3 lessons every VRM owner should know before selling their business
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Three Lessons Learned From VRM Owners Who Have Sold Their Business

We’ve seen VRM owners learn the hard way when they go to sell their business. We’re sharing an insider’s perspective on the top 3 regrets sellers have and how to avoid them. 

Whether they know it or not, every business is planning for an exit strategy. It might be selling the business, eventually passing it down to a family member, taking the company public, or merging – at some point you will need an exit plan. Unfortunately most owners don’t realize that they should be aware of their exit strategy at the start of their business. This doesn’t mean it needs to be mapped out – but it’s important to prepare your business to be successful beyond yourself or a few team members working hard. We’ve helped a number of owners who haven’t prepared for an eventual exit, and when they go to sell their business they have regrets – things that they wish they thought about and took action on a year or two before they went to sell.

“What should I know before I sell my business?”

Having advised on dozens of sales, acquisitions and integrations we’re sharing an insider’s perspective on the top three regrets sellers have and how to avoid them before the sale.

Regret #1 – Your homeowner agreements are not assignable to a successor
One of the biggest regrets we’ve seen sellers have is realizing that their homeowner agreements are not assignable to a successor. This is detrimental to a sale as the primary value of your company is in the relationship you have with your homeowners. While you may have a good working relationship with your homeowners – if the agreements don’t define that relationship that can be transferred to a successor, you risk turning the buyer away. Buyers who do their due diligence and uncover that contracts are not assignable or assignable only with written consent, understand the risk of termination during the transition. The buyer may need you to be involved for longer following a sale and may shift some or all of the purchase price to be contingent upon getting new contracts signed prior to closing. In the eyes of a buyer – guests cannot book homes that don’t exist and they cannot operate an owners home without a contract assigned to their company. Shore up your homeowner agreements in advance, to retain the full value of your company when you go to sell.

 

Your homeowner agreements are not assignable to a successor

 

Regret #2 – Poor financial “housekeeping”
Many sellers leave a substantial amount of money on the table because they didn’t spend time on their financials. Some companies never even reach alignment on a price because the financials don’t justify their price expectations. Buyers are going to value the business based on trailing twenty-four months of financial performance. If there are a number of new homes that have been added, that revenue isn’t going to be reflected in historical earnings. Similarly, there may be personal expenses or one-off expenses incurred in previous years that won’t have an impact on the buyer’s business moving forward. Identifying that revenue or expenses and having documentation to support it is vital in achieving the highest valuation possible. These adjustments to earnings or “add-backs,” can be crucial when determining the company’s adjusted earnings. You should itemize the personal expenses on your P&L for expenses that are associated with a personal vehicle, travel, office improvements, electronics, etc. A valuation of your business can be done a number of ways but the most common is a multiple of earnings (profits). Thus, any adjustments you can show to earnings will be multiplied when discussing purchase price. Similarly, anything you can implement to improve profitability now, such as damage waiver, reservation fee, travel insurance, maintenance programs, etc.. will have a 2-5 times return when you sell the business.

“Work on your business, not in your business.”

Regret #3 – You control the relationship with your employees and homeowners

If you are the secret to the success of your business, the value of your company is reduced considerably if you intend to depart immediately upon selling. It’s critical to put a structure in place so that your company will be successful whether you are present or not. Any buyer evaluating a business is going to ask themselves, “how easy is it for me to achieve that level of profitability or greater?” If they have to implement a new operational structure or hire a GM, they will not value the company the same as if you had already implemented succession planning. Before you go to sell, think about who will maintain those relationships when you sell your business. Think about your homeowners and why they’ve hired your company to be their property manager. Vet buyers and find a buyer that is most likely to be able to continue that legacy of property care, ROI, responsiveness, etc.

You control the relationship with your employees and homeowners

You have worked for years to build your business. Preparing for an exit today, will pay dividends tomorrow; or whenever you’re financially and emotionally ready.

Whether you’re looking at an exit strategy now or in the future, our M&A consulting and solutions will ensure you’re prepared when you’re ready to sell. If you’re considering the sale of your business or looking to purchase a vacation rental company, visit  the M&A page to learn more about how we can help you achieve your goals.

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Author: Brooke Pfautz

Brooke is the CEO and Founder of Vintory and is well known in the Vacation Rental industry as the authority when it comes to growing Vacation Rental inventory. You'll find Brooke at his home office, on the latest Vacation Rental webinar or podcast, or at industry events across the States.

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