This is part two in a series of articles about things to consider when selling your vacation rental business. Part one covers what to consider before selling.
Now, the most important part of the sales process: the deal! By having the following items prepared, you will save yourself and your future business partner a lot of time and hassle. Plus, the better prepared you are upfront, the sooner you’ll have the money from the sale in your pocket.
As we discussed in our previous post, your potential buyer will want to conduct diligence on your company before moving forward.
You’ll want to prepare to answer these questions during diligence:
- What marketing channels do you use to generate bookings?
- What booking software do you use?
- Which properties have minimum stays, and how many days are they?
- What are your management commissions?
- What are your homeowner-facing fees?
- What are your total gross rents (total collected from guests) for the past two years?
After conducting diligence, the buyer will then begin to create an asset purchase agreement (APA), an offer to buy your company that outlines the assets that they do (and do not) want to purchase. Here are the major pieces of information needed for a buyer to create the APA:
1. The last two years’ financials, including profit and loss statements (P&L).
The P&L should include all of your company’s costs, including licenses, HOA fees, office supplies, etc.
2. A list of current properties.
Specific information about each property should include the date you began management, the commission rate, and any fees. It’s best to have this list in an Excel format so it’s easy for your business partner to transfer.
3. Complete reservation data/booking report.
Your reservation data should include each property ID as listed on your website or in your books. You will also need a report of the booking data for each home, including any owner holds, guest booking dates, and the first and last nights of each stay. Lastly, you will need a 12-month base rental income, including all fees (booking fees, taxes, and cleaning fees). This report is also best formatted in an Excel spreadsheet.
4. A blank copy of your standard management agreement.
Any company you are looking to partner with will want a blank management agreement so they can determine which terms and conditions are compatible with their business model and which may need to be changed.
The next stage of your negotiations makes all of your hard work worth it: getting paid!
Every sale is different, so we strongly advise that you speak to a financial advisor about the payment structure to ensure the terms meet your financial needs.
There are many considerations to discuss with your financial advisor. For example, should the payout of your sale be dispersed over one year, or even longer? Decisions like these will affect the interest and taxation of your payment.
There may also be contingencies set in the pay structure dependent on actions you must take after the sale. For instance, a buyer may request in their terms that you change homeowner contracts over a specified amount of time for the deal to be final. Another term could also be that you stay with the company for a year during the transition period prior to your payout.
As an owner, you set the tone for your employees and homeowners. Easing their concerns will aid in a smooth transition process.
The way you speak about the company you are selling to is the way homeowners and employees will view them. Many deals are contingent on certain employees and homes staying within your portfolio, so it’s important they are all onboard.
Thinking through how you spread the message of the change in ownership is also important. We suggest reaching out to the company buying your business for talking points. Think through the best avenue to send your message to each stakeholder, which will include employees, homeowners, and community organizations tied to your business.
Vacasa’s Corporate Development team has helped more than 60 business owners navigate the sales process in national and international vacation rental markets. With these partnerships, our team has gained invaluable experience and knowledge that we want to share with you. If you have any questions about how to prepare to sell—or would like a free, confidential valuation of your company’s value—we’d love to hear from you! Please call us at 844-333-3789 or email email@example.com.
Contributed by Leslie Irwin.