Many years ago, Gilbert & Sullivan famous- ly opined in the Pirates of Penzance that "A policeman's lot is not a happy one"! May I suggest that from time to time a management rights broker's lot is not a happy one either! Particularly unhappy is the broker who finds himself accused of misrepresentation by a buyer, when the Nett Profit figure supplied by the seller comes up substantially short on financial due diligence.

As a long time reader of Resort News, I have lost count of the number of times I have read advice in that journal about the absolute necessity of sellers getting their figures right BEFORE taking their management rights business to market. Lawyers have said it; accountants have said it; bankers have said it; and brokers have said it --- but has it made any difference to the contract fall-over rate? No! Because too many sellers just won't heed the advice.

Well, it will not surprise me if pretty soon they will have to, because the unhappiness that brokers feel when accused of misrepresentation may soon start to seep down to the sellers!

Let's get one thing clear! Your management rights broker is NOT an accountant and he is not professionally qualified to verify the Nett Profit figure the seller provides. Yes, he or she may be able to give some advice on the industry-accepted levels for expenses such as telephone, motor vehicle

etc; but the figures that go on the income side of the Profit & Loss equation are the responsibility of the seller.

Might I suggest that some sellers may not be approaching this responsibility with the seriousness that it deserves?

I am not a lawyer, but am I being silly to suggest that a buyer who has just blown many thousands of dollars on accounting and legal fees before finding out that the Profit & Loss he has been given by the seller is incompetently prepared, might just want to go after someone (legally) to recoup his losses? Perhaps that day is approaching.

Buyers are going to wake up to the fact that the brokers do not prepare the Profit & Loss's and it is hard (and expensive) to win a case against them for misrepresentation when the figures are prepared by someone else; it is also hard to win a case against the brokers when their Professional Indemnity Insurer's high powered legal team rightly take up their defense!

Those sellers with Professional Indemnity insurance (and I hope that is all of you) should ask, "Does my P.I. insurance cover me if I prepare a negligent Profit & Loss statement for a potential buyer and then find myself sued for misrepresentation?" From my knowledge of managers' P.I. insurance, maybe not!

Let me close this rather depressing missive by referring to something positive. Our

industry has always enjoyed an enviable reputation as being legitimate, safe, trustworthy, con-man free, and (particularly) receptive to newcomers. It would be a tragedy if the management rights industry were to fall into the sordid morass that sometimes is normal "small business"! --- buy at your own risk; don't worry about what the books say, we really earn double that; the landlord has promised us a lease extension etc --- you have all heard the awful stories about what can happen in small business sales. To sum up --- he who tells the most lies, sometimes wins; at least for a short while! This is not a situation we want in management rights!

You might firmly believe you have your figures right! You probably have, but sometimes we are so familiar with our own figures, we fail to see the error that is glaringly obvious to an accountant. It's a bit like proof reading! Proof read your own work and it looks OK, but have someone else do it and all of a sudden the typos are apparent.

Take stock of your numbers, my friends, and pay a good management rights accountant to proof read your figures BEFORE you put your valuable asset on the market.

If you would like to comment on anything you have read in The RAAS Report, please write to PO Box 1325, Sunnybank Hills, Qld 4109 or send an email to mike@raas.com.au.

www.raasrights.com.au • www.raas.com.au