Selling a Hospitality or Tourism Business? Why the Highest Valuation isn’t Always Best

Some brokers are like your preferred AI. They’re people pleasers.

They’ll validate the number you already have in your head, agree with the strategy you want to pursue, and tell you the market will see what you see.

It makes for an easy conversation, but it doesn’t necessarily make for a transaction.

We recently re-engaged with a hospitality client we first advised at the start of this year.

Our assessment was grounded in the financial performance, owner involvement, assets and what we know buyers in that market would support.

The owners chose another path and appointed a broker who took the business to market at 40% above valuation. Four months later, it remained unsold, without any serious enquiries.

They’ve now returned to us and we’re commencing the campaign at where our commercial conversation started.

The Highest Valuation Isn’t Always the Best Advice

When you’re selling a hospitality or tourism business, it’s understandable that the highest valuation can be the most appealing. But a higher valuation doesn’t make the business more valuable.

The asking price still needs to stand up when you hit the market.

Experienced buyers will look beyond the headline number. They’ll assess the financial performance, owner involvement, wages, rent, lease, assets, licences, operating structure and the earnings they believe are genuinely maintainable under their ownership.

They’ll compare those fundamentals with other businesses available to them and form their own view of value. That is the commercial conversation every seller eventually has to have.

Leaving Room to Negotiate Isn’t a Pricing Strategy

There is a difference between allowing sensible room for negotiation and leaving a vast chasm between the asking price and what the business can commercially support.

Buyers recognise the difference. When that gap becomes too large, many won’t make a lower offer. They simply won’t engage.

That matters because some of the strongest buyer interest can come when a business first enters the market. It is new, buyers are curious and active purchasers are deciding whether it deserves their attention.

If they can’t reconcile the asking price with the opportunity, that attention can disappear quickly. Four months later, bringing the price back to where it should have started may generate renewed interest, but you can’t recreate the first day on market.

Hospitality and Tourism Businesses Need Industry-Grounded Advice

Hospitality and tourism businesses have their own operating realities. Revenue alone doesn’t determine value, and neither does a single profit figure viewed in isolation. Fundamentals matter.

For tourism businesses, the underlying assets, seasonality, accommodation or operating capacity, booking profile and dependence on the owner can also materially influence how a buyer assesses the opportunity.

Most importantly, the business needs to be considered from the perspective of the person expected to buy it. What are they actually acquiring? What earnings are maintainable? What will they need to invest after settlement? What risks will they identify during due diligence? And what other opportunities can they buy for the same money?

A market-grounded appraisal should anticipate those conversations rather than wait for buyers to raise them.

The Market Ultimately Determines Value

A broker can recommend an asking price and a vendor can choose an asking price. Neither can dictate what a qualified buyer will pay. The market ultimately has its say.

That doesn’t mean pricing a business cheaply just to generate enquiries. Our responsibility is to maximise the commercial outcome for our client. But maximising the asking price and maximising the outcome are two very different things.

The objective is to establish a position that properly represents the business, withstands scrutiny from qualified buyers and creates the competitive environment needed to drive the best possible outcome.

A Broker Should Be an Adviser, Not an Echo Chamber

Good brokerage isn’t about agreeing with a vendor, or leaving a vast chasm to negotiate. It’s about understanding the business, knowing the buyer market and being prepared to have the industry-grounded conversations necessary to get a transaction done.

Sometimes that conversation confirms exactly what an owner hoped their business was worth. Sometimes it doesn’t.

We would rather have the difficult conversation at the beginning than allow the market to have it with our client months later.

Our job isn’t to win the listing. It’s to transact the business for the client.

If you’re considering selling a hospitality or tourism business, speak with the team at Retail Business - Sydney’s No.1 Hospitality Brokers for a market-grounded appraisal from a highly transactional hospitality and tourism consultancy.

Start with the conversation that the market will have with you.