Selling a management rights business is not something most people do often, and the process can feel overwhelming if you don’t know what to expect. There are many moving parts – from getting your agreements in order to preparing financials and navigating legal and body corporate approvals. Understanding the overall process upfront will make things smoother and help you avoid costly mistakes, while maximising the value of your sale.

The Sales Process – At a Glance

• Engage a Broker: Your broker will market the business, identify buyers and guide you through the sale process.
• Adjusted Profit & Loss Report: Your accountant prepares this key report to show the maintainable earnings of the business. Buyers and banks rely heavily on this figure.
• Offers Submitted: Interested buyers make formal offers.
• Offer Accepted: You agree to proceed with the chosen buyer.
• Contracts Signed: Contracts are prepared and executed.
• Financial Verification: The accountant confirms the adjusted P&L and net profit, usually within 14 days of contract signing. Providing full access to records and trust software makes this smoother.
• Legal Due Diligence: The lawyer reviews agreements, approvals and compliance, generally within 21 days.
• Finance Approval: Buyers usually have 28 days to secure finance, supported by the accountant’s and lawyer’s reports.
• Body Corporate Consent: The body corporate must consent to the assignment of agreements.
• Settlement: Once all conditions are met, the business is handed over to the new owner.

Steps to Take Before You List

• Letting Appointments: Ensure all are signed and correct, and keep soft copies ready for handover.
• Caretaking & Letting Agreements: Review agreements with the body corporate and top up where possible. More years generally increase value.
• Schedule of Charges: Confirm you are authorised to charge all fees. Unauthorised income may be excluded from your net profit calculation.

Why Financials Are Critical

One of the most important parts of this whole process is the financials and the numbers. While buyers will look at many aspects of your business, agreements, charges, and body corporate consent, the Adjusted Profit & Loss is the key report that underpins the value of your business. It connects directly into the sales process because your broker will market the business based on the net profit, the buyer’s accountants will verify the adjusted profit & loss, and the buyer’s bank will rely on it for finance approval.

What Is an Adjusted Profit & Loss Report and Why Is It Important?

Many sellers get confused between their Tax Profit & Loss and the Adjusted Profit & Loss. On the surface they look similar, but they serve a different purpose.

A tax Profit & Loss is prepared primarily to determine net income upon which income tax is payable. A profit & loss report prepared for tax purposes may include non-cash items (like depreciation, amortisation and provision for leave), as well as discretionary expenses that an operator may incur to facilitate their preferred work/life balance. If taxable income or net profit from a bookkeeping system profit and loss is used as the basis to determine sale price, you would likely significantly undervalue your business.

An Adjusted Profit & Loss for sale purposes is prepared to demonstrate the actual trading profit for a recent 12-month period with standard adjustments to exclude one-off and ‘discretionary’ items, including finance costs, which a purchaser could expect to replicate. It removes those one-off or discretionary items to show the true, maintainable profit of the business for a potential buyer. This report intends to demonstrate a potentially sustainable net profit of the business based on a prior period, which is the key number that buyers, brokers, and banks will use when assessing value.

These adjustments are fairly standard in the management rights industry, but the exact treatment can be complex and is often closely reviewed by buyers, brokers, and verifying accountants, so it is important to get it right and to use industry professionals familiar with the process.

Standard Adjustments May Include:

• Agents’ commission if recovered at cost
• Non-recurring and discretionary income (commissions from residential sales, one-off body corporate projects, unauthorised income, one-off refurbishment income commissions)
• Depreciation
• Finance and interest costs
• Private motor vehicle costs
• Donations
• Personal accounting fees
• Personal travel costs
• Personal manager’s unit expenses
• Capital purchases
• Filing fees
• Labour that could be performed by a competent two-person management team (note: this is highly scrutinised. You must be able to demonstrate to a verifying accountant or buyer that the workload can reasonably be managed by such a team. Any labour adjustment will be carefully reviewed.)

When preparing an Adjusted Profit & Loss, it’s not just about making adjustments. We also review the accounts and trust account information in detail to ensure the profit aligns with industry benchmarks and expectations. This gives buyers, brokers, and financiers confidence that the business is performing at a sustainable level and helps avoid challenges during financial verification.

Why Use an Industry Specialist Accountant?

It’s important that your adjusted Profit & Loss is prepared by an industry specialist accountant. They not only understand the unique benchmarks in the management rights industry, but also know the standard adjustments that should (and should not) be made. A general accountant may overlook these nuances, which can lead to either overstating or understating the net profit and ultimately affect the value of your business. Because management rights are sold as a multiple of net profit, even small differences in the adjusted profit and loss can have a major effect on the sale price.

Having an industry specialist ensures the figures are credible, defensible during financial verification, and aligned with what buyers, brokers, and banks expect.

Final Thoughts

Selling your management rights business is a big decision, and having the right people and reports in place makes all the difference. By preparing early, keeping your agreements and charges in order, and ensuring your Adjusted Profit & Loss is accurate, you will make the process smoother and maximise your business’s value. With the right guidance from an industry specialist accountant, broker, and lawyer, you can go into the sale with confidence and achieve the best outcome for your hard work.

Disclaimer: This article contains general information only. Regrettably, no responsibility can be accepted for errors, omissions or possible misleading statements or for any action taken as a result of any material in this guide. It is not designed to be a substitute for professional advice, as such a brief guide cannot hope to cover all circumstances and conditions applying to the law as it relates to these items.

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Holmans Noosa: (07) 5430 7600 or email info@holmans.com.au
Holmans Maroochydore: (07) 5451 6888 or email infohm@holmans.com.au