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We’re experts in advising companies operating in the hotels and leisure sector

Selling a business in the hospitality sector

Selling a business can be a complex affair, and every industry experiences its own problems and challenges. Initially, you need to establish your goals in selling, identify potential buyers, and show your business to the best advantage.

As far as industry-specific challenges are concerned, hotels and leisure businesses currently face significant staffing issues, as restrictions on employing staff from the EU may be introduced following the Brexit referendum.

Before we look at the process of selling your business, however, let us identify some further challenges that could impact on the price you achieve from the sale, and a prospective buyer’s view of a good investment.

Consumer spending and the economy

Largely reliant on consumer spending levels, the hotel and leisure industry suffers greatly during times of recession and a vulnerable economy. Despite the current low rates of interest, pressure on the household purse due to constant rises in the cost of living, has a direct effect on business profits.

Social media

Hospitality businesses that fail to harness the benefits of social media are missing out on an opportunity to personalise their brand, and engage with customers on a higher level. Social media marketing requires a strategic approach, however, to link with existing forms of marketing and advertising.

Security threats

The ongoing threat of terrorism directly affects this industry, as people may choose to avoid potential ‘high risk’ targets in terms of cities and specific tourist sites. Long-term security concerns threaten to disrupt business, potentially affecting profitability and an achievable selling price.

Rising staff costs

A rise in the National Minimum Wage (NMW) and introduction of the National Living Wage (NLW) for those aged over 25, have significantly increased operational costs for businesses in hospitality.

Selling your business

Selling a business requires significant planning to achieve the maximum value. It is advisable to begin plan several years ahead, so you can boost profits and ensure the business is at peak condition when it goes on the market.

So why are you selling your business? Maybe it’s due to retirement, or you simply wish to move on to a new venture – whatever the reason, you will need to articulate it well to buyers, and instil confidence that your company is a sound investment.

The Information Memorandum

This is a document that contains general information such as why you started the business, its trading history, customer base, status in your market, and your reasons for selling. Also included will be an outline of its financial position, details of all assets and liabilities, and information about staff and supplier contracts.

You should obtain professional assistance when putting together this document, as it will be used as the initial method to attract potential purchasers. It will also be in your interests to hire a business broker with industry experience as they can talk with interested parties on your behalf, and allow you to remain at a distance from negotiations if necessary.

Negotiating the best deal

Once parties interested in your business have come forward, and appear to have the financial capacity to go through with a purchase, you should be able to identify one or two strong contenders.

More detailed negotiations can then follow, resulting in a period of buyer due diligence where the purchaser and their professional advisors look closely at your accounts, staff contracts, asset valuations, and other crucial business areas.

Letter of Intent

When an agreement in principle has been reached, the details are laid out in a Heads of Term agreement (also known as a Letter of Intent). They might include a warranty or indemnity to protect the buyer in the face of inaccurate information having been given.

You should be aware that a warranty or indemnity may result in a compensation claim being made against you, should the information you have provided to the buyer be inaccurate. The Heads of Term agreement may or may not be legally-binding, but it will contain information about payment methods, and whether you need to stay on in the business for a time following its sale.

This is called an ‘earn out’ arrangement, and is sometimes necessary to encourage a sale if the buyer does not want to pay the full price as a lump sum. They pay a reduced amount, with the remaining being paid in instalments under certain conditions based on business performance.

For more information on selling your hotel and leisure business, call one of our industry experts at Selling My Business. We engage in successful sales and acquisitions across the UK and can begin your process today with a free consultation.

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