The Royal Sportsman hotel in Porthmadog, Gwynedd, was bought by Louis Naudi and his then business partner in August 1998 for £365,000. It was financed by a £240,000 commercial mortgage from the Bank of Scotland, arranged through estate agents Christie & Co. Naudi also stumped up a £120,000 deposit and kept £30,000 back to cover six months' mortgage - "just in case", he says.
After a falling-out with his business partner in 2006, Naudi was forced to enter a legal battle. The matter went back and forth with solicitors, eventually leading to court proceedings to force a sale or the break-up of the company. Eventually, in 2007, his partner agreed to sell her half to Naudi. The hotel was valued at £1.2m and Naudi took out an HSBC mortgage, as he had a good relationship with the commercial manager. Naudi obtained quotes from other banks so he could bargain with the bank. "I got cross-quotes from all banks and used these to reduce costs and interest charges. I eventually took out a mortgage to pay my partner £615,000 - 51% of the hotel's value, which left me with 49% equity - in January 2008. We had a good record with the manager and bank, with year-on-year growth and profit."
Naudi has not had any problems with overdrafts or extra funding as he has never needed to borrow any money. Although he has financed £650,000 to carry out refurbishments, it all came from cash flow taken over the past eight years. Naudi puts this down to prudence. "I have always adopted a financially prudent approach, despite a liberal approach to refurbishment. I think we have a significant cushion to fall back on, as we have saved almost £200,000, which is invested. If I needed to borrow money - for example, I am looking at buying two flats, one for staff - I am sure the bank would lend it to me without a quibble."
Naudi is still investing in the hotel and plans to finish the remaining 17 rooms in the new colour scheme and carpets in the winter, but says it will be funded out of cash flow.
Naudi employs a finance manager three days a week to ensure a close watch is kept on costs, and the head chef controls food costs. He says the golden rule is to shop around after last year, when food prices did increase. Being part of Beacon also helps to minimise costs, and each supplier has been keen to be more flexible on pricing. Energy costs have risen by 50%, which has forced Naudi to make staff more energy-conscious. He has also reviewed all purchases and negotiated some price reductions or discounts. However, some suppliers have faced cost pressures, so Naudi has held back from haggling with them as he values their services.
Naudi has always paid his staff above the going rate, but this year he froze most wages - apart from bringing certain staff into line with others to ensure greater fairness. A key part of the hotel's profit strategy is to improve margins. Food runs at 72% and drinks at 65%. Overall margins in the financial year ending February 2009 were the best ever.
Peter Birnie says he is impressed with Naudi's long-term planning, attention to detail and cash flow as well as the close relationship he has nurtured with his bank manager. "Louis's conservative approach to borrowing has been vindicated in this current climate," he adds.
131 High Street, Porthmadog, Gwynedd LL49 9HB
"Usually, people book in advance for August, but this year we had a lot of last-minute bookings. A lot of people are camping, so if the weather's bad, people drop in at the last minute," says Louis Naudi. "We've taken on a new member of staff, taking the team to 17. I'm also looking for a new chef to take our chef total to four, to provide holiday cover. Peter is coming soon to check the changes - so I'm looking forward to his feedback."