Deciding to sell your vacation rental management company is not something to take lightly. There’s plenty to consider before, during, and after a sale. We’ve compiled a helpful list of questions for owners thinking of making a change.
Getting your ducks in a row
- What type of payment structure and terms are you willing to accept? Typically, the more flexible you are, the higher the selling price you can expect.
- Do you have active, executed management agreements in place for all of the properties you manage?
- Do your management agreements contain assignability clauses allowing you to assign the agreements without homeowner consent?
- Do you have comprehensive financial statements, including profit and loss statements, for the last two years?
- Maintain a list of your managed properties that includes the dates you started managing them. This will help you calculate your attrition rate and reassure your buyer that your business is stable, which will give you more leverage during negotiations.
- Every company has a history. Consider preparing a short summary of yours. This won’t matter to all buyers, but some will consider it during their assessment and evaluation.
- Do you have exclusive rights to your property calendars? Companies that allow homeowners to advertise and book their properties–that is, companies that share the property calendar–usually sell for less than companies with exclusive management agreements.
- What are your company’s core strengths: marketing, customer service, superb housekeeping? Identifying your core strengths and communicating these directly to potential buyers allows both parties to plan for a successful transition.
- Do you have an office lease? If you do, is it assignable with or without your landlord’s consent?
- Do you have other assets you want to sell along with your business, such as linens, vehicles, office equipment, lockboxes, etc.? If so, consider preparing a list of these assets and providing it to potential buyers.
- Do you have a realistic understanding about how long it will take to sell your company? It’s possible to sell your business in less than 30 days by selling for under market value. Companies asking for market value usually take 60 to 120 days to sell, depending on the size of their portfolios, number of employees, and operational complexity.
- If you haven’t already, consider calculating your monthly normalized net cash flow or seller discretionary income for the last 12 months. Vacation rental companies typically sell for between 3 and 4.5 times normalized net cash flow. Higher values can be achieved in more competitive markets with fewer vacation rentals and higher barriers to entry.
- Do you operate a real estate sales company as well as a short-term rental business? If you want to continue representing property buyers and sellers, you’ll need to find a buyer who does not buy and sell real estate as part of their business.
- If you sold your business tomorrow, would you be liable for any software or marketing agreements? If so, consider making a list of these liabilities, including descriptions and values, so you can assign these liabilities to the new owner.
- Does your website rank on the first page of Google and/or other search engines? If you receive a large percentage of bookings through organic search results, consider summarizing your domain’s value (via Google Analytics or another tool), so that value will be included in the sale of your company.
- Do you manage long-term as well as short-term rentals? If so, decide if you want to continue managing long-term rentals, or whether you want to sell that portion of your business as well.
- Do you own any of the properties that you manage? If so, do you want your buyer to manage these homes, or will you want to manage them? If you’re signing a noncompete agreement, make sure it’s structured in such a way that you’re able to manage your own real estate if you choose to.
What about human resources?
- Do you have friendly business relationships with local competitors who might be interested in purchasing your company? Have you had open discussions with them about their level of interest, if any, in buying your company?
- Have you discussed a potential sale with your Certified Public Accountant (CPA)? Depending on the type of entity you are registered as and the type of sale (asset purchase or stock sale), your effective tax rate can vary by 40 percent. The most common transaction in the vacation rental industry is an asset purchase, meaning the buyer purchases specific assets which include your management agreements.
- Do you want an attorney to assist you with the negotiations and paperwork involved in the transition? If so, do you already have an attorney, or do you need to find one?
- Are you ready to support the sale and transition? The sale of your company is an important matter that requires your attention and support. Consider the timing of the sale. You and your staff can dedicate more time to the transition in the slow season. Your vacation rental management company is also more valuable prior to peak season.
- Do you have good relationships with your property owners? Homeowners who like and trust you are more likely to support your decisions, which will make for a smoother transition and a lower attrition rate.
- Consider having your employees sign non-compete agreements to limit their ability to start their own companies or lure your homeowners away.
- Do you want your employees to be employed by your company’s buyer? In general, the more corporate the buyer is, the more likely they are to need your existing staff.
- Do you want to keep working in the industry? If your answer is yes, are you ready to work for someone else?
- If you’re willing to work for the buyer, what role would you propose: operations, marketing, sales, maintenance, etc.? How long do you see yourself working for them? Are you open to receiving market-based compensation?
- Have you decided how you want to sell? You can be represented by a licensed business broker, an attorney, or a consultant, or or you can work directly with a buyer. Each approach has pros and cons.
- What will you do with the proceeds from the sale of your company? Will you pay down debt, invest in real estate, etc.?
- If you can, share with your buyer where your bookings came from over the last 12 months. In order to continue earning money for your homeowners, your buyer will want to continue your successful marketing efforts or launch new campaigns if your previous efforts have been less than successful.
- Are your management fees and commissions below market value? Buyers will assess your company’s value based on projected cash flow, so if your management agreements are below market value, consider revising them to increase your potential profits.
- Are there any active liens filed against you or your company? Consider performing a Uniform Commercial Code (UCC) search to see if there are any liens you’re unaware of.
- Are you current on your state sales and hotel taxes? Consider requesting a Certificate of Tax Compliance from your state tax department to confirm that you and your buyer will not be liable for any taxes prior to or after the sale of your business.
- Are you current on homeowner payments, advance deposits, and homeowner reserves? If not, disclose this information to the buyer once they’ve executed a non-disclosure agreement. The sooner you share this information, the more quickly you and the buyer can negotiate a plan to bring the accounts up to date.
- As a company owner, you probably depend on certain pieces of software and online tools to keep your business running smoothly. Consider keeping track of your usernames and passwords in one document that you can share with your buyer to keep the wheels turning during the transition.
- Consider consolidating all photos of your properties into a cloud-based folder to share with your buyer once the sale is complete. This will allow them to use your photos if they don’t plan to take new photos or aren’t able to take them immediately.