Hotel Business Review

Mr. Handelsman

Finance & Investment

How to Make Your Hotel Marketable

By Mike Handelsman, Group General Manager, BizBuySell.com

It's not uncommon for two hotel owners simultaneously looking to sell their businesses in the same area to undergo completely different experiences. One might find the selling process to go quickly and smoothly, with the business commanding a respectable price. At the same time, the other might struggle as the hotel sits on the market for many months, eventually selling for much less than they had hoped. What accounts for these two very different experiences? The first seller most likely had a much better understanding of how to make their hotel marketable to prospective buyers.

In many ways, selling a hotel isn't too different from selling a house. In both cases there are certain factors that can have a significant impact on whether or not the property is marketable to buyers, such as physical condition, the quality of a for-sale listing and financial details. Ultimately, though, selling a business is a unique situation that presents unique challenges. If hotel owners enter into the selling process without sufficient knowledge and preparation, they could find that their businesses sell for less and stay on the market much longer than they'd like.

To make a business as marketable as possible, hotel sellers should pay close attention to the following considerations:

Create a strong listing

While the physical condition of a hotel is a critical element in its marketability, how a seller presents the establishment in a for-sale listing can be just as important. Sellers who create strong, carefully thought-out listings almost always have the most success selling their businesses. The top goal should be to provide as many details as possible without revealing the exact identity of the business (assuming you'd like to keep that confidential, as most sellers do). Sellers who take this approach are usually leaps and bounds ahead of the competition from the start, and are likely to pull in higher prices and sell their hotels in much less time.

The first step is to determine where you will list your hotel for sale. Traditional local newspaper listings can target a niche audience, but online listings typically offer much wider exposure. The marketing strategies and overall functionality of business-for-sale websites differ greatly from site to site, so it's crucial to do your homework before deciding where to list.

When it comes to the content of the listing, the key is to know which details to include and which to leave out. Buyers gravitate most toward detailed listings, but there's a fine line between being forthcoming with useful information and breaching confidentiality. It's important not to include information that could let competitors and employees know the hotel is on the market.

If possible, it's typically beneficial to include financial information such as revenue and cash flow, as this is the most common criteria potential buyers use to search for businesses. By including these numbers in a listing, a seller is likely to get many more views and find that buyers are much more willing to transition from casually interested to seriously interested. The willingness to offer this information signals to potential buyers that the existing owner is confident in the business and that the purchase would be a good investment.

In addition, hotel sellers can make their listings more appealing to prospective buyers by including geographic information such as state and county. Most buyers search at the county level, so including that information in your listing will likely result in a large number of views. However, it's generally not a good idea to reveal the exact identity or location of the hotel to avoid confidentiality issues.

Other elements of great listings include creative headlines that emphasize the top selling points of a hotel, attractive photos of areas in the establishment that don't reveal its specific identity, clear contact information (it's best to set up a nondescript phone number and e-mail address specifically for buyer inquiries), and careful attention to spelling and grammar.

Get the books in order

Hotel sellers who fail to accurately account for all business revenue before going to market can face major problems once they begin dealing with potential buyers. Still, in an effort to save on taxes many business owners don't report all their income and then tell prospects they have a greater amount of annual revenue than what's in the books. Not only does this make buyers question the seller's integrity, it puts them in the difficult position of having to decide whether or not to believe the supposed revenue number is accurate.

To help make their businesses more marketable, hotel owners thinking of selling should begin keeping complete, detailed financial books at least three years prior to a sale so that all income is accounted for and can be properly evaluated by the buyer. This includes removing all unnecessary expenses from the books, such as a "company car" that isn't actually used for business purposes. A higher tax bill might follow, but it will also result in a higher sale price once a transaction takes place.

Renovate and upgrade well in advance

A great for-sale listing will get solid buyers interested, but a well-kept, well-run and physically appealing business will seal the deal. Once a prospective hotel buyer has communicated extensively with a seller and wants to go forward toward a transaction, he or she will want to view the hotel in person. This isn't the time for the seller to scramble and make sure the hotel is presentable. Instead, sellers should work to get their businesses looking and running as great as possible well before listing the hotel for sale.

