As independent boutique hotel owners, we sometimes require external investors to ensure we can achieve our business goals of continuously enhancing the customer experience through expansion, refurbishment and development.
Securing this investment can be a precarious and confusing minefield when first navigating the process, with many hurdles and barriers to entry. However, with the UK’s inbound tourism expected to benefit from leaving the EU and RevPAR forecasted for strong growth (Christie & Co, 2018), many investors are looking for dependable opportunities to support, making it an advantageous time to seek out financial backing for UK operators.
Read on to find out our five steps to help secure investment for your hotel.
The first step to gaining investment is making contact with an investor. This could either be with someone you’ve worked with before, or through a brokerage. The latter provides a service for sourcing contacts and matching investment seekers with suitable individuals or organisations. It’s preferable to find specialists in your industry who can provide insight and consultancy in addition to financial offerings.
Once potential investors have been sourced, meet with them to discuss business goals and cultures of working. It’s beneficial to match ethos as much as credentials to decide what fits – the partnership needs to work for you as much as it works for them. As a boutique hotel we prefer to work with small, niche investors rather than big corporates as we receive a more personal and specialist service with added flexibility. They are also more likely to provide additional benefits such as advice on your project and insider knowledge of benchmarking data.
Show off your best assets
In order to initially convince potential investors that you are worth their time, you must have an asset worth investing in. The property value of your hotel and the worth of your business will both be considered, with between 50%- 70% of your assets potentially being returned in investment. Ensuring your business is in good health is also key, with no cash flow issues or overbearing debts that will make investors run a mile. They will inevitably have more confidence in superior operators and therefore be more likely to invest larger sums of money if the perceived risk is low.
Demonstrate your vision
Articulating your vision eloquently will help exhibit your worth and what you plan on using the money for if you receive it. Following a clear description of why, what and how will ensure you cover all bases. Firstly, communicating why you are seeking this investment will provide additional background to your plans, for example because of demand outstripping supply for rooms, or tired interiors, or wanting to diversify your product offering. Detailing exactly what you are planning on investing in also needs to be highly comprehensive, such as not just expressing that you would like to refurbish your restaurant or introduce a new EPOS system but providing supplier names or architectural plans to add depth to your pitch. Finally, how you plan on implementing the changes that will come about following investment should be expressed, through physical plans and commonly used a mini business plan.
Return on investment
Arguably the most important reason for why an investor should believe in you is by demonstrating return on investment. By displaying a proven track record of a stable financial record and the paying back of any previous loans will establish trust in your capabilities and judgement.
If you can show a historical record of being reliable, most investors will be looking for a three year positive track record, you are also more likely to receive one large investment instead of having to request smaller sums of money, which would result in you having to carry out your planned project in steps, which is more costly.
In addition, clearly showing projections of estimated return on investment is also essential. Analysing benchmarking figures such as if RevPAR performance will be strong enough to support development will suggest not only financial acumen but industry insight.
Being as truthful and realistic with your projections as possible is fundamental to convincing your potential investor to invest with you. Overinflating numbers to make your proposition seem more appealing may be tempting, but someone who has a solid financial understanding will see straight through your unfeasible projections and evidently won’t lend you money. If they do decide to invest and you don’t hit the targets you’ve assured them you will, then you may face immense legal and reputational consequences, irreversibly damaging your brand and potentially placing your hotel in danger of going bust.
In conclusion, demonstrating vision, trust, reliability and preparation are all vital for securing substantial investment in your hotel. By overstretching yourself or not having foresight, you may lose out on the opportunity to add unintelligible benefits to your business and damage your reputation in the process, so building a strong and communicative rapport with your investor will ensure miscommunication is avoided and that you build a longstanding and dependable partnership.
By Nick Davies, co-owner of The Cottage in the Wood