Planning your hotel sale to maximise value

Ensuring that your hotel business is in the best possible shape in the lead up to the sale process can have a significant effect on the eventual sale price achieved. For the best results the exit planning process should be approached carefully and with plenty of time.

Assets

The major asset of any hotel business will be the property itself. Keeping the hotel looking presentable might seem obvious but surprisingly this can be overlooked. Expenditure to ensure the hotel is up to date on repairs and kept clean and tidy will provide comfort both to guests and potential buyers.

Financial and management controls

Prospective purchasers will want to see detailed historic financial information and budgets for the period ahead. Regular monthly management information including KPIs should be prepared for the hotel and compared to the budgeted figures on a regular basis.

Appropriate systems and financial controls should be implemented to ensure all transactions are correctly recorded and all assets are safeguarded. Working capital should be maximized, perhaps by reducing stock levels and more effectively managing debtors and creditors.

Management structure

Is there a “second tier” of management in place at the hotel? Many acquirers will be put off by businesses that require significant day to day management input from them and may prefer a business that can be left to run itself while they make the strategic decisions.

Legal and tax compliance

There is no substitute for a clean, profitable business to sell. You should ensure that all statutory accounts, annual returns, corporation tax returns and VAT returns have been filed up to date and all due payments made.

If the business is involved in any ongoing litigation or in dispute with HMRC you should endeavor to resolve this before the sale process commences as major litigation may be a deterrent to a potential purchaser.

Contractual relationships

All leases, title deeds and other key contracts should be located and reviewed. Ensure up to date contracts are in place with any major customers, key suppliers and employees. Contracts should be examined to ensure no change of control restrictions or provisions apply which might allow the other party to terminate on a sale. You should try to reduce reliance on any single corporate customer.

Commercial considerations

Ensure that you maintain your hotel’s profile to make it easily identifiable to potential acquirers who may be looking for a property to enhance their offering in a particular location or market sector. Although you can’t build a reputation overnight you can ensure your website and marketing activity give your business a good profile.

Seek professional advice as to the value of the hotel at the outset. Sales may often collapse due to the difference between the seller’s and the buyer’s price expectations.

Upfront tax planning should enable you to restrict the amount of the sale proceeds due to HM Revenue and Customs when the eventual sale arises. Inheritance tax planning, Capital Gains tax planning, the use of Entrepreneur’s relief and dividends should all be considered.

If you would like to discuss this blog in more detail, please email Paul Bennett from our Corporate Finance team or call 01772 821021.

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