It can be tempting to put off essential renovations until the last minute. Business-for-sale transactions typically take time, so there might not seem to be any rush. The truth is, though, that it's impossible to predict exactly when a sale might happen or exactly how major a renovation can prove to be. If the time comes to show the business to a potential buyer and the lobby furniture is hopelessly outdated or the computers don't run the way they should, it can instantly put a damper on the sale. As such, not only should a seller complete these types of renovations to make their hotel marketable, they should also complete them well in advance to avoid complications down the line.

Don't underestimate curb appeal

Hotel sellers often go to great lengths to perform necessary upgrades to the insides of their establishments, but completely neglect how the business looks on the outside. Sellers should remember that the outside of the hotel is the first part of the business a potential buyer will see, and first impressions can mean everything. For this reason, it's important to make sure the hotel's exterior looks as good as the inside. Does the property look clean and welcoming, or is it poorly landscaped and in need of renovation? As with inside upgrades, outside renovations should never be put off to the last minute, but preferably taken care of prior to putting the business on the market. Once a potential buyer is scheduled to view the property in person, sellers should then do another inspection and complete any necessary last-minute fixes.

Offer seller financing

Recent economic hardships have left many potential business buyers without the financial means to purchase a business. Thus, a hotel seller's willingness to finance at least part of a sale has become a major factor in marketability. With most independent buyers unable to access necessary funds from lending institutions or afford a down payment on their own, seller financing has become an essential ingredient in closing business-for-sale deals.

When sellers offer financing in a transaction, they allow buyers to pay some of the purchase price of the business in the form of a promissory note. It means the buyer agrees to pay back the remainder of the sale price, with interest, at a later date. This scenario does obligate the seller to have a continued stake in the business, but if a buyer is a good investment risk, a seller could reap great benefits by "being the bank." Seller-financed businesses typically sell for 15 percent more than businesses in all-cash sales, and interest accrued down the line could add greatly to the principal value of a business.

To attract more prospective buyers, hotel sellers willing to provide financing should be sure to advertise it as they put their businesses on the market. Because seller financing has become so important in marketing and selling a business today, we recently launched a feature on BizBuySell.com that allows sellers to clearly advertise their willingness to offer it. Buyers then have the ability to search only for businesses that are at least partly seller-financed. The feature has led to increased listing views for sellers offering financing, significantly boosting the marketability of their businesses.

Step into a buyer's shoes

When selling any type of business, it can be easy to forget what it's like to be in a buyer's position. There's so much responsibility involved in putting a hotel on the market that many sellers lose track of the "big picture" as well as their grasp on what makes a hotel appealing in the business-for-sale market in the first place. They might feel so pressured to sell quickly and for a certain price that they neglect steps that can be essential for a smooth sale.

To make sure their businesses are as marketable as possible, sellers need to take a step back and remember what they looked for when they went through the process of buying their hotel. Were there specific details they looked for in business-for-sale listings? How much of an impact did their first look at the outside of a hotel have in their decision to pursue or abandon a purchase? The potential buyers will be going through the exact same process, so those who have taken the time to properly prepare, and have the ability to think like a buyer, will be the ones most likely to experience smooth, successful sales.

Mike Handelsman is Group General Manager for BizBuySell.com and BizQuest.com, the Internet's two largest and most heavily trafficked business-for-sale marketplaces. Both sites feature business valuation tools that draw from the largest databases of sales comparables for recently sold small businesses and include two of the industry's leading franchise directories. Since 1995, BizBuySell and BizQuest have offered tools that make it easy for business owners and brokers to sell a business and for potential buyers to find the perfect business. Together, BizBuySell and BizQuest list more than 75,000 businesses for sale at any time and have over 850,000 monthly visits. Mr. Handelsman can be contacted at 415-284-4390 or mhandelsman@BizBuySell.com

HotelExecutive.com retains the copyright to the articles published in the Hotel Business Review. Articles cannot be republished without prior written consent by HotelExecutive.com.