{"id":943,"date":"2019-04-11T16:17:14","date_gmt":"2019-04-11T15:17:14","guid":{"rendered":"http:\/\/www.withcreative.co.uk\/dev\/funding-your-next-move-as-an-independent-hotelier\/"},"modified":"2021-01-14T23:35:27","modified_gmt":"2021-01-14T23:35:27","slug":"funding-your-next-move-as-an-independent-hotelier","status":"publish","type":"post","link":"https:\/\/dev.withcreative.co.uk\/langricks\/funding-your-next-move-as-an-independent-hotelier\/","title":{"rendered":"FUNDING YOUR NEXT MOVE AS AN INDEPENDENT HOTELIER"},"content":{"rendered":"

According the\u00a0UK Hotels Forecast 2019<\/a>\u00a0from PWC the rise in demand from leisure and business travellers has been good news for the hotel industry in recent years. So how to capitalise and when to invest? Chartered Accountant Chris Langrick, who specialises in advising the independent hotel sector, gives his thoughts on how to fund a capital project.<\/em><\/p>\n

The investment picture in general is pretty buoyant for the sector so big capital projects are seriously well funded. Global property adviser\u00a0Knight Frank<\/a>\u00a0cites a 50% increase in international interest in the last 12 months with overseas buyers responsible for \u00a34.9bn invested into the UK hotel market \u2013 both London and the regions enjoying an equal share of the spoils.So plenty of overseas financial muscle but what about an independent or group of independents wanting to get a capital project off the ground?Depending on the level of investment required, there are several routes to go.\u00a0\u00a0These include using trading cash flow and profits, a loan from the bank or other lender and equity investment.<\/p>\n

Maximising cash for reinvestment<\/strong><\/h2>\n

Hotels are simple businesses, but with many moving parts.\u00a0 With strong controls across all areas, a hotel should be able to generate a healthy profit for reinvestment into the business.\u00a0 However, this is on the basis that the initial debt leverage on acquisition was appropriate and that the original deal was not over stretched.<\/p>\n

Relevant management information, detailed financial projections and key performance indicators (KPIs) should allow this to happen.\u00a0 There are certain KPIs\u00a0that are well talked about in the hotel industry and there is a lot of available data and resources to allow a hotel to benchmark itself, such as\u00a0<\/a>occupancy rates, average room rate, food margins, beverage margins, payroll margins \u2013 the list goes on.<\/p>\n

If a property is not hitting these then there is a lost opportunity to maximise cash for reinvestment.\u00a0 This becomes a catch 22 scenario. If you cannot keep reinvesting into a property, rooms and common areas will become tired and the ability to maximise room rate will diminish as will profits and potential cash generated.<\/p>\n

So an ongoing strategic funding plan, supported from trading cash flow and profits is an ideal scenario.<\/p>\n

Bank debt<\/strong><\/h2>\n

If the property has sufficient equity and there is not over reliance on bank lending, banks are keen to lend for capital investment if the business can show a clear ability to repay this debt and leverage criteria work for the lender.<\/p>\n

Owners\u00a0of a B&B and self-catering business in Whittlesey near Peterborough did just that, increasing the size of their holiday lets, after securing six-figure funding from Natwest. As reported in\u00a0Boutique Hotelier<\/a>\u00a0Pete and Anita Boardman from Highfields Holidays, have used a \u00a3440k funding package from NatWest to purchase and refurbish an existing on-site bungalow into three-bedroom B&B accommodation.<\/p>\n

Equity investment<\/strong><\/h2>\n

For a portfolio of hotels or larger properties, equity investment could be an option, but this is often the most expensive way of raising finance.\u00a0Hallmark opted for a buy and build strategy, backed by\u00a0Palatine Private Equity and Bridgepoint Development Capital<\/a>\u00a0which was successfully executed a few years ago, delivering healthy returns for investors and establishing the Hallmark brand as a strong four-star hotel group employing 600 staff.<\/p>\n

Common accountancy issues in hotel sector<\/strong><\/h2>\n

Langricks provides specialist\u00a0financial management services<\/a>\u00a0to the hotel sector helping clients to get better control of a range of common accountancy issues including: reconciliation of guest ledger, corporate ledger and deposits to the Property Management System (PMS); understanding the recoverability of the debtors within the PMS; reconciling credit card receipts that have not yet cleared the bank; recording and managing stock; understanding of prepayments and accruals \u2013 this can have a significant impact on profit; reconciling the payroll liabilities to the current month payroll and the VAT outstanding.<\/p>\n