Close

Choose your country

Or view all businesses for sale

Worldwide

Sell Your Business
Blue sea with pool

Top tips for investing in the hospitality sector

Peter Bruil offers insights into entering the hospitality industry and gives advice to non-residents who are looking to buy a South African business

Peter Bruil is the director of Pam Golding Lodges and Guesthouses based in Cape Town. We spoke to him about what potential buyers should be looking for when entering the hospitality industry.

BusinessesForSale: What should you look out for when appraising hotels for sale?

Peter Bruil: Mr. Hilton stated that three factors were important in the hospitality industry, namely: location, location and location!

South Africa is no different from other parts of the world when it comes to common sense in business decision-making. Apart from the obvious choice of where a hotel or guest house is located, one should research the parameters that go hand in hand with it.

These areas include:

  • Which markets are serviced from, or attracted by, that location
  • The levels of occupancy and room rates that can be achieved
  • What future developments are envisaged for the environment of the location

From a business point of view the most important factors are:

Location 

Ideally, the guest house will be close to tourist attractions or business areas if one caters for the corporate traveler. A good location is generally important for property, as it will protect your investment in the future.

Also look at its potential for development. You may want to increase your capacity at a later stage as your business becomes more successful.

Size

It makes little difference whether you have four or ten rooms in terms of management. However, with ten rooms you obviously have much more income to cover the same costs, as costs in the guesthouse business are largely fixed (wages, bond, insurances, marketing, maintenance etc).

Marketing

Good marketing is the key to good occupancy and thus good profits. Points to consider are: a good website with links to search engines, advertising in the right booklets/tourist guides and contacts with tour operators and travel agents.

Make sure you know what type of market you are going for and advertise accordingly. It's easy to spend a fortune on marketing and not get anywhere, so make sure you target the right audience!

There are many other areas that should be investigated and are typically part of any business plan. A reliable and knowledgeable broker/broking company can add considerable value to this process and provide insights and local information.

It goes without saying that Pam Golding Lodges and Guesthouses is the right partner for any buyer who wishes to make an investment in the hospitality industry in South Africa if you are looking for game lodges, guesthouses and boutique hotels up to 45 rooms in size. For larger hotel transactions our mother company, Pam Golding Hotels, can also assist. 

Pam Golding Hospitality further has a separate company dealing with consulting to the hospitality industry, carrying out feasibility and viability studies, procurement and research assignments.

BFS: How hard is it for an overseas buyer get into the sector?

PB: We have always found that non-residents are interested and succeed well in hospitality ventures. Not only is the general level of expertise quite high, but often owners are well-educated with contacts overseas.

Hospitality is a labour-intensive industry, so the need to employ five South African citizens can quite quickly be met. Hospitality means dealing with people and that is in itself also attractive.

BFS: What should buyers look for in a potential investment within this sector?

PB: Every investment cannot be seen in isolation from the associated risk inherent to the location. Investment should be considered in its broadest terms, hence not only in financial returns but certainly also in quality of life.

The hospitality sector is not rocket science. Common sense combined with a healthy work appetite and a good idea of how guests would like to be treated (just reflect on this yourself) – all this will get you through operational issues successfully.

If your location is popular, your corresponding marketing to client groups will automatically follow. Our company can assist 'starters' with the operational and marketing related positioning of a guest house/hotel.

Every investor should always consider the return and the associated risk. The more demand there is for a location, the lower the risk, but the price will be higher.

If return on investment is key for an investor, you will most likely end up in a location that isn't sought-after, characterized by less demand. This will give you a high return, but will also be high risk.

I believe a business buyer should always consider the location and how established the business is.

BFS: How recession-proof is the sector?

PB: In times of recession you might lose some overseas leisure, but it also means that more South African clients choose to have a holiday in their own country. Businesses and organisations will always have a need to travel and are less seasonally-bound than tourists, and will provide business all-year round.

If you enjoyed this article, sign up for a *free* BusinessesForSale.com account to receive the latest small business advice, features, videos and listings directly to your inbox!



Melanie Luff

About the author

Melanie Luff is an in-house journalist and writes for all titles in the Dynamis stable including BusinessesForSale.com, FranchiseSales.com and PropertySales.com as well as other industry publications.

@Be_TheBoss

Comments

Are you a Business Owner?

Set up your Private Seller Account and create your listing today

Get Started Here

Are you a Business Broker?

Set up your BrokerWeb Account and list multiple businesses

Get Started Here