As an aspiring hotel owner-operator, you are in very good company. After all, you are chomping at the bit to enter an industry that generates an estimated $7.6 trillion dollars per year globally!
But even the most perfectly planned strategy cannot always predict what may unfold in the future. This is why it is so critical to include an exit strategy as a part of your business plan – well before you even decide which hotel you want to buy, research loan options or put your opening offer in.
In this guide, learn how to plan ahead just in case that day comes when you ever want or need to divest of your hotel holdings.
The first thing any potential buyer will want to see is your hotel's current financial paperwork. For example, you should be prepared to show written proof of revenue versus expenses, long-term growth potential versus current debt burden and an evaluation of assets against liabilities. These are the questions a buyer will ask.
The best way to prepare your answers is to draw up what is called a "prospectus" that you can give to potential buyers (along with a signed confidentiality agreement that ensures this information will not get passed around if a buyer passes on the opportunity!).
If your hotel is still in the startup stage (five years or less in existence), it will be most appealing to entrepreneurs. This is because entrepreneurs thrive on taking something with potential and seeing that fully realized.
If your hotel has stabilized and is generating steady, predictable profits, it may be more attractive to an investor – someone who will hire a management team to ensure the profits continue to roll in.
Think through presale obstacles and objections in advance.
As you well know by now, owning and operating a hotel is a significant commitment in every way, from your finances to your time to your relationships to your life.
So step out of your own shoes as the seller and into the buyer's shoes here. What reservations, hesitations or objections can you expect to come up during the pre-sale negotiations?
How can you address these to facilitate a sale you and your buyer can both feel good about?
Have a Plan A, a Plan B, a Plan C, a Plan D….
Your goal is to sell your hotel and exit the business. If one plan doesn't succeed, move on to the next, and the next….until it gets sold.
– Single buyer. You can sell to a single buyer who takes over from you as the owner/operator.
– IPO. An "initial public offering" puts the ownership of your hotel squarely in the hands of its new stockholders.
– Liquidation. You can choose to liquidate all your assets.
– Acquisition. You can sell to an existing hotel business that adds your hotel to their group.
These are just some of the options you may need to think about before making a hotel purchase. Planning for the best and worst outcome is a smart strategy during any stage of the hotel ownership process but it is especially important during the buying process.
Jeff Durham with The Passport Group can provide expert advice in planning for your hotel purchase and assist you in moving forward with your goals today!