Mr. Handelsman

Finance & Investment

Five Mistakes to Avoid When Listing a Hotel or Motel for Sale

By Mike Handelsman, Group General Manager, BizBuySell.com

If you're selling a hotel or motel in today's economy, you're going to need every advantage you can get. The most significant impact revolves around trade-off between the amount of time the business is on the market and selling price. According to the statistics on our websites, BizBuySell.com and BizQuest.com, the average amount of time it takes to sell a hotel or motel at full market value is 1 to 2 years. If that sounds like a long time, it should – most well-marketed businesses should be expected to sell within 6-12 months, rather than years.

Since an extended time-frame for selling their hotel or motel for full market value is untenable for many owners, countless are being forced to sell their business for liquidation value, which according to some hotel lawyers, is typically 20 – 50% below market value.

The trade-off between a timely sale and a reasonable selling price puts hospitality business sellers in the unenviable position of having to choose between the lesser of two evils. You can either accept a highly-discounted payoff now or cross your fingers and hope the market rebounds over the next few years. What is the right decision for your hotel or motel sale?

In our experience, the cream always rises to the top and the best businesses command top dollar no matter how crowded the marketplace.

But here's the catch: When sellers face significant competitive pressure, like in today’s market, the margin for error evaporates. In other words, it's still possible to get near-market value for your hotel or motel in today's economy – you'll just need to pay attention to the details and avoid making significant mistakes throughout the selling process.

To help you get started, we've put together a list of five common mistakes that can quickly derail a hotel or motel sale. Although these aren't the only pitfalls you may encounter, by avoiding these you will greatly increase the odds of getting the highest possible price for your business in the shortest amount of time.

Mistake #1: Not Preparing the Business for Sale

Failing to adequately prepare for the sale of your hotel or motel is a mistake even under ideal market conditions. In today's economy, it's nothing short of a disaster. Although the compilation of financial records, marketing collateral and other materials are important, a thorough preparation process should address every aspect of your business. Upgrading technology, establishing processes, touching up facilities – everything counts when it comes to preparing your hotel or motel for the marketplace. If the business isn't profitable, your focus during the preparation process should be restoring it to profitability and demonstrating how it will continue to be profitable on a go-forward basis. If you can provide a detailed roadmap to future success in your business, you’ll have a much higher chance of attracting the right buyer and making a sale happen. Similarly, if you operate with a bloated staff, start downsizing now to create a leaner, more efficient workforce for prospective buyers. To help cut costs even further, this may mean putting off investments that only have anticipated long-term payouts.

Mistake #2: Not Getting a Proper Business Valuation Prior to Listing

Getting a proper business valuation prior to listing is critical in the current hospitality business-for-sale market. Pricing the hotel too high could hurt your ability to sell, whereas pricing too low could cause buyers to presume something is wrong with the hotel. Or, on the flip side, they could just pounce on your mistake -- resulting in money left on the table, instead of in your pocket. As most owners have an inflated sense of the value of their business, the surest way to miss the mark on pricing is to not get a proper business valuation in the first place. With the help of a qualified business broker, a valuation will give you the objectivity you need to begin the pricing conversation. Typically, hotel and motel values benefit from positive trends when there is a shortage of comparable lodging, restrictions on the construction of new lodging or there is scenario in which the business caters to a diverse and non-seasonal customer base. Although your ability to influence valuation is limited, any efforts you can make to broaden your customer base will enhance value by stabilizing the business' income sources.

Mistake #3: Working with a Business Broker Who Lacks Experience Selling Hotels and Motels

The hospitality industry is a specialized field that presents a very unique set of issues and challenges. Those same challenges you face with day-to-day hotel management, can inevitably cross over to the sales process. Unless he or she has prior experience selling hotels or motels, it's unlikely that your business broker will be equipped to compete in today's market. Why? Primarily because brokers who lack hospitality industry expertise also lack the industry connections to effectively market your business. Rather than settling for a broker who has experience with a variety of businesses, discreetly seek out brokers who are proven experts at selling hotels and motels in your geographic area. It will be significantly more rewarding.

Mistake #4: Interacting with Only One or Two Prospective Buyers

The most successful hotel and motel sellers leverage basic economic principles to maximize sales price. With so many hospitality businesses on the market, it’s important to market the sale more broadly in order to evaluate all the sale options and potential buyers. By listing online or through a business broker on the open market, owners may find their hotel is more in demand than they originally though. Unfortunately, we’ve seen too many sellers jump on the first buyer who makes an offer. Although we can appreciate their eagerness to close the deal, that's a mistake – especially in this market. The business brokers who are selling hotels and motels today understand that higher demand translates into a higher sales price. Instead of limiting their focus to just one or two potential buyers, they are generating higher demand by talking to multiple qualified prospects at the same time. In addition to creating a greater sense of urgency, multiple prospects also make it easier to identify a new buyer in the event that the primary buyer is forced to withdraw from the sale.

Mistake #5: Losing a Deal After an Initial Offer Has Been Made

In a hotel or motel sale, the finish line is the closing – not the initial offer. Smart sellers and brokers approach the initial offer as the beginning of the negotiation process. There are a variety of issues that still need to be resolved through negotiation, any one of which can bring the sale to a screeching halt. Tax issues, financing questions and the terms of a transition period are all points that need to be addressed early on in the sale process. Our advice is to work with your business broker to establish a negotiation strategy before you receive any offers so you can stay well ahead of the game.

By avoiding these common mistakes, you’ll be well on your way to achieving a successful sale.

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...

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