Operational due diligence for lenders and investors – red flags and fast fixes

When lenders and investors assess a hotel, the financial model is only half the story. The other half is operational truth. Is the asset being run in a way that can reliably deliver the forecast, protect cash flow, and withstand shocks?

Operational due diligence (ODD) bridges that gap. It identifies what is really happening on the ground, highlights the risks that could derail performance, and pinpoints the fixes that can unlock value quickly. Whether you’re funding an acquisition, refinancing, or backing a repositioning, a sharp ODD process reduces surprises and improves outcomes.

Below are the most common red flags we see, plus fast fixes that can be implemented in weeks, not months.

What lenders and investors want from ODD

In simple terms, ODD should answer three questions:

1. Can this hotel deliver the projected performance?
2. What could prevent it, and how quickly can that risk be reduced?
3. Where is value being lost today, and what is the most practical route to recover it?

 

Done well, ODD is not a fault-finding exercise. It is a performance roadmap, translating operational reality into bankable actions.

Red flags and fast fixes

1) Leadership and governance gaps

Red flags

• Over-reliance on one individual or an interim GM with limited bench strength
• No clear cadence of trading, forecasting, and accountability
• Decision-making is reactive rather than planned

 

Fast fixes

• Put in place a weekly trading rhythm: pickup, rate, pace, cost movements, risks, actions
• Clarify roles and decision rights (GM, HODs, brand reps, asset manager)
• Introduce a simple “one-page scorecard” for each department with 5 to 7 KPIs

2) Revenue management is inconsistent or “set and forget”

Red flags

• Rate strategy driven by habit, not demand signals
• Heavy dependence on OTAs without a direct strategy
• No segmentation clarity or displacement thinking
• Group and corporate contracts rolled over without challenge

 

Fast fixes

• Rebuild a 90-day pricing plan with clear floors, fences, and triggers
• Audit channel mix, booking windows, and commission leakage
• Reset top 20 accounts and group strategy with clear profitability rules
• Align RM and operations so rate promises match delivery

3) Cost leakage and weak payroll control

Red flags

• Labour costs are not flexing with demand
• Overtime is normalised, schedules are built too late, agency is habitual
• Procurement is decentralised with inconsistent compliance

 

Fast fixes

• Implement labour productivity targets by department and day of week
• Lock scheduling earlier and link it to forecast occupancy and covers
• Run a rapid procurement review: top categories, price variance, contract compliance
• Create a weekly labour and cost “early warning” pack

4) Maintenance backlog and capex risk

Red flags

• Reactive engineering, repeated callouts, unfinished defects
• Guest-impacting issues in rooms and bathrooms (the silent RevPAR killer)
• Life-safety compliance unclear or poorly evidenced
• Capex plan exists, but it’s not prioritised by return or risk

 

Fast fixes

• Create a risk-based capex triage: safety, guest impact, revenue protection, efficiency
• Introduce a room readiness standard and defect close-out discipline
• Validate statutory compliance documentation and testing schedules
• Build a 12-month capex plan that links spend to outcomes

5) Guest experience is not consistent

Red flags

• Online reputation is drifting and responses are generic or slow
• Service delivery is inconsistent between shifts
• Upsell and ancillary revenue are under-developed

 

Fast fixes

• Identify the top 5 recurring complaints and fix root causes immediately
• Set minimum service standards by daypart and train to them
• Put in place a simple upsell programme with targets and tracking
• Tighten pre-arrival comms and on-property messaging to reduce friction

6) Brand compliance and QA issues

Red flags

• QA scores are volatile or trending down
• The team views audits as a “tick box” exercise
• Brand tools and systems are not being used properly
• PIP items are unclear, unaffordable, or not linked to performance

 

Fast fixes

• Turn QA findings into an action plan with owners, ops, and brand aligned
• Prioritise “high guest impact” and “high risk” items first
• Ensure brand systems are embedded in daily routines
• Reframe PIP as an investment case: what improves rate, conversion, or cost

7) Safety, legal, and compliance exposure

Red flags

• Gaps in fire safety, asbestos, water hygiene, H&S records
• Training records incomplete or outdated
• Contractor management and risk assessments inconsistent

 

Fast fixes

• Rapid compliance audit with a single evidence pack
• Close critical items immediately with clear ownership
• Standardise contractor controls and permit-to-work where needed
• Set a monthly compliance review cadence with the GM and department heads

8) Culture, retention, and capability risk

Red flags

• High turnover, weak induction, inconsistent standards
• Training is informal or not measured
• Underperformance tolerated due to “lack of options”

 

Fast fixes

• Strengthen onboarding and minimum training standards for each role
• Introduce quick-win recognition and performance conversations
• Identify the “critical roles” and create simple retention actions
• Upskill supervisors and HODs in basic commercial thinking

What “good” looks like in an ODD output

For lenders and investors, the best ODD reports are:

• Evidence-based: data + observation + documented controls
• Commercially translated: operational issues mapped to financial impact
• Prioritised: what matters now vs later, with risk grading
• Actionable: owners, timelines, capex/opex requirements, expected outcomes
• Aligned: brand, operator, and ownership expectations connected early

A common mistake is generating a long list of issues without a practical sequence for delivery. Hotels improve fastest when actions are prioritised and accountable.

A simple ODD checklist for funding decisions

If you’re underwriting an acquisition or refinance, ask:

• Is there a clear trading cadence and accountability structure?
• Are RM and cost controls disciplined and consistent?
• Is there a guest-impacting maintenance backlog or compliance risk?
• Are QA and brand systems embedded, or being worked around?
• Is the capex plan prioritised by risk and return?
• Can the team deliver the plan, or is capability a constraint?

 

If any of these are unclear, you are taking on avoidable risk.

How InnPractice supports lenders and investors

InnPractice provides operational due diligence that links on-property reality to commercial outcomes. We help lenders and investors:

• Assess operational risk quickly and credibly
• Identify the few actions that will move performance fastest
• Build a practical 30-60-90 day plan to protect cash flow post-close
• Align owners, operators, and brands around delivery

 

If you’re financing, acquiring, or repositioning a hotel and want confidence that performance will hold up in the numbers, let’s talk.