Mr. Handelsman

Finance & Investment

Selling your Hotel? Plan Ahead and Avoid These Six Common Mistakes

By Mike Handelsman, Group General Manager, BizBuySell.com

If you are looking to sell your hotel or motel, chances are you are not alone.

At BizBuySell.com we’ve seen a financial stabilization of businesses in the marketplace. Now a latent supply of owners who were waiting for their business to become profitable again are beginning to emerge and are looking to sell. This influx of sellers can result in a crowded marketplace, which means sellers have to be on top of their game to get the best price for their business.

As a rule of thumb, the best businesses command the best valuations, no matter how crowded the marketplace. But with competitive pressure from other sellers, there is little room for mistakes. This guide will help you avoid common mistakes that can derail a hotel or motel sale.

Mistake 1: Not Properly Preparing Your Hotel for Sale

Before buyers sign on the dotted line, they will research your business as they would any other big purchase. Sellers need to be prepared to demonstrate that the worth of their business matches the asking price. This means keeping your financial records in order. Keep a minimum of three years’ worth of documents (ideally a longer history), including tax returns and expense records. Good record keeping is a simple way to establish buyer trust. Be sure to resolve any outstanding issues that could derail a sale, like legal issues or unfilled key management positions. If your hotel is struggling, focus your efforts on restoring it to profitability and constructing a plan for continued success. A detailed strategy can give you a much higher chance of attracting the right buyer and making a sale happen.

Just as important as the paperwork, don’t forget the physical elements of your business as well. Consider upgrading technology, establishing and documenting key processes and even sprucing up your lobby and rooms – the physical appearance of your hotel is often the first impression the buyer gets, so make sure it’s a positive one.

Mistake 2: Working With an Inexperienced Business Broker

The hospitality industry is a specialized field that has its unique set of issues and challenges. Unless a broker has previous experience selling hotels or motels, or at a minimum a significant amount of local business transaction experience, it is unlikely that he or she will be equipped to effectively guide you through a sale. Brokers without experience in the hospitality industry may lack the connections to successfully market your business. A truly qualified broker can also help with one of the critical steps in listing your business for sale - getting a proper business valuation. Most owners have an inflated sense of value in their business, but an experienced broker, especially one experienced in selling hotels and motels, can provide the objectivity needed to start the pricing conversation.

Mistake 3: Not Understanding the Market

Selling at the right time and for the right price is much easier said than done. It is important to work with your broker to grasp the current state of the market and what that means for the sale of your hotel. Ideally, of course, try to avoid selling your hotel during a downturn in the market unless absolutely necessary. Additionally, although it makes sense to sell in a sellers’ market, it is also important to pay attention to the state of the hospitality industry specifically. Don't forget to also take into consideration your own personal transition plan and try to coordinate that appropriately with anticipated changes in the marketplace. It is also important to price your hotel appropriately. The goal is to set a price that will attract a number of serious buyers and yet allow you to close the deal at the highest possible sales price. To properly price your hotel, you will need to know where it stands in the market as compared to others. So, work with your broker and conduct some research to determine where your hotel stands in the current marketplace, and then price accordingly. Hotel owners who plan ahead and take the time to research the market will stand out from competition, thus resulting in more offers and a heftier sale price in the end.

Mistake 4: Not Getting the Word Out

With more businesses coming on the market this year, it’s important to get the word out and market the sale broadly to attract the greatest number of potential buyers. Listing online or through a business broker on the open market can help in this endeavor, allowing more potential buyers to see your listing and generating greater demand from potential buyers. The more buyers that know about your hotel, the more offers you are likely to get. Business brokers versed in the hospitality industry understand that higher demand for your business translates to a higher sales price, so the goal is to create a multiple-buyer situation. Don’t limit your focus to just one or two potential buyers or the first buyer to make an offer. Instead talk to multiple qualified prospects at the same time to continue generating a sense of urgency and demand for your hotel. Also, speaking with multiple buyers can help generate a backup plan in the event that the primary buyer is forced to withdraw from the sale.

At the same time, in most cases it is important to keep the fact that you are selling and the sale process confidential with your staff and vendors. This can be tough to do given the primary importance of getting the word out about your hotel sale, but if your staff and vendors catch wind of the fact that your hotel is on the market it could negatively impact those relationships and your business performance. A good broker will know how to simultaneously market your hotel while maintaining strict confidentiality about the sale.

Mistake 5: Not Offering Seller Financing

To close a sale in this economy, business buyers and/or their lenders are almost certainly going to require some form of financing to purchase a business, and the hospitality industry is no exception. While lending from local and national banks continues to loosen, the progress is still slow, and most banks require seller financing as part of any deal they fund. This means you will be required to take a minimum of 20 percent of the sale price in the form of a note that the buyer will pay back over time, with interest. Essentially, you still have an investment in the hotel even after the sale, meaning you are expected to participate in a successful transition to the new owner. This confidence and willingness to invest in your hotel even after a sale will encourage potential buyers, and their lenders. Furthermore, it will help you close your sale and ensure the new owner’s success, maximizing the chance they will be able to complete their long-term payments.

Mistake 6: Failure to Make a Plan for Future Success

To help attract buyers, provide a plan for the future success of your hotel. This plan should include a blueprint for how the business operates; e.g., work flow, decision-making and authority, and key relationships. Also outline growth opportunities you see for the hotel in the future. Providing a detailed roadmap to the existing and future success for your hotel improves your chance of attracting the right buyer and maximizes the value that they see (and the sale price they are willing to pay.).

Finally, many owners are so focused on selling their hotel that they neglect the transition process that will occur after closing. When signing the purchase agreement both parties need to agree on a method of transition. Some prefer to keep the seller on for a few months and assist with the transition and training, while others prefer to just make a clean break. Either way is completely acceptable, but it needs to be agreed upon by both parties prior to the sale, so the transition can be as smooth as possible.

Selling your hotel is one of the biggest business decisions you will likely ever make and the culmination of your years of hard work. So, make sure you avoid these mistakes to ensure that you get the best possible return on your investment.

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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