Building, growing and operating a successful self-storage business takes time, patience and drive. Selling one is no different. However, for many vendors, the sale of their business and real estate may be an entirely new experience, having never been involved in a transaction of that scale or the due diligence requirements of a potentially corporate buyer. Preparing for this process can take time, years even, but getting it right, like anything else, will yield results. In this insights piece, we outline the types of due diligence buyers will undertake and point out some of the things you should be doing to ensure you are ready when the time comes to sell.
What will I need to have ready?
Most buyers will conduct thorough due diligence and many will also need to obtain debt finance. In turn, the bank or other financier will also require certain information from the buyer. Having this information ready before you sell your business will improve pricing and reduce completion risk.
To provide some context, due diligence broadly fits into the following categories:
- What is the competitor landscape like?
- What are the surrounding demographics like?
- How accessible is the property?
- What opportunities are there to grow revenue (insurance sales, merchandise etc)?
- Does the facility have necessary scale?
- Annual profit and loss – how is the business performing? Is it showing a steady level of return? Is growth occurring?
- Are normalisations required for vendor related expenses (car etc)?
- Vendor salaries – does the vendor work in the business?
- Asset register – what is the depreciation position?
- Where do bad debts sit? How is this managed?
- Asset condition – has it been well maintained? Is there deferred maintenance?
- What is the seismic rating of the building? What are council’s policies?
- Are there any environmental issues (e.g. asbestos roofing)?
- Are there any concerns associated with methamphetamine manufacture?
- Are their opportunities for expansion or redevelopment?
- What are the operating hours?
- How is security managed?
- How is the business staffed?
- What operating and financial software is being used?
- Are all licence agreements executed, up to date and available?
- Are there any registrations on the title I need to be aware of?
- Does the LIM report identify any red flags?
- Does the building have a Warrant of Fitness?
- Are there any supplier contracts that support operations?
Establishing disciplines early will mean much of the work associated with preparing your asset for sale (and maximising price) is done. On the contrary, if left until you are looking to sell, much of what is required can’t be recreated. Apart from addressing deferred maintenance type issues, the majority of the information needs to be prepared over a period of time so that purchasers can look back at trends. A snapshot provides little confidence of long-term performance and will lead to risk pricing. A few things we would recommend are:
The sales process is an exciting one but without good preparation it can also be daunting and/or disappointing. We can help you prepare so that the result exceeds your expectations. Get in touch with one of our self-storage specialists to discuss your requirements.
- Implementing industry standard software, rather than keeping information the way you always have, including customer records, invoicing, occupancy statistics, licence agreements. Industry software allows purchasers to see the business’s performance through a lens they are familiar with, speeding up the process and providing confidence. It also helps with tracking trends in KPIs that can assist with improving performance before you sell.
- Ensuring your pricing is up to date and consistent with others in the market well before you sell so that the impact of any price changes can be seen in earnings.
- Keeping good accounting records that present a fair view of the business’s financial performance, having these annually prepared by an accountant and ensuring they reflect a standalone business.
- Keeping on top of smaller expenses that are perhaps not given much focus (subscriptions, yellow pages, printing and stationery, entertainment etc). These items may not change your cashflow all that much from year to year but on disposal their impact is much greater. Every $10,000 you save on costs that aren’t really contributing to performance is probably worth nearly $200,000 in asset value.
- Addressing contamination and seismic issues early rather than leaving them for a buyer to sort out because this will lead to risk pricing.
- Allowing yourself a good couple of months to prepare for sale, identify any information gaps, address deferred maintenance etc.