If you are planning on buying or starting a hospitality business make sure you have your bookkeeping and financial management processes in place from the start. If you do not have experience in accounting for hospitality businesses, then you enlist someone who does. Restaurants, cafes and bars can be challenging businesses to run, let alone control. With food service businesses you need to control two key cost centres - food cost and labour cost. If you aren't tracking these constantly, you are setting yourself up for potential failure. The other critical area is revenue. Making sure all revenue is accounted for and ensuring you are maximising revenue opportunities. Revenue is driven by customer turnover and average spend. If you are not getting customer turnover, then those customers you are getting had better be willing to spend.

Is the New South Wales government's power out of control? The latest aggressive tactics to sack 42 councils and appoint administrators is quite incredible. I'm sure the approach taken does not sit well with many NSW ratepayers, given the majority of these councils have done nothing wrong and, whilst many did not agree with forced amalgamations, were proceeding down that path. A couple of cynical observations.... In the SMH this morning, on the one hand, the Premier indicated that council amalgamations would improve services and reduce costs, yet appointed administrators will be prevented from outsize increases in rates and could not increase beyond normal levels for four years. But hang on..... shouldn't rates be going down because of a more efficient, bigger council? But why stop there! On the Central Coast, Wyong and Gosford Councils are being forced to amalgamate to form one representative body to deal with all local government issues. We have three state government members - Terrigal, Gosford and Wyong. Why so many and what real benefit have they brought to the Central Coast? Surely, one state member is all the Central Coast needs. We might even find that the quality of political representation go up and the cost of representation go down.... Better still, lets get rid of all elected representatives and have a single person making all the decisions for the good of the state....We could give him a title like... NSW Premier. Sorry, now I'm just being silly!

Never before have we seen the need for strong organisational leadership. Leadership is about innovation, inspiration, challenging current practices and employee behaviour, then coping with the resultant change. Disruptive technologies, economic and information globalisation, new business models are increasing competition but also creating fantastic opportunities. Leadership strategy should be about seeking out ways to focus on exploring next generation ideas.

Leaders of any organisation must present clarity in their strategic actions. Too often we see a lot of time wasted developing illogical visions, unachievable goals and whimsical strategies that simply result in management inertia - no clear focus. Your business level strategy must have a core focus with actions built around this. Diagnose your business, identify how you will set yourself apart and then go for it with the right policy framework and actionable strategies.

IRIS Capital has just sold the Oxford Hotel in Drummoyne for $34 million. The IRIS Capital hotel investment model has been to invest in key hotels with strong underlying gaming revenue and real estate fundamentals.IRIS has spent about $4m om refurbishment. According to RP Data the hotel last traded in 2012 for about $11m. Even though the current sale includes an adjacent retail property, the sale has certainly appears to have provided IRIS with a solid capital gain.

Remember when buying a business or commercial property, the cap rate does not determine the market value. Rather the cap rate is determined by the market value. In other words, you determine what cap rate to use based on empirical observations in the local market where the business or property is located. You also need to make sure the business or property fundamentals are similar and have matching growth expectations. If there is insufficient market data to identify a reliable cap rate and you start using cap rate averages, then the cap rate is now driving market value. This can be misleading for the investor or buyer.

The release of the annual reports for the big three pub property owners (HPI, ALE and Charter Hall) has revealed a combined ownership of $2.13 billion in pub assets. This accounts for 187 hotels leased to Coles and Woolworths or Woolworth's 75% owned subsidiary ALH. The Weighted Average Cap Rates (WACR) for each company varies by up to 1.43%. ALE properties had the lowest WACR of 5.99%, Charter Hall - 6.4% and HPI - 7.42%. ALE has pubs in NSW (12%), QLD (37%), VIC (38%), SA (8%) and WA (4%). HPI has pubs mostly in QLD, whilst Charter Hall has pubs predominantly in VIC and QLD. Cap Rates are determined using historical sales comparisons and ongoing valuations based on normalised net operating profit and fair value of assets. Recent changes to Victoria's gaming tax has reduced net operating profits which has no doubt had an impact on pricing fundamentals in Victoria.

Hotel Property Investments Trust (HPI) released their 2015 result which saw a 40% drop in net profit, primarily due to reduced revenues associated with lower rental income due to property renovations and lower fair value increment on investment properties. Cap rates have averaged 7.42 per cent, which was unchanged from last year.

