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How to Sell a Hotel

How do you prepare your hotel for sale and find a buyer?

Deciding to sell a business isn’t easy, especially if it’s been your livelihood for a significant part of your working life. But if you’ve chosen to sell a hotel in Australia, it’s a good time to find buyers at the time of writing: real estate prices are booming and tourist numbers from the Asia-Pacific are soaring.

Follow these steps and your decision will hopefully yield a profitable sale.

Professional help

Involve a team of professionals – ideally an accountant plus solicitor and/or business broker experienced in selling hotels. If possible, appoint an agent or solicitor with experience of selling hotels in your locality and price range.

Your team can help you formulate a marketing strategy, screen prospects, organise paperwork, take calls from prospects, negotiate with buyers and more.

Not only can they do all these things more competently than you – providing you hire reputable professionals – but it frees you up to concentrate on running the hotel. A drop in standards, no matter how near to closing, could scupper the deal.

That said, it’s worth gradually disengaging from the business to reassure buyers that your final departure won’t disrupt operations.

Also be clear about your reasons for selling, otherwise the buyer may suspect problems with the business. If there are problems, then give yourself time to remedy them – unless the problems seem intractable or you’re desperate for a quick exit.

Exit strategy

Consider your exit strategy before you put your hotel on the market. What do you want to achieve from the sale and in what time frame? What realistic steps can you take to achieve your aims?

The longer the period you grant yourself to execute the exit strategy, the more ambitious you can be in your goals. And if you run a multi-storey complex you’ll need more time than would the proprietor of a small B&B.

Here are some potential ways – viable within a few months, if not a year or two – of making the business more appealing to prospective buyers or boosting its value:

Paperwork

  • Update and organisehistoric accounts – buyers generally want to see records covering the previous 3-5 years – and produce forecasting documents. Distinguishcapital improvement costs from regular maintenance on your P&L so that buyers can recognise when high costs are only temporary.
  • Make sure licences are up to date, retrieve related paperwork and give the buyer details of how to renew them.
  • Seek to recover any debts owed to the business.
  • Formalise any verbal agreements about the use of your assets to add value. For instance, you might rent out conference facilities for special events or parking space to nearby businesses.
  • Clarify planning permissions so you can advertise potential for adding extra rooms or facilities.
  • Audit contracts and agreements with external suppliers like laundry service providers or alarm maintenance engineers, renewing or formalising contracts or replacing with cheaper/more effective alternatives.
  • Your adviser can help you put together and disclose at the right juncture – with respect to confidentiality – information about employees like contractual terms, length of service, disciplinary record, pension schemes and so forth.

Operations

  • Identify ways to streamline operations – like cross-training staff or better aligning schedules with day-to-day demand patterns.
  • Upgrade outdated systems.
  • Update furnishings and décor if shabby or out of date.
  • If the hotel has unfavourableTripadvisor ratings, you might raise your average score by, for instance, discounting rooms or addressing recurring customer complaints through staff training initiatives or replacing an underperforming cleaning agency.

Valuing your hotel

In the hospitality sector business valuations are not just about profit and turnover; it’s also about reputation, which these days is much easier to identify through TripAdvisor and social media sentiment analysis.

The condition of the property and standard of facilities will also influence the price of course.

According to Southeast International, a hotel brokerage, properties listed at three times room revenue or below for “economy and mid-tier limited-service brands” are attracting buyers. “Corporate and institutional-grade investors are more interested in the CAP rate, which should be at least 10% to get serious consideration,” they adds.

You can also benchmark your hotel against competitors with similar characteristics – in terms of geography, size, revenues and so on – to generate a rule-of-thumb valuation.

Appoint an expert in valuing hotels. Lacking – presumably – both the expertise and objectivity, you’ll likely undervalue or – more likely – overvalue the business.

Marketing and confidentiality

Your challenge is to flag your hotel’s merits as concisely and compellingly as possible – all the while maintaining confidentiality.

It’s a delicate balance.

Don’t post the hotel's street address, phone number, email address or website URL in the listing. Only when you’ve qualified the buyer and had them sign a non-disclosure agreement should you divulge confidential information.

Your hotel’s most persuasive selling points should be included in the advert title or early on in the body copy.

Some hypothetical headlines that flag a property’s best features:

  • Historic hotel with great potential
  • Award-winning hotel with planning permission
  • One of Queensland’s most successful hotels
  • Seafront hotel in New South Wales
  • Hotel and wedding venue

Include a photo that presents the hotel in the best possible light. You’ll surely have a plethora of slick professional photos of your property and facilities.

Flag any potential avenues for cutting costs, growing revenues or adding revenue streams – especially helpful if current performance is unremarkable. Perhaps you have planning permission to expand or your location has recently been widely touted as an up and coming tourist destination.

Negotiations and closing

Your advisers can help you distinguish timewasters from genuine buyers with the financial means to conclude a deal.

Once you’ve found a credible and committed buyer, negotiations will, all being well, result in heads of agreement: a non-binding document outlining terms agreed.

Be prepared to compromise on terms if the buyer is willing to compromise in return – meeting your asking price, for example, on condition that you agree to certain warranties and indemnities.

Be particularly flexible if your business or the economy is struggling.

Once terms are agreed in principle, the buyer will undertake a period of due diligence to make sure the business stands up to scrutiny.

Should due diligence proceed smoothly, you can then sign the final sale agreement that confirms the legal transition to new ownership.

Keen to buy another hotel? Find out how to buy a hotel and check out our hotels for sale .

And find out everything about selling your business right here.



Faye Ferris

About the author

APAC Sales & Marketing Director for BusinessesForSale.com, the world’s most popular website for buying and selling businesses globally and attracting over 1.5 Million visitors each month. To contact Faye please email faye@BusinessesForSale.com

@YouAreYourBoss

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