to do it in a rush. Ben Walker explains how to set it up to attract the most interest and the best price.

Whatever your reason for moving on, once you have made the life-changing decision to sell your business you will probably want the sale to happen quickly. However, a rushed sale will not give you the time to properly prepare your business for market and is likely to result in a disappointing outcome.

David Lee, a director based in the Leeds and Newcastle offices of licensed property agent and broker Christie & Co, says: "In an ideal world, vendors should seek advice from us two years in advance so we can discuss their exit strategy. This will give them and us the time to get the trading accounts into shape, analyse costs, see where savings need to be made, and achieve the highest net profit possible."

MANAGEMENT FIGURES

A good set of trading accounts will be one of your best sales tools, particularly in the current economic climate. Your accountant can help you prepare an information pack about your business's performance.

Banks are currently scrutinising financial performance closely so, ideally, you need to have at least six months of your latest management figures to show potential buyers. Also make available two or three years of audited accounts, and VAT returns if relevant.

"The key is to put yourself in the position of the purchaser. They will be seeking finance in order to buy your business and, as is well-documented, this is a little harder to secure than in previous years," says Paul Thompson, partner at Acorn Commercial Finance.

An organised seller with bang-up-to-date trading information will get a better price because there will be no room for suspicion from the buyer that the business has taken a downturn.

"Everyone wants explicit information, and even if the buyer doesn't ask questions, his lender will. Banks are only lending to businesses where there is transparency, so providing monthly management figures will help you attract serious buyers," adds Lee.

Prospective buyers are going to look at your management figures and assess the potential to further squeeze margins, improve trade, and perhaps negotiate a rent reduction. They are going to look at your staff costs, which should be no more than 25% of total sales, and your rent, which should not exceed 10% of sales.

Show yourself in the best possible light and, if possible, make sure your best trading periods are represented. Any particular events that could have impacted on sales, such as a road closure or refurbishment, should be clearly highlighted, Thompson advises.

KEEP IT CLEAN

It may seem obvious, but decluttering and thorough cleaning will make a big difference to the saleability of your business. Whatever you are selling, whether it's a vacant unit or going concern, it is essential that the property has been well maintained and is clean and tidy throughout before you show it to potential buyers.

"In the current market buyers are a lot fussier. You wouldn't believe some of the premises we see that are left in a disgusting mess, with dirty clothes, glasses and crockery lying around. This is a big psychological turn-off for buyers," comments Jonathan Moradoff, sales consultant at licensed property agent Davis Coffer Lyons.

Minor repairs also need to be addressed. "I visited one site recently with water coming through the ceiling. If you've got leaks, fix them. It'll probably only cost a couple of thousand pounds. Otherwise you'll scare everyone off," adds Moradoff.

If you are assigning a lease, make sure your dilapidation obligations are up-to-date. If you have let the building deteriorate over the years, you may have no choice but to bite the bullet and invest some money in repairs. If a problem is ignored early on, it will prove to be an even bigger problem later on. Any structural problems will be highlighted by a survey, deemed a liability by prospective buyers and, most likely, prevent a sale being achieved.

INVENTORY

In most cases it will not matter if your fixtures and fittings look tired and worn, however. Most restaurant buyers, in particular, will want to strip out the existing decor and create their own look and concept.

What will boost your ability to command a premium is the presence of a high-quality fully functioning kitchen plus air-conditioning and extraction systems. Moradoff advises preparing a detailed inventory that includes stock, fixtures and fittings, but crucially highlights the essential pieces of kit that will add value to your sale. Check that you have no outstanding debts on any such equipment.

If you are selling a vacant unit, make sure the licence remains intact, as this adds value to the property. Keep the premises connected to utility services and keep them clean and secure (ie, free of vandalism or squatters). If it is a shell, try to get A3 planning permission in advance.

DOCUMENTATION CHECK LIST

In summary, to ensure the sales process runs smoothly, make sure you have the following documentation available:

• Two to three years of audited accounts.

• At least six months of management figures.

• Full details of the licence.

• The lease and schedule of rent reviews.

• A floor plan.

• A detailed inventory.

• (If applicable) details of the tied lease and the minimum barrelage you are obliged to buy from the brewery.

MARKET POSITIONING

Agents will use a variety of measures to value your business including comparable evidence from the sale of similar businesses, general economic and market trends, and multiples of adjusted net profit.

Setting the asking price is not an exact science, however, so don't be too eager to accept a high valuation which might not attract any interest and could end up wasting your time.

Remember that the condition of the premises and its trading performance are the two factors that will have the most influence on you maximising the value and success of your sale.

TELL STAFF OR NOT?

In most cases it will be wise to tell your staff what your intentions are. If you have a high-quality and reliable team, they will be an asset during the sales process. Under transfer of undertakings protection of employment law (TUPE), their jobs are protected when the business changes ownership.

However, there may be circumstances when a completely confidential sale is the best way forward, and agents such as Christie & Co have plenty of experience of conducting sales which are safely completed without staff being aware of a transaction taking place.

WAYS TO DEVELOP TRADE

Once the sales process is under way it is important that you remain motivated to run the business well, because three months down the line you do not want to have to hand over disappointing management figures that are going to affect your asking price.

By this time you will probably have at least three professionals working for you: an accountant and/or tax adviser, a solicitor and a sales agent. All three should have specialist experience of licensed property transactions.

Your agent will probably already have people lined up who are interested in buying a business like yours and will be able to vet prospective buyers for you, usually before the viewing stage of the process. "There's no point in arranging a viewing with them if they can't afford it," says Lee.

If you are showing around buyers yourself, make sure you explain why it is a good business and point out the potential opportunities to increase sales or develop trade. These could include the scope to add extra bedrooms or function rooms, extend the opening hours, add a take-away service or a catering arm.

CLOSING THE DEAL

As soon as a purchaser has been found and an offer accepted, the legal process should take about eight weeks to complete. During this stage the best thing the vendor can do is to stay in constant dialogue with the professionals involved and encourage them to reach a satisfactory conclusion.

"The easiest way to prevent any reduction in price after an offer has been made is for everyone to work flat-out to get the deal completed," says Lee.

CASE STUDY

Acting on behalf of a national corporate client, Christie & Co sold the freehold of the former Jefferson Arms pub and restaurant in the village of Thorganby, near York, for more than its guide price of £295,000.

The Jefferson Arms is a substantial detached property that includes three-bedroom owner's accommodation, a separate self-contained one-bedroom cottage, plus a manager's flat, various outbuildings, gardens and a car park.

The business previously traded as a food-led pub and enjoyed a reputation for quality food and tastefully appointed accommodation.

It attracted significant levels of interest as soon as it was placed on the market. More than 20 viewings were carried out over a two-week period. Best and final offers were invited, resulting in multiple bids.

The business was bought by a local multiple operator/property developer, who intends to let the property and reopen it as a traditional village pub.

Martin Stansmore, who handled the sale, comments: "This sale demonstrates that even in this difficult economic climate there are buyers looking to acquire properties. Good freehold sites are rare to the market; hence this opportunity attracted multiple bids and sold very quickly at a figure substantially above the guide price."