The process of buying a hotel is quite long and complicated, but if you scrupolously follow a few rules, it will be easy and fast.
The negotiation begins when the parties, one in front of the other, show a will to buy/sell the property. If you have reached this stage, it is time to lay your own cards on the table, without hiding important details for the purchase process: if the buyer really wants to buy and the seller really wants to sell, whatever the problem is, a solution may be found. But this can happen only if the critical details are clear for both parties.
So, the first rule is: be transparent.
In order to give the parties the time needed for verifications, a couple of months basically, it is necessary to sign an exclusivity agreement: the agreement will bind the seller not to undertake negotiations with other people, while the potential purchaser is doing a due diligence; at the same time, it binds the purchaser not to divulge confidential details about the property..
The seller may ask the buyer proof of actual financial capabilities: don’t take it as a personal matter, but the seller, probably doesn’t know you or your company, so he doesn’t know who’s sitting in front of him asking for his property. Be polite and show that you have nothing to hide!
The documents, which need to be checked are:
1- Financial Statements
The first necessary documentation is the financial statement of the company. It is better to find at least the last 5 years through the chamber of commerce verifying their actual store.
The financial statements provide important elements for determining the price of the hotel.
It often happens that the financial statement is “spoilt” by other side activities of the entrepreneur, which do not properly represent the core business. It is clear that these parts should be set aaside to make us understand the nature of the typical management.
2- Management Software
In addition to the official documents the PMS will help us define: market location, occupancy, rates and others, so that you can understand if the hotel may increase its business or not.
3- Due Diligence & Stakeholders
In order to make stakeholders happy, you may need to set two types of due diligence: the first questioning the fiscal aspects; the second asking the suppliers if they have credits.
In both cases, however, these elements are not too critical, it become if you discover them later. In the presence of criticality in this sense, these amoounts can be deducted from the price. The verification of the amounts due to banks and other lenders, if any, is the next step.
In case the operation involves more than one buyer or the owner is selling a portion of the share capital,the terms of governance, which regulate the relations between the partners, must be drawn up.
If you are going to keep some people from the staff you’d better fix up interviews while doing the due diligence.
If you are planning to buy a hotel, this is not the “Bible of hotel purchase”! There are many more details to see and consider, but this is still a good starting point!