In one of our many productive meetings at Love Finance HQ we were looking at new topics and sectors we could look into, to offer advice and expertise. We decided to look at hotels and how implementing finance strategies into your hotel business could help boost everything from sales to people through the door. We’ve bundled together both of our blogs on hotel finance from 2017, into one bumper new year pack… everything you want to know about hotel refurbishments and finance all in one place, you’re welcome!
Why should I commit to a refurbishment?
There are lots of reason why you should consider a refurbishment, but ultimately, only you know when the time is right. Experts say you should consider refurbing your hotel every 5-7 years, the practical acid test is when a customer says to you “you could do with a lick of paint in here” - that’s when you know it's time to get the Dulex out.
Just some of the 5-star benefits:
It may not seem like the most obvious benefit, but giving your hotel a new lick of paint really can boost sales and increase productivity. Now, by a lick of paint, I don't just mean adorning your walls in fuschia, I’m talking a full refurb. New reception desks, new restaurant area, new rooms, this new use of space plus a knack for advertising helps increase productivity by offering potential consumers a brand new. As well as this, it stands to reason that if your hotel looks great then your employees are going to be more productive because the space around them suits their mindset and their way of working.
With companies clamouring for every ounce of space in crowded big cities, it's vital that when it comes to refurbishing, you make space a high priority. There are two pretty big benefits of freeing up space, firstly, as an expanding hotel, it's always useful to have space in your hotel in case you want to take on staff and don’t want to have to wait around to find somewhere to put them. Having space means you can expand quicker and for less money. Secondly, making the most of the space can make it feel like a brand new hotel like you’ve moved premises, when in reality you’ve just had a refresh and a rethink and are now making the absolute most out of your hotel.
A bright, modern, inviting hotel space has the ability to sell a business to a potential applicant before he or she has even spoken to someone. All businesses know that hiring the right people is the most important thing to get right if they want to succeed, so making sure the place they’re going to be working looks as best as it can do (you get the picture - exposed brick, Einstein bulbs, ‘reclaimed’ wood- the sorta thing you see in a coffee shop) is paramount. Get the hotel aesthetic sorted and watch the talent roll on in.
Express your brand
Refurbing can sound like a dull, annoying thing to have to do but it can be fun… promise, especially if you’re involved in the process. Refurbing allows you to put your ideas and feelings about your hotel right into the walls. Use this opportunity to express your brand through your work settings. Want to come across as a fun and #edgy hotel? Then design a refurb that matches it - simples! It doesn't have to be expensive either, there are loads of clever ways of adding a touch of cool to your hotel without it costing the earth!
Whilst researching this current series of blogs, we came up with a few top tips for you to follow when considering a hotel refurbishment, these are just a few if you can think of any tips then, by all means, let us know!
The devil is in the detail
Once you’ve chosen your refurbishment contractor make sure they give you a detailed cost plan including all the work and price of each individual unit. Never assume anything, folks.
There’s no Controlling Manager Who Makes All The Decision, in team
You’ve got to make sure that everyone in your management team is actively involved in the decision-making process from groundsman to head concierge person. Going ahead and making decisions about things that will affect members of staff always ends in tears.
Fail to prepare, prepare to fail
Make sure you’ve set aside a percentage of your total budget for contingency, most hotel folks set aside around 5%, to be used in case of an emergency. This is essential, especially if your hotel is on the older side.
Be clear on costs
Don’t have your head in the clouds before you start splurging on refurbishments. Have a realistic idea of your refurbishment budget and how long you’re going to be paying it back. With today’s unpredictable economy it's vital you know all the costs, also, resist the temptation to let your heart rule your head otherwise things really do start to spiral outta control.
Make time your friend
6 months. Yes, 6 months, that’s about how long you should give yourself to plan your refurbishment. This gives you time to tick every box i.e. interview architects, designers, contractors and suppliers, it’ll also allow time for people involved to draw up plans and survey your building.
So you know why you should be financing a refurb and some of the many benefits which is great and all… I’m sure you’re left with a load of questions about the nitty gritty of a financing. Well, scroll down for answers to some of the most commonly asked questions about refurbing your hotel and about finance in general.
Without further ado, here are the questions you should be asking!
- As the owner of my swanky hotel, am I personally responsible for this debt?
As a general rule, yes you are. However, once things get going and you’ve got some confirmed profitability, a decent amount of liquidity inside the company, some unencumbered assets and a good credit history - owners guarantees become less essential to lenders.
- Must the new debt be secured with my hotel and/or any personal assets other than the financed equipment itself?
Maybe, sometimes. It's often a requirement but doesn't have to be. The strength of your own credit and your hotel's past successes do feature. Keep in mind, whilst bank loans are often approved based on the value of all business assets and equipment leases tend to be secured only by assets included in the lease.
- What if my business fails before the equipment debt is paid off?! Will I still owe the entire balance or will the equipment’s resale value cover what is owed?
All we’ll say is, be prepared to pay off equipment loans and leases in full. If the equipment is worth more than owed, sell it after paying off the debt, not before! Don't make selling the equipment your financiers responsibility.
- If my hotel exceeds all my wildest dreams and is the most popular, hippest place to be, will I qualify for additional financing if I wanted to expand again?
Hold your horses! You may qualify. Telling people that you have a great business is one thing, but you’ve gotta prove that you have a great business with good payment histories and profitable business concepts - all this will make life easier. If lenders can see that you have steady, profitable growth then additional financing gets easier and easier.
- Should I expect added fees, interest assessments and late penalties when the loan or lease payments are not made on time?
All financing contracts generally contain fees, penalties and added interest if you don’t live up the payment terms. This is pretty obvious and potentially quite expensive. Take missed/late payments seriously as it will affect your personal credit score.
Financing is a great way to expand your business and make your money work for you, but it's important to have a full picture before you commit to a refurbishment.
Got any more questions? No worries, just pick up the phone and we’ll happily answer any queries you might have!