What Makes a Brisbane Management Rights Business Easier for a Buyer to Finance?
A buyer may genuinely want your Brisbane management rights business and still be unable to complete the purchase on the terms originally expected.
That is because business value and financeability are not the same thing.
A seller cannot control a lender’s decision. What an owner can do is make sure the business is presented with sufficient reliable information for the buyer, accountant, valuer and financier to understand what is being acquired.
Clear Financial Records Matter
Australian Government business-loan guidance says lenders may request financial reports, cash-flow information, forecasts, lease agreements and personal financial information, depending on the loan. business.gov.au
For a management rights purchaser, the business information may therefore need to demonstrate where the income comes from and what expenses are required to produce it.
That can include:
body corporate remuneration
letting income
commissions
wages
contractors
administration
software
maintenance-related expenses
recurring business costs.
A large profit figure on its own does not answer those questions.
Sustainable Earnings Are More Useful Than an Unexplained Number
Business.gov.au notes that financial statements and expected future profitability can be relevant when valuing a business and seeking finance. business.gov.au
For sellers, that makes the quality of the supporting information important.
If an expense has been removed from the advertised profit, explain why.
If the owner performs significant work personally, show what that work involves.
If income has changed materially, provide the appropriate background rather than expecting a buyer's adviser to make assumptions.
The objective is not to manufacture a stronger profit. It is to make the existing business understandable.
Agreements Need to Match the Income Story
A purchaser may also consider whether the agreements supporting the business income are clear.
That can include the term, duties, remuneration provisions, amendments and transfer arrangements.
Queensland rules provide for body corporate approval when applicable service contractor rights or letting authorisations are transferred. Queensland Government
The buyer and financier may therefore want confidence that the proposed acquisition structure can actually proceed.
Treat the Manager's Residence Separately
Where a manager's residence forms part of the transaction, the buyer may effectively be considering both a property purchase and a business purchase.
Keep those components understandable rather than presenting one unexplained combined figure.
The residence, business and associated rights may be assessed differently by advisers and financiers.
Do Not Advertise a Business as “Easy to Finance”
Every purchaser is different.
Their deposit, existing debt, income, experience, lender, security position and proposed ownership structure can all affect the finance outcome.
A seller should therefore avoid promising that a management rights business will be financed simply because another buyer previously obtained finance for something similar.
Make the Finance Conversation Easier
Before launching a Brisbane management rights business, consider having:
current financial statements
supporting income schedules
agreements and amendments
details of the letting operation
clear business expenses
information about the residence where included
an organised due-diligence file.
That will not guarantee finance.
It does, however, give a serious purchaser a clearer business to take to their professional advisers and lender.
Frequently Asked Questions
Can a seller guarantee that a buyer will obtain finance?
No. Lending decisions depend on the buyer, transaction, security and lender criteria.
Does a strong net profit guarantee finance?
No. Profit may be important, but lenders can consider a much wider range of financial, security and borrower information.
Selling Management Rights in Brisbane?
Norton’s Resort Brokers can help organise the business information and structure a targeted campaign for qualified management rights buyers.
Steven Norton — 0488 496 277
Lawrence Norton — 0415 279 807
Nortons.re@gmail.com Nortons Real Estate
Disclaimer: General information only. This article is not lending, financial, accounting, legal, valuation or investment advice. Finance requirements vary between borrowers and lenders.