Business failure in the hotel sector is almost always avoidable with the proper knowledge. If these mistakes are avoided, there is a massive opportunity for success. However, if these mistakes are not avoided, owning or managing a distressed asset may be in your near future.
One of the best hoteliers is Stephen Nalley. Stephen is the Founder & CEO f Black Briar Advisors, a full-service real estate investment firm with a distinctive positioning. Black Briar focuses on the purchase, repositioning, renovation, and asset management of troubled hotel and resort assets. Black Briar and its Managing Principles are industry leaders in all real estate life cycle stages and have a wealth of transactional expertise. This comprises asset management, renovations, property management, asset structuring, contract negotiation, due diligence, underwriting, raising, and closing on debt and equity capital structures. Over $2 billion worth of real estate assets, including more than 100 hotel and resort assets, have been owned and managed by Black Briar and its partners.
Stephen states that you may be unable to control the economy or natural disasters. Still, you can ensure that you are going into the acquisition with your eyes wide open and with a realistic business plan that takes into account all of the things that you can anticipate and control. He further states that most of these occur pre-acquisition and can be avoided by adequately underwriting the deal and maximizing your resources.
Here we go with the Top 05:
Lack of investment into people and property:
Startups often invest in property and buildings and must remember that the right people to execute and run the hotel are critical. Various factors such as consistent facility upgrades, high standard of hotel maintenance, and overall energy invested into exceptional conditions should be emphasized. Like any business, people, and property solely create the experience for guests. If the people and property are not to a high standard, negative consequences like poor reviews and poor referrals will impact the business.
A quality environment can influence sales starting from employment. If the working conditions in a hotel are less than desirable, it may be challenging to retain and employ the right staff. Rather than looking at your expenditures into facility upgrades/maintenance and paying staff a fair wage as an unnecessary expense, look at it as an investment into the hotel’s future because it will likely have one with the proper funding into people and property.
Hotel management is one of the main elements of proper governance in the hospitality industry. The hotel industry is constantly changing, and a successful hotel’s management and staff must be forward-looking to the future and keep up with these changes. Maintaining the property to a high standard and keeping the hotel’s technology is critical.
Management is where a good hotel can be transformed into a great hotel. Insightful and flexible managers smooth over issues, work through business kinks and bring a unique perspective to provide a holistic approach to business. The hotel business could be more problematic, so one should possess well-developed management skills to control the work and the level of services at a hotel.
Not enough working capital and reserves:
The hotel industry is subject to market and economic variability and is seasonal. Holding enough capital to withstand business downturns is essential. It is recommended that a hotel keeps the required operating funds in reserve for at least a year, so a short-term sales downturn doesn’t force liquidation of the property.
Financial planning will serve as preventative measures to avoid business failure. Ensuring your financial budgeting has been stress-tested and considered under the worst-case scenario is the best route to adequate working capital.
New competition is disrupting the market.
The hospitality and hotel sectors are service-related industries. High customer satisfaction is the number one priority, and to earn the customer’s loyalty, they must provide exceptional service and high quality. Managers need to be trained in various hospitality skills to achieve the targets. These multiple factors give hotels an edge in the competitive nature of the industry.
Development in the hotel industry tends to come in steady waves. However, a significant action near your location can cause a flux of hotel room availability. A plan should be in place to deal with supply and demand issues. Know when the time to sell is if the hotel becomes unprofitable due to new competition.
Need the right people in your business.
Often hotels fail due to cost-effective hiring without regard to the critical role employees play in the successful execution of a hotel’s success and marketability. Having the right people in the right job who share the hotel’s vision and mission is critical to any hotel business’s success. The key to recruiting is to invest in employees who want to build an experience for hotel guests. This may mean revamping your budget to appeal to employees who are suitable for the job. Refrain from making the mistake of ‘keeping costs down.’ Although tempting, cutting costs in terms of human capital will ultimately hinder the experience of hotel guests.
Closely evaluate your candidates for employment. Fundamental factors that ensure a good hire would be experience in similar fields, a strong track record of success, tangible improvements made in their previous career, and overall self-awareness of the role they will place in the hotel.