Friday's financial review reported Mantra Australia Group's full year results were ahead of forecast primarliy due to its strong acquisition strategy. During the last financial year Mantra has acquired 11 hotels under lease or management agreement. Subsequent to financial year end they have acquired a further 5 hotels. Mantra is the second largest hotel operator in Australia with brands such asl Mantra, BreakFree and Peppers. Mantra are positioning themslves to take advantage of the strong interest in hotel investment and upside growth in leisure and tourism.

My last blog suggested exit timing came down to how you are positioned on two factors - financial situation and psychological mindset, will determine the timing and type of exit strategy you will need to adopt. A business owner can exit their business in a number of ways, all of which require an exit plan - family succession; sell to an external, unrelated buyer; sell to existing employees or management; liquidate and sell off the assets, or become a passive owner or shareholder. You may choose a combination of these approaches. For example, sell off parts of the business, transfer a portion of ownership to family and employees and retain a shareholding stake in the business.Whatever you do, develop a plan, including alternative options should your prefered choice not pan out.

If you are a business owner, you've probably given some thought about when will be the right time to sell or exit your business. Essentially your timing will come down to two factors - financial situation and psychological mindset. How you are positioned on these two factors will determine the timing and type of exit strategy you will need to adopt. If you plan your exit effectively, there is a greater chance you get out on your terms. So, at the moment, you may have no plans to sell you business (psychologically not ready) but that doesn't mean you shouldn't be developing your exit strategy. This will help you get out on your terms.

It never ceases to amaze me how many small business owners do not have a business plan. Many do not even have a financial plan! There is an old saying "if you don't know where you are going you will probably find it!" Unfortunately, what they find is not what they want. If you are in business you need to have direction and clear objectives and strategies. Your plan doesn't have to be a bound "war and peace" volume. A specifc one page action plan can help kick start your business planning. If you need finance to buy a buisness, you will need to develop a business plan for the bank. Remember, it's your money you are committing to your business, so be wise and plan how to use your funds effectively.

Whilst you are specialising at doing one thing really well, don't put all your eggs in one basket and rely on one or two customers. Ideally no customer should make up more than 15% of your bsuiness. Don't be like the Remora and be totally dependant on that one shark for survival!

Your business should focus on doing one thing really well. This is your stand-out strategy that customers talk about. It can go by various names such as your USP (unique selling proposition) or distinctive competency. It gives you the capacity ot create a competitive advantage. But remember, whilst you may do it better, it must also be profitable in order to leverage business value.

In my last blog post I mentioned what makes a business valuable and certainly those comments are relevant here as well. But let's drill down into your buisness and identify operational elements that are critical to increasing the value of your business. Remember, your business value increases because your bottom line is growing. So what operational actions improve your bottomline? Start with a stable employment and management base. If you read "The Loyalty Effect" or Service Profit Chain", these books are right on the money here. Trained loyal employees are more capable, more productive, improve quality and drive stronger relationships with customers who in turn become emotionally attached to your business. Of course this model relies on you having the right competitive strategies - Is your product competitively priced and matching market demand. Sounds straight forward - but takes alot of work to achieve.

There are plenty of books written about selling businesses, how to value them and what creates business value. The question to ask yourself is - What are they buying? - Assets? future profits? lifestyle? synergies? Of course, the greater appeal your business has to more than one buyer the greater your chances of getting a higher price. Look at your business model -ask yourself -how do I make money in this business? Do I have high margins or high turnover and low margins? Is the business easily copied? Do I have many customers or rely on a small number of large customers? is it a mature business still growing or is it starting to decline? How is it affected by the on-line economy? de-regulation etc? Porter's competing forces model is still a good tool to assess the attractiveness of a business - asses it in terms of how your business competes based on competition, substitutes, availability of production inputs and size of the market. If you are thinking of selling your business assess your business and industry using these key elements. It also works if you are thinking of buying a business.

The Reserve Bank's Financial Stability Review released in March 2015 has issued a warning about potential repricing of commercial property due to oversupply and a sudden fall in foreign investor demand. This is particulalry concerning for the Brisbane and Perth office markets where demand is falling on top of already high vacancy rates. This is further problematic with the increasing pipeline of office supply coming onto the market.

Sydney is experiencing growth in office employment resulting in a fall in CBD vacancy rates and modest rental growth. Sydney is currently experiencing strong demand from foreign investors with almost half the prime CBD office space being sold to foreign investors in 2014. In terms of yield, Sydney has the weakest yield of all major Australian capital cities at 6.05%. The test on values will come with any major realignment in foreign investment.