Finance

Creating the Hospitality Business of Your Dreams in 30mins/day

We fail because we stop the quest to keep learning. It’s a quest for personal growth. We stop seeing the latest setback as something that can be overcome. We stop being willing to change.
  • Blog

We fail because we stop the quest to keep learning. It’s a quest for personal growth. We stop seeing the latest setback as something that can be overcome. We stop being willing to change.

Change. It’s a word we all hate. But the hospitality and leisure industries are always changing, especially with technology and online. So, make it your choice to adapt to change or slowly be left behind.

For example, are you ahead of the game with this change?

 

 

I have always been fascinated with business success stories. What makes a successful business tick? What’s unique about how they do things? How are they making it work while others around them fail?

I have started more than a dozen businesses, not because I’m awesome, but because initially none of them worked! The main reason they didn’t work was because of me, not the business.

My first serious business started at age 18 with what appeared at the time as a high level and sophisticated finance technique. It involved maxing out a handful of ill-obtained credit cards as my ‘working capital.’ This quickly became ‘unworking capital’ as the business flopped.

I had no coping mechanism to deal with this other than to ignore it, work hard, and get drunk on weekends with schoolmates as a way to relieve stress (funnily this still works!).

I failed repeatedly for almost 10 years before my first success.

When I look back now, the number one thing that helped me make the changes I needed to succeed was…reading!

 

 

I had very little money at the time, so I would go to the local library and read motivational books for hours on end. I would enter the library seeing other kids, uni students on the grass in front of the library laughing and looking remarkably happy. I was envious of their lightheartedness and downhearted about my own struggles.

I left the library every time feeling like a warrior, ready for battle, proud and excited about what I was doing.

Such is the power of positive words.

I devoured Tony Robbin’s CD cassette tapes obtained from a friend, continued my reading, sought mentors, and kicked into a different gear. I continued to fail, but each time, I kept learning, kept getting motivated, and stayed in the game. I had discovered other people’s success stories. I saw enough similarities in their stories with mine, and I was convinced it was just a matter of time, and it was.

 

Are you facing challenges in growing your business? Have you lost some of the motivation you had when you originally started your hospitality business?

 

The wrong location, wrong staff, wrong menu, wrong room rates, wrong marketing strategy, etc. play a part toward a lack of success, but these are all fixable.

For the next 30 days, I challenge you to spend at least 30 minutes every day, learning. I find the best time to do this is in the morning. Put the phone to flight mode, emails to ‘work offline’ and watch the changes in you that will create positive changes in your business.

Here’s five tips to keep you on track:

  1. Read. What area of your personal life or business is holding you back? Search for books by people who have already overcome the same challenge. (If you don’t have time to read, go to Audible and download a good audio book to listen to while you drive.)
  2. Find a mentor. Do you know someone you would like to emulate? You don’t need to ask them to be your mentor. Just go for a coffee and pick their brain. Most people are happy to help.
  3. Write your goals. Get focused on what you really want and commit it to paper. Review your list of goals regularly.
  4. Create a vision board. My wife has one, and it has a picture of Vegas on it. Guess where I booked flights to the other night?
  5. Listen to podcasts! There are so many great podcasts. Turn off the talk back radio as another disgruntled caller complains about rising gas prices and switch into something powerful. Download the podcast app to your mobile phone. A few suggestions: The Kick Ass Life with David Wood, The Tim Ferris Show, Upside Hospitality & Leisure Business Podcast, Profitable Hospitality Podcast.

 

These are things I try and do to stay focused. Whenever I deviate (often!), progress seems to halt. But when I get back to these five things, I perform far better and feel better.

The top hospitality business owners I have met already do many of these things daily.

Commit 30 minutes a day every day for the next month, and I would love to hear from you about any great books, podcasts, etc. that you discover.

How to Save $20,000 on your Hospitality Business

Money is a product just like anything else and sometimes the way things are priced doesn’t appear to make any sense.
  • Blog

Money is a product just like anything else and sometimes the way things are priced doesn’t appear to make any sense.

My local fruit and veg shop sells one avacodo for $3 yet another shop around the corner sells a bag of 8 for $5. Why?

Walk into any 7/11 and a small bottle of coke is only about 50c cheaper than its far taller cousin. Why?

 

How Sellers Set Prices


Well no doubt the costs involved (transport, packaging etc) form a big part of pricing but not all of it. The biggest factor is that once product providers work out the costs involved they then ask themselves, “How much can we charge and get away with?”

