Negotiating post-closing price modifications can safeguard and increase the value of real estate. Ambiguity makes potential problems with post-closing price adjustments worse, particularly in specific markets. Therefore, planning and strategy are vital.
Be strategic from the beginning and appoint independent auditors or asset managers who are familiar with handling potential pressure spots and can give a solid foundation for future hotel asset development in reporting, monitoring, and control.
Here are some pointers to help you increase the value of your hotel asset in post-closing negotiations:
Buyer to Drive the Critical True-Up Period
- The buyer and seller must ensure that the seller has sufficient accruals for all expenditures incurred but not yet invoiced in the period before the transaction. Examine the accounts receivable for old overdue invoices and ensure that an appropriate insufficient debt accrual has been established.
- Make sure that there are no outstanding balances on a transit account and that no cash is left uncollected.
Align Corporate Strategies with the Operational Staff of the Hotel
- Examine the present hotel operational team to see if it meets the new standards. If not, ensure that the vendor cancels the contracts of those you don’t wish to keep.
- Check to see if the planned budget includes the modifications the buyer wishes to make.
Maximize Profit Opportunities
- Examine the entire cycle of invoices for three months with the finance directors, and enquire about all payments/contracts.
- Ensure that adequate controls are in place to promote high productivity and, if possible, minimize workforce.
- Check that a complete P&L is in place with the correct ratios, allowing you to spot any areas for improvement immediately.
Establish Complete Control Over the Cash Flow
- Ensure that an extensive and complete financial plan is prepared, including all future payments, and that no further supply of funds is required.
- Establish the essential rules and procedures to ensure timely receipt of accounts receivable payments.
- Confirm that any debts reported in the seller’s municipal ledger are current, not old, outstanding ones.
- To avoid errors, appropriately calculate future committed payments (i.e., loans, works, etc.) and verify they are included in the cash flow before submitting them to the board of the new ownership company.
If the acquisition is a buyout, it will be necessary to review the existing bank accounts and adjust them to match those of the new company. This can be accomplished by transferring funds from one account to another or by adjusting balances so there are no discrepancies between what was owed and what has been collected. The final step in this process is for all bank statements to be sent back to their respective banks for approval before being forwarded.
CLIC Can Help Increase Your Hotel Asset Value
Are you a hotel owner and want professional advice to improve your hotel asset value? Attend our Hotel Investment conference in California or contact our team today at California Lodging Investment Conference.