Bayview Hotel managing director Trevor Kane with Christopher Murray from Barclays
By Michael Saul, Barclays Head of Hospitality and Leisure
There are great opportunities today for small to medium-sized hotel businesses, whether individual hotels or small groups of them, to use finance to grow. Interest rates are historically low and banks are keen to provide lending that helps businesses expand.
Of course, the availability of finance isn’t at levels seen just before the 2008 financial crisis – there are better controls today. But for well-run businesses there is certainly plenty of funding available.
That is a good thing: stopping businesses taking on loans they may struggle to repay and helping avoid an overheated economy, but ensuring there is money on tap for businesses that can use it to invest.
However, it’s vital that any business that wants to use finance to expand and grow, investing in its business or perhaps physically expanding it, approaches this in the right way. What does that mean, and what advice would we give individual hotel businesses or small groups of hotels in this situation?
First, it’s vital that any company has a good business plan and a clear vision. You need to understand what you will do with the money, and how this will benefit this business. This includes having some financial projections that need not be complex, but must be thought-through and realistic.
You also need to be very clear about the customers you’re appealing to. For example, in my experience, boutique hotels tend to be niche, and need to understand what their niche is. Hoteliers also need to be very clear about their local competition, and how they’re going to succeed in the face of it.
With a good business plan in place, you also need to understand what I call distribution: how you are going to reach your market and attract customers. Things like social media and marketing can play a critical role, and can be tailored to match the resources of the business.
Building advocacy can be particularly effective. Creating a fan base who will not just visit repeatedly but also recommend the hotel can be extremely powerful, and also very cost effective.
It’s also important to understand why your hotel is being visited. Is it providing accommodation for people travelling for work, or being booked for holidays or short breaks?
Successful individual hotels and small groups also tend to have a very good understanding of their locality. For example, outstanding hotels aimed at leisure customers usually have a superb understanding of the importance of local events or attractions, and how to capitalise on them, reaching out to customers or carefully meeting their needs.
When pitching for finance, it’s also vital to perform well and make a compelling case for your business. If you go in half-hearted, you’re much less likely to succeed, even with a solid plan.
It’s also worth touching on the importance of the relationship between the lender and the hotelier. In my view, the bank’s relationship manager and the borrower need almost a partner approach. This can make a tremendous difference, both in securing finance and in having discussions about the options and how they will work. This can be tremendously valuable for hotel owners.
It is also critical that there is a no-surprise mentality in the relationship, with the sharing of commercial information such as booking levels. Having this kind of relationship makes it much stronger, and able to deal with bad weather as well as good.
We also suggest that hotel owners think carefully about how finance will change their business, and what it will mean for how they work. This is particularly so for owners of single hotels considering buying another. The management challenge is different. It is more complicated running several hotels, and owners must understand that they cannot be in all locations at once, making it vital to have the right team and management structure.
Also, the priorities of the business start to change. Brand becomes more important, and things like buying strategies become more significant. A larger business should be able to negotiate better prices on things like food and drinks.
We tend to find that some people like, and are suited to, such a change in the business, while others find it very difficult. Owners need to think hard about what they want, and their strengths and weaknesses and how they will maximise and reinforce these, respectively.
It’s also worth flagging a mistake to avoid. It’s important that owners request an appropriate amount of funding. If the request is too large, it can call into question the owner’s judgement. After all, if too much funding is granted, it could later threaten the business. If hoteliers want a sense of what’s realistic, a conversation with their banking relationship manager is a very good place to start.
We see finance as an enabler, there to help talented business people grow their companies. Used the right way, it can transform a business, not only benefiting the owners but also customers and the wider economy, too.