How to prepare your tourist park for sale

This article was originally published 17 April 2019.

When you first buy a business, it's easy to forget about exit planning. After all, businesses have many moving parts and these take time to understand.  Most new owners will want to run their business for a period of time before initiating major changes, let alone improving it to a point that it is ready to sell (at a profit of course). Therefore, preparing your business for sale isn't a process you should start six months or even a year before exiting. Those who get the best deal are the ones who have the end in mind right from the start.

This is especially the case in the tourist park industry, where owners that set up their business correctly stand in good stead to get very favourable deals. What are some top tips for preparing your tourist park for sale?

Start early with the right business structure

As mentioned above, to get the most favourable sale you need to set up the right business structures from the beginning. Purchase due diligence is essential - why are you buying the business, and how will you make better use of the assets than the previous owners?

What requires immediate improvement, and what level of capital expenditure is required to maintain existing assets, let alone improve them?  Ensure all your actions are helping the business become more profitable.

Have you got the right legal structure in place to maximise after tax cash-flows and open all avenues of sale, when the time comes (e.g. internal succession, trade sale of entity or business assets or management buy-out)?

Choose the right time to sell

No-one can predict the future.  However, you can use the past as a reference point and study emerging trends to get a gauge on the right time to sell. How do current capitalisation rates (sales multiples) compare to historical averages and other industries? Is the market white hot, heating up, cold or cooling?

Why are you selling this business, and why now?  A forced sale is going to diminish your negotiating power.

Do you hold any strategic value that is not reflected in the latest valuation you had done for the bank (e.g. location, early adoption of technology, intellectual property, key contracts or key persons)?  What can be done to maximise or document this value in a way that would result in a premium being paid for your business?

Understand your strategy and what you are selling

If you don’t understand the key drivers for success in the business, the due diligence examination is likely to uncover some significant holes.  If there is a clear plan in place and it is working, there is less risk involved for the purchaser.  For example, how do you market your business and how do you grow sales?  How do you manage your business and control expenditure?

Together with the key drivers for success, you will need to be able to explain what exactly you are selling.  Is it assets or a business structure?  Does that help or hinder the purchaser?  Are you transferring key people, customer relationships and supplier relationships?  Are these documented with formal agreements?  What systems or processes are in place that reduce the key person reliance?  Are these systems formally documented/independently certified?

Groom your business for sale

It isn’t all about the financials, particularly when it comes to holiday parks. First physical appearances will make an impact too. Does it look beautiful, neat and tidy?  Or, does it just look like hard work? What assets need replacement and when?  A buyer will often be looking at more than one business and the thing that might separate one from the other could be gut feel.

Are your records (legal and financial records in particular) accurate, relevant and up to date?  Would they stand up to intense scrutiny?  Are you operating in accordance with your permitted use?  What regulatory / planning rules exist and are you complying?

You need to get your financial statements ready for sale at least three years before you actually intend to exit (a buyer will typically want at least three years’ worth of figures). Most financial statements are presented in a format to simplify reporting for tax purposes, so ensure your accounts best reflect the value of your business and its financial status.

Be aware of exit tax concessions

There are a number of tax concessions that work well for tourist park owners upon exiting. One important example to be aware of is small business capital gains tax exemptions (CGT), whereby if your turnover is below $2 million you only have to pay minimal CGT upon sale. This is great for tourist parks, which are typically high asset value low turnover businesses (in comparison to other industries).

The right structure (see no. 1, above) will dictate how you access your proceeds and over what time period.  It is difficult to get large amounts of cash out of a company tax effectively when compared to trusts.  However, trusts are rarely the right option for operating a business.
There may be an option to re-structure prior to sale to achieve the best post-tax cash outcome.  Particularly when older structures are involved.  However, care is needed – particularly where the tax office is concerned.

Hire an adviser who knows the industry and understands buying and selling

When selling any business, it's important to hire or have in your corner experienced business advisers who have worked on deals in the industry before. They will have good contacts and know the ins and outs of things like CGT concessions and valuation methodologies.  They will also help you keep an eye on the end goal – particularly as you progress through the various stages of sale, it can get emotional.

For more information on exit planning, reach out to the BDO Tourist Park team today.