There is generally a tipping point for pricing before consumers say “No, that’s too expensive” and vote with their feet. The trick for most providers is finding the tipping point and edging up to it as close as possible without crossing the line.

 

How Banks Set Prices

 

Money is no different. Home loan rates are priced like the big bag of avocados whereas personal loans, overdrafts, credit cards, car finance etc are 50%, 100%… even 500% more expensive. Why?

No doubt there are a lot of factors in play such as risk to the lender, cost of providing the service etc. However, the tipping point on pricing for finance is quite unique to other industries as the lack of competition in Australian banking means our banks are some of the most profitable in the world.

The other reason banks get away with heightened prices is because people are time poor. We rarely sit down to work out what our loans are actually costing us.

 

A Case Study (saving $20K per year)

 

I recently helped restructure the finances for an awesome couple that own a small caravan park. Their residential investment property and the park were tied together with their bank. They had a relatively small loan against these properties yet for some reason they had a handful of credit cards, personal loans, overdraft and leasing products used to fund the growth of their business.

Had they accessed the equity in their properties they could have borrowed all the funds they needed at a very low price, but due to not getting the structure right, they are doing the equivalent of walking to 8 different fruit and veg shops and buying a single avocado! Their cash flow, profitability and stress levels have suffered as a result.

The restructure will save this small business about $20,000 per year. For their business that is the equivalent of about 250 overnight bookings a year.
If I was to walk into reception and tell the park owner that I was going to take the income from his next 250 bookings he would probably chase me out with a baseball bat. So why isn’t the same focus applied to getting the cost of your loans down and the structure right?

In many situations, especially when you have minimal equity, overdrafts, credit cards, cashflow lending etc with banks can be great tools to help you grow your business. However, if you have a lot of equity in your properties and are paying high rates on numerous small loans there is every chance you are being a great contributor to the wealth of a bank instead of yourself and your family.

Reviewing your structure might also help with asset protection, renewal risk, compliance costs and a bunch of other things that contribute to you business’ profitability.

Perhaps reach out to your accountant or a specialist to ensure you have your debts structured in a way that works best for you, not your bank.

 

Listen to our Mortgage Health Check Podcast.

 

3 Steps to Getting a Hospitality/Leisure Mortgage Loan Approved

I get a call a dozen times a week from an aspiring purchaser of a motel, pub, club, restaurant, golf course etc . The main question I field is, “I want to buy ---- . What do I need to get a mortgage?”
  • Blog

I get a call a dozen times a week from an aspiring purchaser of a motel, pub, club, restaurant, golf course...

The main question I field is, “I want to buy ---- . What do I need to get a mortgage?”

Well, in a nutshell, you need three things:

 

1. Sufficient Equity

 

A lender will only loan up to a certain amount on any hospitality or leisure property or business if all the borrower has as security is that property or business. This amount predominantly depends on the type of property or business being purchased. This ratio is commonly called the Loan to Value Ratio (LVR).

For example, when buying a motel a bank will typically lend up to a 70% LVR. That means, if the purchase price is $1M, the bank will lend $700K. For a pub business (excluding the property) however, banks are usually prepared to lend up to 50%.

Whatever you can’t get from the bank (as debt) you need to have as a deposit via cash or equity in another property. Some quick math around these figures will let you know if you have a sufficient deposit to buy the hospitality or leisure property or business you want.

If you can pull together this deposit then you are a third of the way there.

 

2. Sufficient Income

 

As you can imagine, lenders are only willing to lend to borrowers who can afford to make their repayments.  

When you apply for a loan, lenders determine what your annual repayments would be and compare these against any other borrowings you would have after the loan is advanced. They then add up the income from the business/property you are buying and any other ongoing income you can prove.

As a simple guide, in order to be approved, your income going forward should be approximately 1.5 times your expenses. That means for every $1.50 of income you earn, you spend $1.00 or less on expenses. If you can prove this then in my experience, 9 times out of 10, you are two-thirds the way there.

 

3. A Positive Track Record

 

From the day any Australian citizen starts a credit account, such as a phone bill, utility account, credit cards etc, we start accumulating a credit file. Lenders can access this when you apply for credit. You can get a copy of yours by visiting sites like http://www.mycreditfile.com.au/.

If you have a default or multiple defaults on this record it can make obtaining credit harder.

Lenders will also look at your loan/mortgage statements, bank statements etc to confirm that you have a positive track record.

The other factor that weighs in as far as your track record goes is your hospitality/leisure experience. Depending on the situation and what type of business you are buying, some lenders may require you to demonstrate that you have sufficient experience to successfully operate the business you hope to buy.

