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Selling your B&B or guesthouse for a tidy profit

16 Aug 2016

South Africa is one of the world’s fastest-growing tourist destinations and presents an attractive opportunity for entrepreneurs looking to get a foot in the hospitality market.

In terms of physical property, van der Merwe says including a detailed inventory of all the furniture and décor items that are included in the sale, along with any maintenance records, floor plans and applicable health and safety documentation that you have available is vital.

This is great news for existing B&B or guesthouse owners who are hoping to sell their businesses for a tidy profit. Going about it the right way, however, is essential for good results.

This is according to Schalk van der Merwe, the Rawson Property Group’s Helderberg franchisee, who says selling a guesthouse or B&B is different to selling a regular home.

He says you have to keep in mind the fact that you’re not just selling a property – you’re selling a business, brand and reputation.

Because these aspects are generally inseparable, van der Merwe says providing plenty of information on both the physical property and business operations to prospective sellers is key.

“You’ll achieve a much higher sales price if you can prove that your guesthouse is not only in great physical shape, but great business shape too. Audited financials are essential, as is proof of your occupancy rates and any online social media presence and guest reviews you have.”

Van der Merwe says if you have email addresses of past guests that can be a valuable asset to new owners. He says registration with the Tourism Grading Council of South Africa is also beneficial as buyers want to know they’re investing in a reputable establishment with good earning potential.

In terms of physical property, van der Merwe says including a detailed inventory of all the furniture and décor items that are included in the sale, along with any maintenance records, floor plans and applicable health and safety documentation that you have available is vital.

He says ensuring your zoning and land use rights are in order is also incredibly important. Any potential buyer investigating buying a guesthouse or B&B is guaranteed to look into the zoning rights as a matter of course, and if you’re not 100% above board, this will impact the sale.

Guesthouses and B&Bs are subject to different zoning restrictions, and the category you fall into will depend on how many rooms you have, what kind of facilities you provide, and the primary purpose of the property. If necessary, you can apply for departures or consent for additional usage rights at your local Municipal Council, but van der Merwe warns that this process can take some time.

“It’s obviously in your best interests to have your legalities in order from day one of operations, but if there are some loose ends, try to tie them up well in advance of a sale. That goes for things like liquor licenses too, if you sell alcohol on the premises, it may not seem like a big deal, but it shows buyers the options they would have if they decide to buy your property.”

When you start receiving offers, van der Merwe recommends proceeding with caution.

He says banks tend to be reluctant to bond more than 20% to 30% of the transaction value on guesthouse purchases, and seldom exceed 50% even in best case scenarios.

He says that means it’s not uncommon for offers to fall through because of a failure to secure a sufficient bond. “I always recommend that sellers include a 72-hour meet or beat clause to any offer that is subject to finance. This gives them the flexibility to accept a cash offer of equal or greater value, and avoid having to wait on financing that may never come through.”

You’d be forgiven for thinking that the whole process sounds a little complicated, but van der Merwe says an experienced estate agent can make all the difference in smoothing any bumps in the road.

He says there are a lot more elements to consider when valuing, marketing and selling a guesthouse compared to a normal residential property, but a good estate agent is trained to handle these complexities.

“A successful sale is about more than just a collection of statistics and information, however. It’s about finding your unique selling point whether it’s your location, clientele or reputation, and showcasing it in a way that makes it stand out of the crowd.”
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