Freehold Going Concern: Which Parts of the Price Get Funded
A going concern price arrives as four lines, not one. Each is funded differently, and the split is usually why the deposit is bigger than expected
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Freehold Going Concern · Apportionment · Accommodation Finance
Freehold Going Concern: Which Parts of the Price Get Funded
A freehold going concern contract does not arrive as one number. It arrives as land and buildings, plant and equipment, goodwill, and stock, and those four lines are funded on different terms at different levels. Understanding the apportionment before you sign is the difference between a deposit you planned for and one that arrives as a surprise three weeks out from settlement.
Quick Answer
A freehold going concern price is four separate lines: land and buildings, plant and equipment, goodwill and stock, and a lender treats each line differently. The apportionment, not the headline price, sets the cash you need.
Also called: FGC, freehold going concern motel, sold as a going concern.
What does a freehold going concern price include?
A freehold going concern price includes the land and buildings, the plant and equipment that runs the business, the goodwill attached to the trade, and the stock on hand at settlement. It is one contract and one headline number, but it is not one asset, and that is the whole reason the funding behaves the way it does.
If you want the term itself unpacked, including the two very different meanings the phrase carries, going concern explained covers the definition properly. This piece starts one step later, at what the price is made of and which part of it a funder will actually lend against.
Why is the price split into separate lines?
The price is split into separate lines because the assets behind it transfer differently, are valued differently and are taxed differently. A contract for an operating accommodation asset apportions value across the freehold title, the plant and equipment schedule, the goodwill of the business, and stock at valuation. That apportionment is negotiated, it appears in the contract, it appears again in the valuer's report, and it follows you into the way your accountant treats the purchase afterwards.
There is a tax reason as well. Where a sale meets the required conditions, the supply of a business as a going concern can be GST free, and the Australian Taxation Office sets out that principle and points to the conditions in its guidance on the sale of a going concern. Those conditions attach to the sale as a whole. They do not do the internal split for you.
From the funding side the reason is simpler. A lender does not price a purchase, it prices security, and each line answers a different question about what could be realised if the business stopped trading. Land and buildings answer that question cleanly. Plant answers it partially. Stock answers it briefly. Goodwill barely answers it at all. That is why two buyers paying the same total for two different assets can need very different amounts of cash, and it is a separate question from the freehold or leasehold one.
| Price line | What the line covers | What secures it | How it is typically funded | What it does to the deposit |
|---|---|---|---|---|
| Land and buildings | The freehold title, the improvements on it and the fixtures attached to them | A first mortgage over the freehold | The senior term facility, sized against the going concern valuation rather than a bare bricks figure | Carries most of the gearing, so it reduces the cash you need |
| Plant and equipment | The scheduled operating assets: beds, whitegoods, kitchen and laundry gear, furniture, pool and grounds plant | Folded into the same security position, occasionally a separate equipment facility | Usually inside the same facility, because a valuer reads condition into the going concern valuation | Broadly neutral when the schedule is sound, negative when it is tired |
| Goodwill | The value of the established trade, the name, the repeat custom and the forward bookings | Nothing a lender can independently realise | Not funded as its own line, because the earnings behind it are already inside the valuation | Any goodwill priced above the valuation is cash you provide |
| Stock at valuation | Bar and bottleshop inventory, kitchen supplies, linen and consumables counted at settlement | Nothing durable, because it is consumed and replaced continuously | Working capital rather than the term facility, adjusted at the stocktake | An additional cash amount on top of the price, typically settled separately |
How is the land and buildings line funded?
The land and buildings line carries the facility. It is the part a first mortgage attaches to, and it is the reason a freehold going concern gears more comfortably than the leasehold equivalent. Typically a lender sizes the senior term debt against the going concern valuation, not against a bare bricks and mortar figure, because an operating accommodation asset is valued on what it earns and the buildings are the vehicle for those earnings rather than the earnings themselves. The mechanics of how that single number is arrived at sit in going concern valuation explained.
Indicative gearing on a freehold motel or holiday park going concern commonly sits somewhere around 60 to 70 per cent of the going concern valuation, with licensed venues generally lower again and every figure varying by lender, by the strength of the trade and by the quality of the records behind it. Treat those as indicative bands only, not as an offer. In deals I have seen, the figure that surprises buyers is not the percentage at all. It is the base the percentage is applied to, because the valuation and the contract price are not always the same number, and the facility follows the valuation.
If you want a read on where your deal sits before you go any further into the contract, you can check eligibility first and work backwards from there. The wider lane view sits across the accommodation finance hub.
How is plant and equipment funded?
Plant and equipment is usually funded inside the same facility as the property, because in an operating accommodation asset the two are valued together rather than separately. The plant and equipment schedule attached to the contract is the document that matters here: it lists what is actually included, item by item, and a valuer reads the working condition of that schedule into the going concern valuation instead of pricing it as a standalone asset pool.
Where it becomes its own conversation is replacement. A schedule near the end of its useful life is a capital expenditure program that starts the day after settlement, and a funder reads it that way. Typically that shows up as a more conservative valuation and a slightly tighter funding outcome rather than as a separate line of finance, and occasionally as a requirement to hold working capital back for the refit. Read the schedule line by line before you sign, and check what has been quietly excluded from it. The broader mechanics of funding a trading business purchase are set out in the guide to a loan to buy a business.
Does a lender fund goodwill?