For example, if you are buying a large pub with 30 staff and have never poured a beer in your life then you will typically need to either have a larger deposit or prove to the lender how you will mitigate this risk eg. hiring a manager etc.

 

To find out more, take a listen to our podcast.

 

Why Not to Trust the Vendor’s Word When Purchasing a Hospitality Venue

I often speak with people purchasing pubs, motels and other such hospitality businesses. In most cases, the person I am speaking with is about to put down a large part, if not all, of their life's savings
  • Blog

Your Options When Purchasing

 

I often speak with people purchasing pubs, motels and other such hospitality businesses. In most cases, the person I am speaking with is about to put down a large part, if not all, of their life’s savings either through equity built up in their home or cash. When I ask them about the business, which shows little to no profit, they say, "Yeah, but the owner doesn’t show everything through his books to keep tax down so really he is making X"

“Righteo then…” I say.

“You have two options here. Option one. You roll the dice and hope the owner’s not full of bull sh*t. But if you’re going to do that you may as well have some fun with it. Go to Crown Casino, book out the penthouse suite, rent the luxury car you have always wanted, spend a week mingling with high-rollers in the Oaks room and take a good week or so blowing your cash in style. At least you’ll create some fun memories and can contribute to Jimmy Packers bank balance… he needs the support.”

[I try to say it as respectfully as possible, of course]

“That’s option one. Option two is WAKE UP! What if the vendor is playing ‘two for me, one for you’ with the taxman? Or, often closer to the point, chances are the claim is overstated and certainly not worth you risking your hard earned equity on.

 

What You Need From the Vendor

 

In my opinion, you should only ever pay for what can be verified on paper. When you buy a hospitality and leisure business, question all claims of income, expenses or profit made by the vendor or vendor agent. Ask yourself, would this claim stand up in trial?

Imagine you’re in court and you turn to the jury. “I bring to your attention recent Bank Statements, 12 months BAS statements, Tax Returns and 3 Years Financial Statements prepared by the defendant’s accountant. All clearly show the defendant (vendor) has earnt this income.” Now we are talking. As opposed to, “Ah, you see I had a coffee with the agent and I swear he told me it was doing $60,000 a month. He said that. I swear he did.” The penalty for the later approach… death by hospitality.

 

Why Clients Make Mistakes When Purchasing

 

I expect that many people don’t request the necessary information for a few reasons:

  1. Emotions get in the way. We are predominantly visual creatures. If something looks great… we want it! We can imagine our friends, families etc loving it. We picture ourselves quitting our job, living the dream and the emotional hook is too much to resist.
  2. We don’t know what to ask for.
  3. We don’t know if it is OK to ask for such things.
  4. Fear of missing that mythical ‘once in a lifetime’ opportunity.

 

I admire the clients I have worked with who deep into the purchase process – and already having invested time and money on a valuation, accounting fees etc – were completely willing to walk away if their due diligence didn’t check out. It’s probably no coincidence that they are the same people who seem to be more successful in their business.

The point is, good advice from accountants, lawyers, financial planners and industry specialists in the early stages of the purchase process often goes a long way.  

If you have ever seen the classic Australian movie Chopper starring Eric Bana (great movie, if you get nothing else from this blog, watch it!) you will recall the hilarious scene where Chopper rolls into Neville Bartos’ House. Neville in a state of panic repeatedly says “Cash? No cash here. Here? No cash here.” Remember those words and consider ignoring any claims made when determining what price to pay for a hospitality & leisure business. 

 

Ep 19: Dissecting a Profit & Loss Statement

Jeremy and Jon breakdown a Profit & Loss Statement, outlining the various components and how to assess a vendor's documents when making a purchase.
  • Podcasts

Ep 17: Mortgage Health Check

Jeremy and Jon talk about how a loan restructure can potentially reduce your monthly repayments and free up your cash flow.
  • Podcasts

Ep 15: How the Loan Process Works

Jeremy and Jon discuss what is involved in the commercial loan process from application through to settlement.
  • Podcasts

The Loan Process 101 (Video)

A 4-minute crash course on the 10 steps involved in obtaining a typical commercial loan.
  • Blog

Credit Rating Crash Course (Video)

A 3-minute crash course on how to find out if your credit rating is good enough to qualify for a commercial loan.
  • Blog

What You Need to Obtain a Loan (Video)

A 3-minute crash course on what you need to obtain a commercial loan so that you can purchase your own hospitality or leisure property.
  • Blog

