When preparing a self storage facility for sale, unlike a house sale, one of the most important items to consider is not presentation, but rather the story that is being sold through the business’s Profit & Loss (P&L) statement
Whether you plan to sell in six months or six years, maintaining clean and accurate financial records can have a significant impact on buyer confidence, valuation and ultimately the sale price achieved.
Buyers Purchase Income
Fundamentally, a self storage facility is an income-producing asset. While location, customer catchment, and supply and demand fundamentals all play a role in determining value, buyers are primarily purchasing the cash flow generated by the business.
The stronger and more transparent that cash flow appears, the easier it is for buyers, valuers and lenders to assess the opportunity.
A well-presented P&L allows prospective purchasers to quickly understand the financial performance of the facility. Conversely, messy accounts with several personal expenses flowing through often create uncertainty, and uncertainty is rarely rewarded with a premium price.
Cash Payments Can Cost You More Than Tax
Many business owners have, at some point, accepted cash payments that never make their way into the accounting system. While this may appear beneficial in the short term, it can become extremely costly when it comes time to sell.
Any revenue that is not recorded simply does not exist from a buyer’s perspective. It’s near impossible to demonstrate in a way that the buyer will feel comfort with.
For example, take a facility generating an additional $50,000 per annum in cash revenue that is not reflected in the accounts. The owner may know the income is real, but a purchaser, valuer or bank cannot rely on undocumented earnings.
Using a capitalisation rate of 6%, that unreported $50,000 of annual income could equate to more than $800,000 of lost value at sale if the purchaser does not consider it.
The irony is that many owners spend years trying to save tax on income that could ultimately be worth many multiples of that amount when the asset is sold.
When preparing for a future sale, every dollar of legitimate revenue should be properly recorded and reflected in the financial statements to ensure it is adopted in full by purchasers.
Minimise Personal Expenses
Another common issue encountered during due diligence is the inclusion of personal expenses within the business accounts.
Motor vehicles, family travel, personal subscriptions, telephone bills, entertainment expenses and other non-business costs often find their way into the P&L over time. While these items may be manageable during ownership, they can complicate the sale process.
Buyers want to understand the true operating performance of the business. If personal expenses are mixed with genuine operating costs, it becomes harder to determine what the facility actually earns.
While experienced agents and accountants can often normalise these expenses during a sale campaign, excessive adjustments create additional questions and increase the level of scrutiny from purchasers.
A clean set of accounts allows buyers to focus on the strengths of the business rather than spending time trying to untangle historical expenses.
Due Diligence Has Become More Sophisticated
The self storage sector across Australia and New Zealand continues to institutionalise. Larger operators, private equity groups and institutional investors are becoming increasingly active participants in the market.
These buyers typically conduct extensive due diligence and engage professional advisers to review financial records.
It is no longer sufficient to simply explain that “the business performs better than the accounts suggest.”
Purchasers need evidence. They want reconciled financial statements, bank records, revenue management reports and supporting documentation.
Facilities with well-maintained accounts generally progress through due diligence faster and with fewer challenges. This can reduce transaction risk, limit “deal fatigue” and improve the likelihood of a successful settlement.
Start Preparing Earlier Than You Think
One of the most common mistakes owners make is waiting until they decide to sell before cleaning up their accounts.
Ideally, preparation should begin several (ideally three) years before a planned exit.
Maintaining accurate revenue records, separating personal expenses from business costs and ensuring accounting systems are up to date creates a stronger financial history. Buyers place greater confidence in consistent performance over multiple years than they do in a single year of improved reporting.
Even if a sale is not imminent, clean financial records provide valuable insights into the performance of the business and help owners make better operating decisions. It also makes life a lot easier for valuers!
The Bottom Line
When it comes time to sell, buyers do not buy the tale, they buy the actual income.
A clean Profit & Loss statement helps demonstrate the true earning capacity of a self storage facility, reduces uncertainty during due diligence and can have a significant impact on value.
Every dollar of revenue that is properly recorded contributes to the financial story of the asset. Likewise, keeping personal expenses to a minimum ensures that story remains credible and easy for buyers to understand.
For owners considering a future sale, the best time to start preparing your accounts is not when the sale campaign begins. It’s today. Talk to us at Four Leaves if you would like a P&L health check.
