What You Need to Know about Businesses for Sale in the Lodging Industry

Posted on November 13, 2007 by Ginger Watford

Many entrepreneurs are looking for businesses for sale that offer them the best of both worlds - a place to make money and vacation all year long.  This search ultimately leads them to the lodging industry.  In fact, scores of these entrepreneurs will even relocate to anther country to realize their dreams.  This may sound like you.  But, before you dream of sandy beaches (or quaint villages, whichever you prefer), take the time to conduct research.  The thought of running a hotel or bed and breakfast may seem like the perfect occupation and it may be just right for you and your family.  As wonderful as it may be, it’s easy to take the plunge without testing the waters.  After all, the idea of owning a magnificent hotel near the beach or even a quaint guesthouse in London is compelling.  However, the difference between failure and success is knowing exactly what you’re taking on when you’re buying a business in the lodging industry.

Location is Key in More Ways than One
Even the most novice businessperson understands the importance of location.  A strategically located business, especially in a service-related industry, will thrive.  Choose the wrong location, however, and most likely, you’ll be closing the doors not long after you open them.  Lodging facilities positioned in tourist areas, business districts and near entertainment are obviously lucrative.  

One question you must ask during your evaluation of a particular hotel is whether the surrounding area has something special to offer your guests.  Even if you’re interested in opening a hotel in a quiet, rural region, you can still find a location where you and your guests can enjoy the sights.  For instance, perhaps you have fallen in love with New Forest, a place found in England and characterized by its beautiful landscape.  It has been grazed by animals for hundreds of years and may not seem like much to some tourists.  Yet, to others, horseback riding along a path lined with ancient trees and brilliant autumn leaves makes for the perfect vacation.  Then again, New Forest meets the coast, which means it access to beaches for those tourists who yearn for the feeling of sand between their toes.  The deciding factor is that places like New Forest have something special for their visitors.  

Furthermore, it is always wise to choose a location that has something to offer its locals (like you and your family).  Again, New Forest provides a working example of this.  If you are content to cycle alongside the forest anytime you need entertainment or relaxation, you should do very well.  This is true because areas that attract tourists tend to be expensive.  Thus, if you can amuse yourself in the natural environment, you’ll spend less money on your own leisure.  This means your choice of location is economically efficient in more ways than one.

Nevertheless, one drawback to buying a hotel in a tourist area is that business is seasonal.  It will take discipline, especially starting out.  This is the case because most of your business will be conducted in six months out of the year.  You’re business will be booming and very busy.  Then, traffic will decrease considerably, you’ll receive little income and you may even feel bored.  Additionally, the number of guests may decrease at certain times throughout the year but bank loans and other such expenses will not.  Fortunately, you can find specialist mortgage brokers who will create seasonal plans so you have the opportunity to budget for slow periods.  If seasonal business is unappealing to you, purchasing a city hotel may be more suitable.  The fact is that tourism centered hotels and city hotels make close to the same amount of money.  The only question is whether you would rather make your money in six months or throughout the year.  

Guesthouse or Five Star Hotel?
As you can imagine, the first issue to evaluate here is finances.  Many experienced business owners do not have the capital to invest in an elaborate hotel; thus, beginners set their eyes on guesthouses or bed and breakfast cottages.  Such facilities house not only your guests but also your family, which is a nice option.  Also, guesthouses are more family friendly because visitors do not expect a clerk to be available 24 hours a day.  In contrast, guests staying in a large hotel expect to ring the front desk in the middle of the night, if necessary.  If they have to wake in the early morning hours to get ready for a big day, they expect a warm shower.  If the water is cold at 4:30 am, they should be able to phone the front desk and at least complain.

As you can see, a large hotel requires significantly more labor.  Hiring staff members may cost more in the beginning.  However, you can not afford to lose business because your guests are dissatisfied.  If you become overworked and accidentally send someone to room laden with wet towels and disarrayed sheets, the guest will not care that you’re spouse is sick or that you’ve been working for 20 hours.  If you plan to keep his or her business, you will most likely end up paying for the remainder of that guest’s visit.  Meanwhile, your funds would have been better spent on additional housekeeping and front desk employees.  Of course, there is no correct or incorrect decision in this case.  It comes down to your investment level and personal preferences.

Last but Not Least
Though your location and the type of facility you hope to operate are important decisions, they are not the only ones you’ll have to make in the early stages of establishing your lodging business.  For example, you have to determine whether you would like to start from scratch or buy an existing business (a business for sale by owner or even a franchise opportunity).  If you’re new to the industry, you should definitely consider buying an existing business.  Unlike a brand new company, an established organization includes clients, infrastructure and, if you do your homework, a good reputation.

Nonetheless, if you purchase an established hotel, make sure you explore the building and make note of its condition.  You should also ask about all equipment and evaluate the necessary investment.  What’s more, it’s always smart to consider whether you can add onto the hotel.  An example of this might be a bar.  If the hotel has a kitchen but not a bar, ask yourself if adding one is possible with that particular facility.  And, calculate such costs into your budget.  If you’re set on having a bar, it may be more cost-efficient to purchase a property that already has one.  On the other hand, if temporarily foregoing the bar keeps your loan significantly lower, this may be the way to go.  The only way to know for sure is to gather all the information you can and put the pen to it.  In truth, it a financial advisor may be one of your best investments as you go through this process.  

In addition, do not hesitate to ask the owner why he or she is selling.  If business has been declining, it may be wiser to look elsewhere.  Chances are, there are other businesses for sale in the area.  Remember that your goal is to make a living and saving a failing business is not usually the way to achieve such a goal.  Because this information is so important, keep in mind that the owner should be able to provide up-to-date financial records.  This allows you to assess the cost of running your business: repairs, wages, insurance, etc.  

Even though the lodging industry is time-consuming, it is also very profitable.  The service sector will always be in demand, even if it ebbs and flows.  If you are diligent with your research, you’ll find the best hotel in the best possible location according to your investment and future goals.