Principal & Interest vs Interest Only (Video)

A 2-minute crash course on the difference between Principal & Interest and Interest Only Loans.
  • Blog

Valuations Crash Course (Video)

A 2-minute crash course explaining what valuations are, why you need one and how long they typically take.
  • Blog

Mortgage Repayment Calculator

Determine your weekly and monthly repayments and interest paid.
  • Calculators

Ep 14: Home Loans - A Lender's Perspective

Credit Manager, Matt Rae, from Iden Group offers insider advice on Iden product features, including their offset account, line of credit, split loans, online banking and more.
  • Podcasts

Business Plan

Get started on your business plan. Download our free custom template.
  • Templates

Click to download.

 

How to Finance a Hospitality Venue

In order to obtain a loan to purchase a hospitality venue you must have sufficient equity and sufficient income.
  • Blog

Sufficient Equity

In order to obtain a loan to purchase a hospitality venue you first must have sufficient equity to fund the difference between the purchase price (plus costs) and the amount that you can borrow. A lender will only lend so much against any security (property or business) on a stand-alone basis. This ratio is referred to as the loan-to-value-ratio (LVR).

Example: If a lender lends $6 on a property valued at $10 then that’s a 60% LVR.

 

Funding the Shortfall?

Let’s assume a lender is willing to lend 60% of the purchase price. How do you make up the shortfall? There are two ways:
1) Equity: make up the difference with money from your savings, a gift, proceeds from the sale of a property etc.
2) Debt: if you don’t have enough cash to fund the deposit then you may have lendable equity in another property such as your home or an investment.

Example: The purchase price of a caravan park is $10. The lender offers a 60% LVR ($6). Thus, you need $4 plus purchase costs (stamp duty etc) to buy the caravan park. Let’s assume that your home/investment property is worth $10 and has an existing loan of $3. Let’s also assume that the maximum LVR on a house without lender’s mortgage insurance is 80% ($8). A solution to gain the approximate $4 shortfall for the caravan park would be to refinance your home loan. So you would add the $4 shortfall to your existing home loan of $3. You now have a $7 home loan (70% LVR) and the funds required to purchase the caravan park.

 

Sufficient Income

Let’s say you have sufficient equity to contribute to the purchase of your hospitality venue. We now need to show the lender that you have (or will have) sufficient income to cover your current and proposed loans/liabilities. As a general rule, a lender will total up your current loan commitments with the proposed loan repayments and add an allowance for living costs, and then compare this against your income. In most cases, a borrower must have at least 1.5 to 2 times the amount of income to proposed interest expenses. This is referred to as a ‘serviceability ratio’.

Example:
• You are buying a caravan park for $1,000,000
• You require a $600,000 loan to make the purchase
• The caravan park has a net profit (after addbacks) of $130,000 pa
• You are currently earning $80,000 pa (but you are quitting to run the caravan park)
• Your partner earns $70,000 pa (and will keep working)
• The only other loan you have is an investment property for $500,000 at 6% (rental income is $15,000 pa)
• Your living expenses are estimated at $20,000 pa


Based on the above example, on an interest only basis, a lender is likely to look at the figures like this:

Income

Caravan park net profit = $130,000 pa (net profit + allowable addbacks)
Personal income  = $0 (as you will no longer be working)
Partner’s income = $70,000 (if they have a beneficial interest in the purchase)
Investment property income = $12,000 (lenders typically use 80% of gross rent)
Total = $130,000 + $70,000 + $12,000 = $212,000

Expenses
Living expenses = $20,000 (each lender has their own calculator for estimating costs)
Investment property loan = $40,000 (stressed at 8%)
Proposed loan = 48,000 (stressed at 8% interest only*)
*some lenders use principal and interest payments
Total = $20,000 + $40,000 + $48,000 = $108,000

Serviceability Ratio = Income / Expenses = 212,000/108,000 = 1.96

(Depending on the LVR and other factors, this scenario would potentially be fundable as it is above the minimum ratio of 1.5 times)

 

Home Loan vs Hospitality Venue Loan

If you have ever purchased a home or residential investment property, you may be aware that lenders will lend as much as a 95% LVR. This is because residential loans typically require borrowers to purchase mortgage insurance on loans greater than a 80% LVR. Mortgage insurance isn’t available on commercial properties, thus, lenders typically don’t lend more than a 75% LVR on such properties. This reduces even further when it comes to specialised properties like h. This is mainly to do with the fact that hospitality businesses operate within a more limited market of buyers and are faster to be affected by poor management than standard properties, as such, they have a higher potential risk, so lenders typically lend to a more conservative LVR.

