The acquisition of a new hotel business can be complex. Hospitality Experts’ Martin Rogers, director of property agent Savills, shares what he believes are the key things to consider when looking to make a purchase.
Purchasing a new hotel business anywhere in the UK is a major undertaking and a major investment; it requires business acumen and understanding of what is a complex and multi-layered industry.
It is, however, a move that has been made by many current and would-be hoteliers, both with and without background and experience in the hospitality industry.
While there are multiple aspects involved in the creation running of a successful hotel, which could and probably should be partially in place before a property is decided, the clearest decision centers on the property.
This alone forms a major part of the direction a hotel business will take and much of a business plan must stem from this first decision.
Location, location, location
It may seem a fairly obvious first step but choosing a location is central to the future success and direction of your hotel business. We are focusing here on the UK and even as a small collection of countries, the variety available when it comes to location is vast. A hotel in central London will need to have a hugely different business plan to that of one in the Scottish Highlands and the two hospitality businesses will be worlds, not only miles apart, in direction of everything from marketing to purchasing.
Initially important questions must be asked, such as will you be setting up in the country or the town, coastal or inland, these are the major geographical concerns that will shape your first step towards making a location decision.
Then we progress to the main focus of the business, which also has a bearing on the location. Will you be aiming to market your hotel towards leisure customers primarily, or do you foresee the business being food and beverage focused? A concise strategy as to the style of the hotel is important. Will it be lifestyle hotel, very often owner operated, or a business hotel where commercial returns are important? It may be that one is not independent of the other and this is often the way, but these considerations must be taken into account from day one to ensure the building is the right place to carry out the business plan successful.
Seek specialist advice
Of course, as a Hospitality Expert, utilising specialist advice is something I believe to be highly important. Seek sound advice from specialist hotel advisors with a proven record of involvement in the hotel sector. In this I include all aspects of the purchase trail, for example it’s vital to have a legal team of lawyers and accountants that understand the world of hospitality and are able to protect your purchase and capital investment.
Specific to the building aspect of the purchase are surveyors, valuers and architects. It goes without saying that a building fit to become a hotel is likely be at the very least a large home and will require checks to ensure it is fit to be transformed into a hotel. And even if the building you plan to purchase is an existing hotel, these checks are still vitally important.
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The success of a new business hinges on putting in place a comprehensive business plan at the start. Of course to do this when it comes to the hotel industry the considerations above need to have been settled on in order to understand the direction and goals of the business.
This plan will also need to be settled before a purchase can even take place if the buyer is sourcing any capital to purchase or develop the business. Often, such as with Savills Private Finance, specialist companies will offer a service to assist you.
When creating the plan be sure to set the business short, medium and long-term goals and this too will shape the choice of building best suited to your business plan.
When all the ducks are in a row, as they say, it’s time to begin viewing properties. An important aspect to consider when looking into possible acquisition is the business mix. When you have located a possible property, start by carrying out a comparison with other local hotel businesses.
Begin with a visit to the direct competitors in the area. This is the first step to investigating what your business will not only be competing with but also what the local market desires. If you believe your high-end dining restaurant offering will be central to your business there must be some desire for this in the locality. On the flip side of this, of course, is the possibility of discovering a gap in the market or a niche that has yet to be tapped into. Don’t be afraid to take this a step further, by comparing the target hotel’s average daily rate with what is available in the area.
If you are buying an existing hotel be sure to, if you can, research the properties figures. What is the current daily rate, occupancy figures, revenue split, as numerous strong revenue streams will help fend off a downturn in a part of the trade, the main demographic and the geographical capture market for guests. If there are multiple aspects to each potential business investigate if there is scope for these to be developed further, and, if they are already working at full potential but not realising a satisfactory yield, can they be used as something different? If not perhaps this aspect may become a dead weight to your asset and this is something to take into consideration when creating the business plan.
All in all I advise anyone considering a major purchase such as a new hotel to take their time. Identify the hotel business, engage the correct professionals, talk to a specialist broker, bank, equity funder, prepare the business plan and set achievable short term goals prior and post completion of the purchase.