Guide to Value Your Travel & Hospitality Business

Precise business valuation is essential in very competitive sectors like travel and hospitality. Proper valuation for a travel/hospitality company will let business owners make informed investment decisions, optimal resource allocation, and strategic planning. Travel/hospitality company valuation directly impacts its market position and financial health.

It is important to have a valuation for a travel/hospitality company, as well-established companies and newbies face stiff competition within their industry.

This article is about the need for a valuation for a travel/hospital company, how to do it, and the methods available for a fair valuation.

Aspects of travel/hospitality company valuation

What should you include in a valuation for a travel/hospitality company? The following points explain those in detail:

Revenue Streams and Seasonality

When performing the valuation for a travel/hospitality company, you should consider its revenue source and the seasonal effect it will have. What are the possible revenue sources for this sector? It can typically include:

• Commission
• Vacation packages
• Tours
• Ticket sales
• Hosting

Also, seasonality is a major factor in travel/hospitality company valuation. The companies in this sector will boom during summer vacations and holidays. You may simply offset these seasonality risks with effective marketing and promotions to maintain a more constant valuation for your travel or hospitality firm.

Brand Recognition and Customer Loyalty

To have a higher valuation for a travel/hospitality company, you should have a strong, well-recognized brand. Also, you should ensure customer loyalty by providing rewards to repeat customers and by having loyalty programs that will help reduce the marketing cost for attracting new customers.

Consumers’ perceptions of a brand’s quality, reliability, and unique value propositions heavily impact their decisions and, by extension, the company’s market value.

Asset Intensity and Infrastructure

Travel/hospitality companies usually require more capital expenses for real estate, including hotels, resorts, and other amenities. The quality and placement of these assets will directly impact their effectiveness and capacity to generate income for the company.

High asset intensity can result in high initial spending and continuing maintenance expenses, but it can also raise rivals’ entrance barriers and increase the possibility of long-term value growth.

When do travel/hospitality companies require a valuation?

Various major events necessitate valuation for a travel/hospitality company. The following points are the possible reasons to have a travel/hospitality company valuation.

Mergers and Acquisitions

If you have a travel/hospitality company and decide to have an M&A deal, it is important to value your business to realize its actual worth. A proper travel/hospitality company valuation will help buyers know whether your company is a strategic fit.

As a seller, a travel/hospitality company valuation will give you a clear idea of your company’s FMV so you can negotiate better. Before entering into a deal, valuation for a travel/hospitality company can help pinpoint how the acquired company can benefit the acquiring company.

Fundraising

Angel investors, venture capital firms, and fresh investors heavily rely on your business’s value. It presents your company’s possibilities and cash flows, influencing funding at a greater price. Precise valuation for a travel/hospitality company is essential in producing income and cash flow since it shows a company’s expected return on investment, which affects new investors and funding rounds.

A rightly assessed business puts the business owner in a stronger position to negotiate for conditions and draw in large sums of money and stock from possible investors.

Strategic Planning

A company needs more strategic planning as it expands and the business environment gets more complicated. Companies who regularly use a disciplined approach to strategic planning can better adapt as the market evolves and various market segments have varying demands for the company’s goods and services.

Strategic planning can help a travel/hospitality company adapt and improve according to trends to attract customers and make more profits. Valuation for a travel/hospitality company will help its management decide the content and order of executing the major events and make well-informed decisions to address its major issues.

Financial Reporting

How does valuation for a travel/hospitality company help financial reporting? It includes all the assets and liabilities, guaranteeing a precise financial report. By valuing your travel/ hospitality company, ensure that your financial reports are accurate and up-to-date, providing you confidence that your company’s proceedings are precise.

Valuation assures that your company’s balance sheet fairly reflects its performance and financial standard for financial reporting. It guarantees that your company follows the accounting standards set forth by regulatory bodies, such as GAAP or IFRS.

IPO Preparation

The valuation for a travel/hospitality company during an IPO will help it determine the FMV of its shares when it decides to go public and put them up for sale on the stock market. The main goal of a valuation is to find the right mix between luring investors and ensuring the business has adequate cash for its expansion plans.

The choice of a company to go public initiates a new stage of its growth. Since it determines how the market sees the company’s worth and future, the valuation of travel and hotel companies becomes crucial.

Partnership Agreements

The valuation for a travel/hospitality company helps negotiate better terms in case of entering into a partnership agreement. Partnerships and joint ventures are common for travel/hospitality businesses as part of their strategic planning. An accurate valuation at this phase will help determine the fair value of their contributions and clearly understand everyone’s stake in the business.

It also helps structure a partnership agreement by defining the correct ownership rights, profit-sharing arrangements, and exit strategies.

Succession Planning

A business owner may not plan to transfer their company, and the process is called succession planning. Choosing to sell, dissolve, or give the business to a family member, employee, or other interested person can be challenging for an owner.

Proper valuation can help precisely determine a travel/hospitality company’s value, fairly divide up business interests, and make efficient tax-related plans. As this process is more complex, consulting with a third-party valuer is important to make it easier.

Valuation Methods for Travel/Hospitality Companies

There are several valuation methods for travel/hospitality company valuation. They are:

• Income Approach – Among the many valuation methods for travel/hospitality company valuation, the income approach converts projected economic advantages into a single value present to determine a business’s overall worth. The income approach determines an appropriate discount rate to return the future cash flow value to its present value. The discount rate includes any potential risks that influence the present value of future cash flows.
• Market Approach – The market approach to valuation for a travel/hospitality company uses the selling price of comparable assets to estimate its worth. As its name implies, the market approach aims to address the question of the asset’s fair market value. The valuer must research current transactions involving comparable assets. These assets will likely differ from the target, and adjustments will be necessary.
• Asset-Based Approach – The valuation for a travel/hospitality company uses the asset-based approach to estimate its value by considering its assets minus its liabilities. This approach deducts the value of all existing liabilities from all tangible and intangible company assets. As this approach considers both types of assets, it helps provide a comprehensive understanding of the company.

Engaging experts for your travel/hospitality company valuation

When the valuation for a travel/hospitality company engages professional valuation experts, they avail the following benefits:

• Market research and analysis experts often handle businesses in the travel/hospitality sector more effectively. Assisting with accurate firm valuation, Eqvista’s team of professionals ensures a correct evaluation of revenue estimates and operational intricacies.
• Professionals use a variety of approaches to value your business, including discounted cash flow (DCF), comparative company analysis (CCA), and others as needed. By tailoring the valuation methodologies to meet client needs and considering all the intricate aspects, the skilled team at Eqvista can deliver a trustworthy and accurate assessment for a travel/hospitality company.
• Health and safety requirements, labor laws, and other restrictions impact the travel and hospitality industry. The expert team at Eqvista is familiar with the rules and regulations relevant to your business’s location. It safeguards your business by ensuring its value follows all applicable financial and legal regulations.
• Technology has a major role in the travel/hospitality industry and can impact how businesses work. At Eqvista, we understand this shift and adapt to the new technology trends, considering all the details to help you with an accurate company valuation.

Get a Valuation For Your Travel/Hospitality Company From Eqvista!

Make informed business decisions about investment, fundraising, and expansion. Whether you want to sell, attract investors, or streamline your business, a thorough valuation can help you do it more easily.

Eqvista can help you with our valuation services to make the process effective. We provide accurate and reliable valuation reports that target the unique requirements of your travel/hospitality company. With a team of valuation experts, we provide quick and credible valuation services detailing the methods used and how the calculation was made to help you better negotiate your deals. Utilizing Eqvista’s services can place you in a better position while making any major business decisions.

To learn more about our valuation services, schedule a consultation call with us Today!