Mr. Handelsman

Finance & Investment

Outlook for 2011: Is Now a Good Time to Sell Your Hotel?

By Mike Handelsman, Group General Manager, BizBuySell.com

These past few years have been tough on the business-for-sale market. This has put hotel owners ready to sell in a waiting game. Rather than sell for below market price, most smart hotel owners have simply been cutting unnecessary expenses, making ends meet and waiting for the market to rebound.

Since the recession hit in the fall of 2008, most hotels have seen a drop in revenues and profits. The ensuing fall in purchase-price valuations only made matters worse. But 2010 saw a slight improvement in the seller market and many experts expect that 2011 will be a break out year for the business-for-sale industry.

So is 2011 the year you should consider selling your hotel?

It appears that many owners are ready to find out. Those who have been waiting for the right time to exit have weathered the downturn and are now ready to begin the selling process. For prospective buyers, financing options are improving and banks are putting a new focus on lending. These signs all points to a rejuvenated industry and a more robust business-for-sale market in 2011. So if you’re thinking of selling your hotel this year, here are some tips to maximize your return.

Get Finances Straight

As expected with any big purchase, buyers are going to investigate the ins and outs of your hotel before deciding to sign on the dotted line. Sellers need to be ready to demonstrate that their hotel is worth the listed asking price. The first step toward doing that is to make sure all your financial records are in order. Owners should be able to hand over a minimum of three years of documents, including tax returns, occupancy history, and expense records, to prospective buyers. These will be essential to establishing buyer trust in the economic stability of the hotel. Also, be sure to resolve any outstanding business issues that could hinder a sale. These can include short-term vendor or key employee agreements, over-reliance on one or a few key customers, conferences or events, and any outstanding legal issues.

Improve Physical Appearance

While getting all the paperwork is order is important, don’t forget the physical elements of the hotel as well. Much like having an open house for your residence, you’ll want prospective buyers to see your hotel at its best. Take care of any building improvements you’ve been putting off before buyers start looking around. Paint the lobby, renovate the entranceway, or just redecorate the rooms. Make sure staff is paying special attention to their cleaning duties and any unexpected damage is fixed quickly. The physical appearance is often the first impression a buyer gets, so make sure it’s a positive one.

Know Your Market

Perhaps the most important step of selling your hotel is listing at the right place. And in order to set your listing price accurately, you’ll need to know exactly where your hotel stands compared to other hotels on the market. Overestimating your value can lead to a long and difficult sales process, while underestimating will leave money on the table. As for selling in 2011, remember that even though we saw some signs of improvement in 2010, market conditions are still not what they were prior to the 2008 downturn. Expect an improved selling environment this year, but don’t make the mistake of asking for pre-recessionary prices.

Do some research of your own to make sure your asking price is consistent with the current market. An easy way to do this is to look up what similar hotels have sold for or listed for recently in your area. Websites like BizBuySell.com and BizQuest.com allow you to search for similar hotels based on key factors like revenue, cash flow, and location. The websites also give you the option of purchasing a valuation report to see more detailed information on recent local sales to help make the comparisons. Don’t forget to take your financial situation into account when determining value as well. If your revenue and cash flow have been on the decline, make sure to take that into consideration, because prospective buyers certainly will. Don’t be fooled into thinking they’ll pay you based on your results prior to the downturn.

The final goal is to set a listing price that will attract the greatest number of serious buyers, enabling you to close a deal at the highest possible price. Pricing your hotel too high can prove costly, dampening demand and decreasing the chances for multiple bidders. The best thing you can do to get the highest price is to have multiple buyers in an auction-like atmosphere for your hotel.

Promote to Buyers

One of the keys to creating this auction-like situation is to make as many potential bidders know about your upcoming sale as possible, while maintaining confidentiality to the broader market (if that is what you prefer). With many experts predicting more buyers and more sellers to be on the market, 2011 will still be a challenging environment in which to sell. Owners who are ready for this change and can separate their hotel from the rest will be rewarded with greater buyer interest and a higher final selling price.

A way to help ensure a successful sale is to hire an accomplished business broker. Find a broker with a track record of successful deals in both your local area and the hotel industry in general before signing a listing agreement. Check broker references carefully and see if you can find additional references they don’t provide themselves. These references can often be the key to finding out the type of results to expect.

If you do choose to sell on your own, don’t be afraid to market aggressively. The more potential buyers that know about your hotel, the more offers you are likely to get. Put together a full marketing plan, including but not limited to listing on websites like BizBuySell.com or BizQuest.com, getting in the local newspapers and appropriate trade publications, and networking through friends and family.

Expect to Offer Financing

In the 2011 market, seller financing is essential. Lending from local and national banks will continue to loosen based on the economic stimulus and the Small Business Jobs Act of 2010, but banks are still almost universally requiring that seller financing is part of any deal they fund. That means you’ll be required to take at least 20% of the sale price in the form of a buyer note that the buyer will pay back over time, with interest. This also means that you’ll become invested in the hotel’s success, even after the sale. The buyer and lender will expect you to participate in a transition with the new owner and to help get them off to a strong start. Be prepared for this and participate in a positive way that will encourage potential buyers. It will help you close your sale and ensure that the buyer gets off on the right foot, maximizing the chance that they’ll be able to complete their long-term payments.

So if you’re planning on selling your hotel this year, be aware that while things are improving, sale prices are still down significantly from pre-recession levels. For those owners still struggling to recover from the recession, perhaps this is the year to begin preparation for a sale. Get your finances in order, spruce up the hotel and begin examining the market. For hotel owners who have planned ahead, 2011 may be the right time to separate their hotel from the rest, resulting in more offers and, finally, a successful exit at a good price.

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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