A lender does not fund goodwill as a separate line, and that single fact explains most of the deposit surprises in this asset class. Goodwill in an accommodation deal is the value of an established trade: the repeat custom, the forward bookings, the name over the door and the operating history. A funder does lend against those earnings, but it does so through the going concern valuation, which has already absorbed the sustainable trade the goodwill represents. There is nothing left to lend against a second time.
The practical rule is that any part of the price sitting above the going concern valuation is yours to fund. In deals I have seen, that is exactly where a transaction quietly changes shape three weeks in: the contract price reflects the seller's view of the goodwill, the valuation reflects a funder's view of the earnings, and the difference between the two lands in the buyer's cash column rather than the facility.
What happens to stock at valuation?
Stock at valuation sits outside the purchase price and is counted at settlement, then paid for in addition to it. In an accommodation business that means the bar and bottleshop inventory, kitchen supplies, linen and consumables, physically counted at or shortly before handover and adjusted to the actual figure on the day. A licensed venue can carry a substantial stock number. A small motel usually will not.
It is generally funded from working capital rather than from the term facility, because it turns over constantly and there is no durable security in inventory that will be consumed within weeks. Budget for it as cash, and ask early what the seller's indicative stock figure looks like, because it is one of the few numbers in the transaction that is not knowable until the day it is counted.
Funds faster
- Land and buildings on a clean freehold title
- A plant and equipment schedule in sound condition
- Trade evidenced consistently across several years
- An apportionment agreed before finance is sought
Funds slower
- Goodwill priced above the going concern valuation
- Stock at valuation, which is a settlement day cash adjustment
- Plant near the end of its useful life
- A contract the parties have not apportioned at all
Why does the apportionment change the deposit you need?
The apportionment changes the deposit because the funded base is narrower than the price. Start with the contract total, set aside the goodwill sitting above the valuation, set aside stock at valuation, and apply an indicative gearing band to what is left. The distance between that result and the contract price is the deposit gap, and it is routinely wider than the headline gearing percentage implies. Add stamp duty, legal costs and the working capital the business needs from day one, and you have the real cash requirement. Seeing the whole capital stack at once, rather than one gearing percentage at a time, is what stops the surprise. The same arithmetic in a motel-specific setting is worked through in deposit versus LVR on a freehold going concern motel.
Where the gap is real and the underlying deal is sound, the answers are usually structural rather than a bigger cheque. A vendor contribution, structured properly and disclosed to the senior funder, is one route, and how that is documented sits under vendor finance. Short term funding secured against other property you already hold is another, and that sits under caveat loans. Both cost more than the senior facility, both need a defined exit before they are put in place, and in deals I have seen, both work far better when they are raised at the apportionment stage rather than a fortnight before settlement.
Across the rest of this lane, the same apportionment logic shows up asset by asset: buying management rights in Queensland, how a motel lender reads the trade, reading the three labels on a pub listing, and what actually moves a caravan park's LVR. All four sit under the accommodation finance hub. The paperwork a lender wants against each of the four lines is listed in the accommodation acquisition lender document pack.
A freehold going concern price is four lines wearing one number. Land and buildings carries the facility, plant and equipment rides inside the valuation, goodwill is funded only to the extent the valuation already reflects the earnings behind it, and stock at valuation is a cash adjustment at settlement. Work out the apportionment before the contract is signed and the funding structure follows it. Leave it until finance is being arranged and the deposit becomes an argument you are having with a calendar.
Key takeaway: Ask for the apportionment in writing before you sign, because the split, not the price, decides how much cash you need at settlement.Frequently Asked Questions
Freehold going concern means you are buying the land and buildings and the operating business together, as one trading whole, under one contract. The freehold going concern part answers what you own, and the going concern part answers what is included with it, which is the trade, the plant and equipment, the goodwill and the stock. It is the standard sale structure for motels, holiday parks and licensed venues where the owner also runs the business.
When a property is sold as a going concern, the sale transfers everything the business needs to keep operating, not just the title to the land. That typically includes the plant and equipment schedule, the benefit of forward bookings and supply arrangements, the licences and permits where they are transferable, the goodwill, and stock counted at settlement. What transfers is the reason the price is apportioned rather than quoted as a single property figure.
To be sold as a going concern means the seller is obliged to keep the business trading normally right up to settlement, and to hand it over in operating condition. Practically that means no stripping of equipment, no winding down of bookings, and no letting transferable licences lapse in the settlement period, because a business that has stopped trading on the day of handover is no longer a going concern and the valuation the funding was built on no longer holds.
GST on a freehold going concern purchase can be treated as GST free where the sale meets the conditions the Australian Taxation Office sets out for the supply of a going concern, which is why so many accommodation contracts are written that way. The conditions are specific and they are the ATO's to define, not the agent's, so the treatment belongs with your accountant and your solicitor before the contract is signed. Get it wrong and a GST amount you did not budget for becomes a cash requirement at settlement, which is a different problem from the one going concern explained deals with.
The deposit is bigger than the property gearing percentage suggests because that percentage is applied to the going concern valuation rather than to the contract price, and because two of the four lines in the price are effectively yours to fund. Goodwill above the valuation and stock at valuation sit outside the term facility in most structures, and acquisition costs sit outside it as well. The gap between what the facility covers and what settlement actually costs is the number to work out first, and the capital stack is where it becomes visible.
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