The Sales Process

 

Accountant Due Diligence

The Financial due diligence process occurs when your accountant analyses the Business, reviews the performance of the property, and verifies that the figures and the business financials are accurate. The accountant’s verification usually involves an on-site visit to the property. This provides the accountant the opportunity to meet the owner, access the books and records and provide first hand observations on the suitability and sustainability of the income and expenses included in the vendors financial accounts. As well as giving you peace of mind that the business is suitable for you, the due diligence reports can be very important documents to assist with your finance. It is critical that you get an industry specialist accountant to complete the due diligence.

Accounting due diligence is generally done prior to legal due diligence to avoid legal expenses if the due diligence process shows that the property “doesn’t stack up”.

 

Legal Due Diligence

This essentially involves identifying the property, reviewing the contract, reviewing the lease document, any licenses required, franchise agreements, supply agreements and intellectual property.

 

Costs of Buying

In addition to the Purchase Price you will need to consider other costs. These include stock, pro-rata adjustments to service agreements, Council rates and advertising, franchise or chain fees if applicable, stamp duty if applicable, accountant’s costs, legal fees, removal expenses, and any training course costs.

As a guide to Costs of Buying, use 10% of Purchase Price (includes 1 month rent in advance).

 

Licenses to Operate* (Pevy Lawyers)

Whilst there is no particular licence required to operate a Motel or Caravan Park, most businesses include either the provision of cooked meals or the supply of liquor or both. In such instances, the contract is generally conditional upon the transfer of the liquor licence to the purchaser and the purchaser obtaining a food licence.

 

Liquor Licence - Of all the steps in purchasing the Motel or Caravan Park, the transfer of the State Government administered Liquor Licence often takes the greatest length of time. This is largely due to government department transfer processing times rather than the work necessary to achieve the transfer.

As a result, it is critical that the purchaser’s lawyer obtains the transfer consent paperwork from the vendor as soon as the contract has been entered into. That way, the application for the transfer of the liquor licence can be lodged as soon as the purchaser has completed their necessary training. You may also need to complete the responsible service of alcohol course depending on your past experience.

 

Food Licence - Food licences are issued and monitored at a Local Government level. Accordingly, every local authority has a slightly different mechanism and paperwork for being issued with a food licence. Some authorities will transfer licences, whilst other authorities will insist on the issue of a new licence. Regardless, the obtaining of a food licence is generally a procedural exercise although it is important to familiarise yourself with the requirements of the licence and the inspection timeframes.

 

Buying Entity - Ownership Structure (Pevy Lawyers)

Aside from finding the right property, one of the biggest decisions you will make in the early part of the purchasing process will be the structuring of your purchasing entity. This could be anything from personal names, a company in its own right or as trustee, a type of trust or even a partnership with other likeminded persons (who either share operational responsibilities or fulfil a silent role).

Your decision making with respect to structuring should be weighted on a combination of asset protection and tax minimisation. No one likes to pay more tax than they should, and no one wants to expose their life savings to a lawsuit. It therefore follows that the best advisors for your structuring will be your accountant and your lawyer.

Like most things in life, there is no universal solution for all potential purchasers. Whilst some vehicles such as family discretionary trusts are quite commonplace, correct structuring can only be determined from an analysis of your personal and family circumstances, including any past investment and business dealings.

Once your entities are set up and determined, it is also important for your accountant to register any new entities for a Tax File Number (TFN), Australian Business Number (ABN) and Group / PAYG / GST taxes if appropriate.

 

Settlement

Settlement usually takes place six weeks after exchange of contracts. It is in that period that the legal due diligence is carried out. It is also during this time that you will organise the transfer of telephone, electricity and gas and arrange for your EFTPOS machines to be ready. Training at the property is usually conducted a few days prior to settlement and a few days after settlement. That is the time when you will be with the owners of the property to familiarize yourself with the day-to-day running of the property. Settlement day will usually involve a stocktake of consumable items and adjustments for things like advance deposits and stop-overs.

 

First Buyers Information Booklet