- January 8, 2018
- Posted by: Ben Edwards
- Category: Blog, Resources
As I approach my nineteenth year in the vacation rental business, I finally sat down and counted up all of the vacation rental transactions that I’ve been associated with over the years. From the transactions that I can remember, we’ve successfully closed or facilitated the purchase of more than 100 companies. That’s a value of in excess of two hundred million dollars. It’s amazing to me that our cottage industry is now mainstream. As I thought back through these transactions, the most successful transactions had a number of deal points and items in common. If you have ever considered selling your vacation rental business or acquiring a business stick to what works for maximum financial benefit and a smooth transition.
Reasonableness. One trait that was prevalent, throughout the most successful transactions we’ve been involved in, was fair and reasonable dealing. This approach allowed both parties to develop trust. Underlying trust allows both parties the opportunity to negotiate more fairly, often allowing a seller to generate a higher sales price. This fair and reasonable approach was also prevalent in the seller’s business when dealing with owners, guests, employees and vendors. These types of operations, and operators, represent the more successful businesses in the industry, yielding maximum value in a sale.
Commitment to Service. Businesses built around quality and service generate higher profit margins and are typically much more sustainable. These businesses are more attractive and are seen as industry leading operations yielding higher purchase prices. Buyers see a distinct advantage in acquiring a business with a known reputation for top-level service as it often leads to a smooth and successful transition. In addition, it is always easier for a buyer to continue the high services levels rather than needing to improve upon previous ownership.
Transaction Framework. With the economy, as good as I’ve seen in my business lifetime, purchase and sale transactions are more prevalent than ever. As a young staff accountant for ResortQuest in 2000, purchase and sale transaction terms and structure were being developed on a deal by deal basis. It wasn’t until ResortQuest had closed a number of vacation rental transactions did a purchase and sale framework exist. That framework continues to exist today. It is important to understand your risks in the sale transaction terms. If you’re considering selling your business and are faced with considerable post-closing risk or contingent payments, keep the business. There are too many opportunities to perform a market rate transaction with a fair framework.
Advisors, Accountants and Attorneys. When considering the sale of your business, prior preparation is paramount to generate maximum value. Having an experienced Advisor will ensure the business is presented in the most valuable light, ensure market terms are implemented and qualified buyers are introduced. Accountants will ensure proper tax planning in an effort to mitigate a seller’s tax liability. Attorneys will ensure the Purchase Agreement properly incorporates all deal points and will avoid common trouble spots throughout the transaction.
Post-Closing Follow Through. Once a transaction is closed, each buyer is charged with transitioning the business. Sellers that help facilitate a positive transition ensure that the business continues to operate in successful manner. Successful transitions benefit both the buyer and the seller and as importantly the guests, unit owners and employees.
We’re lucky to have been involved in numerous transactions over the past nineteen years. As you consider the sale or purchase of a business, utilize these points to guarantee a successful transaction.