 

To find out more, take a listen to our podcast.

Ep 12: Silver Chef's Rent-Try-Buy Model

Tony Mylius explains how Silver Chef has helped thousands of hospitality businesses start-up and expand their operations with limited risk.
  • Podcasts

Clubs & Pubs Manager Magazine Feature

Upside Director, Jon Plowright, discusses what attracted him to hospitality & leisure finance and his thoughts on the future ahead.
  • Blog

Click to view.

 

Winery Application Form

Download and print an application form so that we can get started on finding you a lender.
  • Templates

Click to view.

 

Restaurant Application Form

Download and print an application form so that we can get started on finding you a lender.
  • Templates

Click to view.

 

Pub Application Form

Download and print an application form so that we can get started on finding you a lender.
  • Templates

Click to view.

 

Nightclub Application Form

Download and print an application form so that we can get started on finding you a lender.
  • Templates

Click to view.

 

Motel Application Form

Download and print an application form so that we can get started on finding you a lender.
  • Templates

Click to view.

 

Hotel Application Form

Download and print an application form so that we can get started on finding you a lender.
  • Templates

Click to view.

 

Hostel Application Form

Download and print an application form so that we can get started on finding you a lender.
  • Templates

Click to view.

 

Gym Application Form

Download and print an application form so that we can get started on finding you a lender.
  • Templates

Click to view.

 

Golf Course Application Form

Download and print an application form so that we can get started on finding you a lender.
  • Templates

Click to view.

 

Caravan Park Application Form

Download and print an application form so that we can get started on finding you a lender.
  • Templates

Click to view.

 

Cafe Application Form

Download and print an application form so that we can get started on finding you a lender.
  • Templates
< p class="rtecenter">Click to view.

 

B&B Application Form

Download and print an application form so that we can get started on finding you a lender.
  • Templates

Click to view.

 

Funds Required & Loan Repayment Calculator

A spreadsheet tool that lets you calculate how much cash/equity you need to make a purchase and the total cost of the proposed loan.
  • Calculators

Click to download.

 

Ep 6: Protecting Yourself During a Purchase

Liquor, gaming and hospitality lawyer, Darren Marx, offers advice on avoiding traps and making a smooth transition into the industry.
  • Podcasts

Ep 4: Current State of the Gaming Industry

Gaming Accountant, Tim Stillwell, offers advice on recent industry changes, regulations, how to get in and much more.
  • Podcasts

Ep 3: Top 5 Common Borrower Mistakes

Difference between commercial and home loans. The 5-minute myth. The importance of up-to-date financials, transparency and valuations.
  • Podcasts

Ep 1: What You Need to Obtain a Loan

Jeremy and Jon discuss the importance of having sufficient income and equity, business plans, cash flow forecasts, experience and more.
  • Podcasts

Winery Documentation Checklist

A checklist of documents often requested by lenders when assessing your application for finance.
  • Checklists

Click to view. 

Restaurant Documentation Checklist

A checklist of documents often requested by lenders when assessing your application for finance.
  • Checklists

Click to view.

 

Pub Documentation Checklist

A checklist of documents often requested by lenders when assessing your application for finance.
  • Checklists

Click to view.

Nightclub Documentation Checklist

A checklist of documents often requested by lenders when assessing your application for finance.
  • Checklists

Click to view.

Motel Documentation Checklist

A checklist of documents often requested by lenders when assessing your application for finance.
  • Checklists

Click to view.

 

Hotel Documentation Checklist

A checklist of documents often requested by lenders when assessing your application for finance.
  • Checklists

Click to view.

Gym Documentation Checklist

A checklist of documents often requested by lenders when assessing your application for finance.
  • Checklists

Click to view.

Caravan Park Documentation Checklist

A checklist of documents often requested by lenders when assessing your application for finance.
  • Checklists

Click to view.

Café Documentation Checklist

A checklist of documents often requested by lenders when assessing your application for finance.
  • Checklists

Click to view.

B&B Documentation Checklist

A checklist of documents often requested by lenders when assessing your application for finance.
  • Checklists

Click to view.

Sufficient Equity

Do you have sufficient equity to fund the difference between the purchase price and the loan amount? This is how we work it out.
  • Consumer Guides

Click to view.

 

Sufficient Income

Do you have sufficient income to prove to a lender that you can repay the loan? This is how we work it out.
  • Consumer Guides

Click to view.