Mr. Handelsman

Finance & Investment

The Five Most Important Questions to Ask a Potential Hotel Buyer

By Mike Handelsman, Group General Manager, BizBuySell.com

Communication is a key to success in just about every aspect of life. So it only makes sense that when you’re ready to sell your business -- a hotel you’ve poured your heart and soul into for countless years -- sound communication will again help you achieve your goal.

The sale of a business can be a long, drawn-out process. Most likely you’ve been preparing for this event for quite some time. The finances and paperwork are all in order, the hotel has received a nice sprucing up and you have a strong management team in place to take over the reins. As part of the process, you’ve probably also hired a business broker to assist you or even started listing the business for sale via online business-for-sale Web sites.

While your prep work is done, the most important part of the sale is just beginning. Once a buyer has contacted you, the real work begins. This is your legacy you’re leaving behind, so it’s up to you to make sure your hotel falls into the right hands.

This is where communication becomes essential. It would be foolish to just sit back and pick a buyer solely based on the financial elements of a written offer. Just as you’ve communicated with your staff to make sure every element of your business is run correctly, you must communicate with potential buyers to ensure the business transaction (and transition) will run smoothly.

The key, however, is knowing what questions to ask. With the right arsenal of queries, just a few minutes of effective conversation can quickly identify whether this is the right buyer for you.

Through the years at I’ve seen too many sellers waste time on offers that will simply never pan out. Many people may dream about being a hotel owner and contact you to ask questions, but there is no realistic intention of going through with a deal. Especially during these tough economic times, even those with serious intentions may not have the financial fortitude to get a deal done.

That’s where these five questions, and perhaps five minutes, can save you hours of unnecessary work. Not only can you find out if the buyer is serious and has the financial means to get the deal done, but you can also find out his or her vision for the hotel and how you, the seller, will be involved with the transition period. So if you want to know if this buyer is the one, it’s as simple as asking these five important questions:

Are you qualified to operate a hotel?

This may seem obvious, but the answer will give you a strong, accurate and very telling first impression of the buyer. Right off the bat you will be able to get an understanding of the person’s credentials, skills and previous history in the hotel business.

The first thing you’ll want to know is whether the buyer currently owns or has previously owned a hotel. If they have, a few follow-up questions will give you a good overview of how this person conducts business. What is the state of that hotel? What reputation does it hold in the industry? If the person had sold it, why did he or she get out? Why are they now interested in getting back in the business?

If the person has not owned a hotel in the past, there must be a reason he or she is targeting one now. Has buying a hotel been a lifelong goal they’ve been working toward, or is it something they just started thinking about? Perhaps the potential buyer has experience in another hospitality industry and is looking to carry over those talents to the hotel field.

Once you have learned about this person’s background and qualifications, you can simply ask yourself: “Based on their experience, do I feel comfortable with them taking control of my hotel?” If you hesitate, this may not be the right candidate. But if he or she sounds qualified, move on to the financial discussion.

How much money do you have for a down payment?

It may seem quick to start talking numbers, but how the buyer reacts to this question will let you know whether or not money will be a problem point in this deal. The candidate may have claimed he or she was planning to buy a hotel for some time, but this will serve as proof.

Buyers still unsure about an acquisition will likely not have a number yet. They may have hoped to learn more about the sale process before diving into such financial details. But as the seller, this will once again help you decide if the potential buyer is a qualified lead who is worth investing your time and energy.

You will also quickly identify if your hotel is in this person’s price range. Perhaps he was eyeing a smaller hotel but figured it would be worth a shot to see if he could get a good deal from you. If the down payment doesn’t seem suitable for a hotel of your size, you can easily inform the buyer he or she may be better suited looking at other listings closer to his price range. If the down payment is about right, or even bigger than you expected, this will also serve as a solid point of reference for you once negotiations begin. Perhaps he is overestimating the value of your hotel. This will prove to be a strong advantage for you down the line.

How are you planning to finance the business purchase?

Now you are really getting into the nitty gritty of the deal. While the buyer might have been able to answer the first few questions with just a little bit of forethought, this will surely tell you if he or she has done their homework.

If he or she can lay out a sound financing plan, it’s likely they will be among your lead candidates to buy the hotel. The buyer has now proven to have the necessary experience, drive, and financial power to run your business.

Hearing the financing plan will also give you good insight as to what the hotel may look like down the line, as well as your future involvement. Will they require seller financing? Does the buyer have necessary funds to run the business long term? Is there money available for upgrades or renovations? Or is the buyer simply looking to make some quick money by flipping the property to someone else?

What are your concerns about buying this hotel?

If you’ve gotten to this question, then you’ve realized that this person has probably been thinking about purchasing a hotel like yours for some time. But what has been holding him back? Was there a reason he contacted you today and not a week ago?

When dealing with such a monumental life decision, there are sure to be concerns on both sides. Talking about these concerns will help you learn more about the buyer and what may hold this deal up. Solving these problems together will help build trust between the two parties and make negotiations that much easier. A friendly relationship will also help ease the transition period, which should be the topic of your final question.

What is your plan for the transition period, and does it involve me?

The answer to this question will affect you, the seller, most. As with most business sales, there will likely have to be a period of time where you help the new owner get acclimated. How long this lasts may depend on his or her experience in the field. But you’ll want to know right away what kind of work you’ll need to put forth. Find out how long you’ll need to stay on and how much time you’ll spend with the new buyer both in-person and over the phone. If it’s an extended amount of time, will you charge an extra fee for your services? In some cases, you may even want to stay in the business but simply are no longer interested in being an owner. Learning these details early will help iron out any differences before they cause a problem later.

This entire conversation may only last five or ten minutes, but you should now have a great idea of who this buyer is and if you would like to proceed with the sales process. You’ve saved yourself a lot of time by eliminating false candidates and can now focus on a select few.

At this point you can relax a bit and let your broker help seal the deal. Until then, concentrate on keeping your hotel running smoothly to maintain its high value. Once the negotiations are nearly complete, you can move on to the simpler questions, such as: “Will you be putting a mint on the pillow?”

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 Extended Bio...

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.