The hotel business is thriving worldwide with an impressive 550 billion U.S. dollars revenue expected to come in this year as reported by Statista. No wonder investors are so eager to devote their money to international hotel franchises. An increasing number of entrepreneurs are turning towards the hotel industry when they think of buying a business.
It can be difficult to land a profitable deal if you are unsure of how to proceed. Here are some common errors to avoid when purchasing an existing hotel business.
1. Ignoring full disclosure
When you meet the seller, they will present a well rehearsed pitch to entice you into purchasing their hotel. That’s understandable but you should not allow future potential to cloud your judgment of the present. What matters in the end is the actual business you receive not what it could be in a couple of years. Make a point to focus on the liabilities that come with that purchase. Having facts and figures about essentials like rents, wages, employees, contracts, taxes, etc. will paint a realistic picture in your mind.
2. Neglecting due diligence
Never take the seller’s word for it. It’s not personal just business. Always ask for numbers outright but double-check them. It is your right to ask for proper documents and reports that depict the investments and cash flow of the establishment. Hire professional brokers, accountants and lawyers who are experienced in handling hotel purchases.
3. Unprepared for lifestyle change
It’s always unwise to buy a business before understanding how it functions on a daily basis and your involvement in it. Hotels operate 24/7 so do not expect to be free on nights and weekends all the time. An excellent way to get accustomed to it is to come to an agreement with the seller about offering a free crash course in running a hotel.
4. Overlooking contracts
A hotel needs plenty of supplies so there are fixed contracts with vendors you must look into before closing the deal. Check the quality of the supplies and the reliability of the vendor. It is very important to ensure there are no overdue payments that maybe piled on you because you were clueless about them.
5. Disregarding outstanding rent
There are often regular rental agreements signed by the hotel for daily supplies, furnishings, etc. So take an inventory of all the hotel assets and how many of them are rentals. Request a full history of those rentals to confirm none of the rent is still due to be paid. Such small expenses could pile up to create debts for you after you sign the deal unaware of them.
6. Not checking bookings
Apart from regular check-ins hotels hire out halls and conference rooms for corporate and private events. Take note of all the future bookings made by clients. These usually have advance deposits so you have to be certain all of those payments have been paid to you not the seller.
7. Underestimating tax payments
A large establishment like a hotel has a giant bundle of taxes waiting to be paid on a regular basis. Have your lawyer and accountant look through all legal documents and compile a list of taxes the hotel owes is crucial to escape any possible seizing of assets due to unpaid taxes.
8. Incomplete employee records
Not all employees are fulltime and work daily. There may be several different contracts the hotel has with employees. Do a full review of employee performances to see if it is up to mark. Be aware of hotel policies on insurance, wages, holidays, sick leaves, etc. regarding employees.
9. Risking financial vulnerability
Not all sellers are cooperative. It might be that the hotel seller is unwilling to compromise on key issues and you don’t want to let a splendid opportunity pass you buy because of one person. Be courteous and diplomatic ensuring you are not placed in a position where you will have to bear the brunt of loss if something goes awry.
10. Not seeking specialists
This is imperative particularly if you have never negotiated for a hotel business before. A seasoned hotel owner can easily strike an agreement that gives him advantage over you leaving you with the short end of the stick. Find lawyers, accountants, brokers and advisors who have sufficient experience and can help you navigate the deal safely.
Finding a hotel business for sale online (https://tobuz.com) has gained more popularity in recent years with a surge in internet security and the global business community becoming close knit. You don’t have to exhaust yourself running here and there for appointments when you can simply have open conversations with sellers online.
By Sid Malik
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