{"id":710,"date":"2017-10-17T06:31:23","date_gmt":"2017-10-17T06:31:23","guid":{"rendered":"https:\/\/www.theonsitemanager.com.au\/news\/?p=710"},"modified":"2017-10-16T06:33:57","modified_gmt":"2017-10-16T06:33:57","slug":"avoid-crash-burn-tips-vendors-purchasers","status":"publish","type":"post","link":"https:\/\/www.theonsitemanager.com.au\/news\/avoid-crash-burn-tips-vendors-purchasers\/","title":{"rendered":"Avoid A Crash and Burn \u2013 Tips for Vendors and Purchasers"},"content":{"rendered":"

Courtesy of our friends at the Urban Dictionary I have unearthed what I believe to be the definitive description of this month\u2019s bulletin title:\u00a0 Crash and Burn : to come to grief or fail spectacularly<\/em><\/strong>.<\/p>\n

If you are an industry professional active in the management rights industry I suspect this description may resonate with you.\u00a0 Our own observations and feedback from the coal face suggests that deals have never been harder to hold together with many \u201csurprises\u201d along the way.<\/p>\n

Why is it so?<\/p>\n

Let\u2019s have a look at the key moving parts, the accepted best practice processes and see if we can identify some clues.<\/p>\n

 <\/p>\n

The Listing<\/strong><\/p>\n

A basic summary of the business and real estate on offer. Absolutely critical that information be accurate and supported by an up to date accountant prepared Profit and Loss for sale purposes. \u00a0We are finding that even immaterial discrepancies between what is presented and what turns up in due diligence reports is spooking buyers.\u00a0 Good agents already know this and are insisting on sighting source documents such as agreements to validate what the vendor is saying.<\/p>\n

The Buyer<\/strong><\/p>\n

Better researched than ever and also more sceptical. \u00a0In some cases, a very clear example of a little knowledge being a dangerous thing.\u00a0 Some will launch their own due diligence and market enquiries and ignore the accepted purchase process.\u00a0 This is to be discouraged. \u00a0Many also listen to uninformed advice from non-industry experts and acquaintances and come to flawed conclusions. \u00a0The purchase process of due diligence, financial verification, valuation and bank finance is a tried and true journey that we believe all purchasers should be prepared to follow when they decide to make an offer on a building.\u00a0 Our advice, leave the research and review to the experts.<\/p>\n

The Vendor<\/strong><\/p>\n

Trying to obtain the absolute maximum price and that\u2019s how it should be. \u00a0Frequently influenced by stories and rumours of record multiples that inevitably are not true or do not apply to their particular business. \u00a0Often obsessed with getting back what they paid regardless of the real value of the business today. \u00a0Sorry, the buyer doesn\u2019t care. \u00a0Many need a good firm agent to tell them the facts of life and not win the listing by telling them what they want to hear.\u00a0 Good luck with that!<\/p>\n

The P and L for Sale Purposes<\/strong><\/p>\n

Prepared by the vendors accountant and almost never a real-world reflection of the day to day operational outcomes of the business. Accountants frequently disagree with content but act on vendors instructions. \u00a0Allowances for labour costs becoming laughable in many cases. \u00a0Astute agents making a point of highlighting reasonable labour allowances as a positive selling point when marketing on real world P and Ls.\u00a0 \u00a0Vendors sneaking forward income into historical P and L with a particular trend in BC salaries and bundling outcomes.\u00a0 In my view the single biggest challenge facing the sale process right now is the accuracy of P and L for sale purpose documents.\u00a0\u00a0 When a vendor says \u00a0\u201cWhat should I allow for wages?\u201d I can\u2019t help thinking the answer is \u201cHow about what it costs you\u201d. \u00a0Our advice, produce a reasonable and detailed P and L and achieve a higher multiple.\u00a0 \u00a0Respect the contract condition that clearly states a verification period and don\u2019t try and include income not earned in that period. \u00a0Simple.<\/p>\n

The Banks<\/strong><\/p>\n

Getting ever more difficult to deal with. \u00a0Pressure on credit quality and pricing combined with fear of regulators and staffing cuts has resulted in a drop in experienced people trying to deliver a more complex and conservative lending outcome. Disconnects between the people on the front line and credit departments becoming apparent in some banks. \u00a0Debt servicing guidelines and prior experience two areas of focus by some lenders. \u00a0Interest only terms becoming more difficult to obtain with clear trend toward P and I options only. \u00a0Never a more important time to ensure a buyer has a range of options and an experienced finance broker assisting them (shameless plug).<\/p>\n

The Valuer<\/strong><\/p>\n

In our industry, we are not exactly spoiled for choice when it comes to valuers. \u00a0There are only a hand full of firms who specialise and are on the bank panels. \u00a0To no great surprise these firms are flat out and valuations can take longer than we might like.\u00a0 The situation is exacerbated by a move by most banks to an automated valuation instruction system. \u00a0Like so many systems designed to streamline the process it doesn\u2019t and valuation instruction delays are certainly an area we focus on with every file. \u00a0For the record, I wouldn\u2019t be a valuer for quids!<\/p>\n

The Process<\/strong><\/p>\n

I think more often than not at the moment we are dealing with finance extensions and the need to clarify information that, in some cases, should have been dealt with early in the process. \u00a0I can\u2019t put my finger on any one reason for this but I do know that requests for finance extensions scare the hell out of vendors.\u00a0 We always articulate the reason for the request and we encourage lawyers acting for purchasers to detail the reason.\u00a0 Invariably the reason is not a deal killer so it\u2019s essential that clear and honest communication be maintained.\u00a0 In our view finance clauses should be at least 35 days with 45 days being preferred for more complex transactions. Having communicative and pro-active lawyers on both sides of a deal is invaluable.<\/p>\n

Summary<\/strong><\/p>\n

Here\u2019s a little story:<\/p>\n

In the US presidential campaign of 1992, James Carville, an aide to candidate Bill Clinton, earned widespread acclaim (or notoriety) for his dogged insistence that everyone working for Clinton should remain focused on the plight of working people. \u00a0\u201cIt\u2019s the economy, stupid,\u201d he said over and over until it became a mantra and part of the American political lexicon.<\/p>\n

To paraphrase our mantra to clients:\u00a0\u00a0\u00a0 It\u2019s the process stupid!\u00a0 Its tried and true.\u00a0 Do your research for sure but once we hit the road rely on the process.\u00a0\u00a0 It works.<\/p>\n

Of course, our clients are not stupid, I hope.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Courtesy of our friends at the Urban Dictionary I have unearthed what I believe to be the definitive description of this month\u2019s bulletin title:\u00a0 Crash…<\/p>\n","protected":false},"author":1046,"featured_media":711,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"_mbp_gutenberg_autopost":false,"footnotes":""},"categories":[3,4],"tags":[],"class_list":["post-710","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-accounting-and-finance","category-the-management-rights-market"],"_links":{"self":[{"href":"https:\/\/www.theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/posts\/710","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/users\/1046"}],"replies":[{"embeddable":true,"href":"https:\/\/www.theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/comments?post=710"}],"version-history":[{"count":1,"href":"https:\/\/www.theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/posts\/710\/revisions"}],"predecessor-version":[{"id":712,"href":"https:\/\/www.theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/posts\/710\/revisions\/712"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/media\/711"}],"wp:attachment":[{"href":"https:\/\/www.theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/media?parent=710"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/categories?post=710"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/tags?post=710"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}