like on the Newhart TV show from the eighties. The Bob Newhart had a hit TV Show showing Bob and his stage wife Marry running a beautiful Inn in Vermont. Bob had all sorts of time and fun being an owner of the Inn and had some crazy cast of characters what would frequent the Inn from time to time. Fun thing is in the final episode of the TV series Bob wakes up next to his wife Mary and say “I just had a terrible dream I was running an Inn in Vermont” and that sentence summed up the show. In today’s Small Superior Lodging owners and investors very much live this TV series and if they do not have a “Business Plan” or a Yearly and Monthly Budget” they will wake up one day like Bob Newhart and say “I am having a terrible experience I am going broke and my guests are not coming back what do I do?”.
Many Small Superior Lodging owners in Florida are 2nd or 3rd generations of family who run these Hotels/ Motels, Real Estate Brokers or Domestic/ International absentee investors. Many see the Hospitality industry as glamorous or this is what my family has done for more than 20 years. Yes, at times the Hotel/ Motel industry can be glamorous and very rewarding with good profits, satisfied guests, a happy fun environment and year over years increases that can sustain an owner or investor and employees. At Oigidecht we meet with many of these many owners and absentee investors unfortunately for many they are at the end of the road financially and mentally. In Anthony Melchiorri show on Travel Channel Hotel Impossible he portrays owners and managers who are down and out and he fixes the lobby or a sleeping room or two and reports back at the end of the show the Hotel/ Motel is now preforming and the owners are happy. What he does not show you is business plans, budgets, and marketing plans for the Small Superior Lodging for a solid future. If you have ever taken a business class in your life the first textbook you will receive will be “Chapter One- Business Plan”. Many of today’s Small Superior Lodging owners and investors look at the Real Estate value of the Hotel / Motel and look at a rental value per room. That is great if you are running a tenant building or duplex but in the Hotel/ Motel industry we have percentage of occupancy and average daily rates. This means your income adjusts on how many rooms are sold a nightly or month and what daily rate you sold the hotels rooms at on these days. Sound easy? Well it my sound that way but many Small Superior Lodging owners and absentee investors find out the hard way this is not easy and can send an owner manager or investor with a manager into massive debt. The debt can grow quickly and so fast the owner/ investor never realized it was an issue until they are in big trouble with the lender or they have no money to pay employees/ vendors and they start receiving liens on the business. So many come to Oigidecht and say “can you consult on how we can get out of this or from underneath the debt?”. Yes we can assist the owner or investor on the best next steps. We always ask can we see your “business plans, budgets, and marketing plans for this Small Superior Lodging?”. We get an array of answers but at the end of the day the outcome is we do not really have one most of the time.
Here is what a Small Superior Lodging owner or investor needs to know for a Hotel/ Motel to be a “sound business decision” to buy and manage;
1. When looking at Hotels and Motels to buy have the Real Estate Broker or Sales Agent give you a CMA (Comparative Market Analysis). This is only an opinion not an appraisal but it will help with getting a good picture of the market. Make sure the CMA is like size Hotel / Motel in the same area (very important that they are within 10 to 15 miles of the asset you are looking to buy) and the Hotels/ Motels where sold within one to two years, no longer. First this CMA will give you a per hotel room market value. How you get to this number is by taking the sold price or selling price of the Hotel/ Motel and divide that amount with the number of Hotel / Motel rooms. Then do the same exercise with the Hotel / Motel you are buying. The Hotel/ Motel you are buying should be close to your competitors per room number, if it is in the same area but the cost per room could be lower or higher if amenities or area your Hotel/ Motel that you are buying is in a better location then the other CMA Hotel / Motels. Example, if the asset you are buying is a 39 room Hotel in A1A in Florida (a busy street with good traffic) but your CMA Hotel/ Motels are 39 to 20 rooms Hotels/ Motels located on the beach then your asset (Hotel/ Motel) cost per room you are thing about buying should be less for less. Sometimes owners or investors see upswings in value or see value in other ways and buy the Small Superior Lodging. That is okay but the owner or investor assumes greater risk. Overall Real Estate price is in the eye of the beholder but know this, Real Estate value only gets you so far and true business numbers get you sustainability.
2. Take a hard look are the past 3 to 4 years of the hotels books and tax returns. This is where the water sometimes gets muddy. Most bankers will tell you “there is too much noise in these financials to get a clear picture”. This means the banks want clear and precise bookkeeping not financial statements on a yearly basis but on a monthly basis. So many Small Superior Lodging owner or investor make a huge mistake by not keeping good daily, month and yearly books. When buying or selling a hotel the buyer or seller wants to know “what is the up side of buying this investment?’ If you are not asking that question you are not buying his business in my opinion for the right reasons. If the business is keeping bad financial records, never mind selling your asset because the state government will have a field day with your books then they audited you and then by the IRS. The IRS will hit you with a ton of fines for years to come. Did you know Small Superior Lodging owner or investor that have accurate bookkeeping and can show investor daily weekly, monthly and yearly occupancy and rates sell their business over asking price 95% of the time. Why do they, well the investor or new owner can now see a clear picture of the value of the business and if he or she thinks they can increase revenues, services or amenities after the sell it is worth the risk. Good bookkeeping also opens the door for the buyer to a multitude of banks and lender who now know the risk is limited compared to not knowing if the business can support itself or has any kind of growth opportunity to pay back the loan/ debt.
3. Many Small Superior Lodging owner or investor say to Oigidecht “I am not sure where to start on a business plan or how, why I really need one”. Also we hear from them “I had one but is was not working so I decided to wing it and it seemed to work for a while”. The final one is “ I know my business and I have been doing this for years.” What is the business definition if Insanity: “doing the same thing over and over again and expecting different results." – Quote by Albert Einstein. Many Small Superior Lodging owner or investor brush off their business plans every once in a while and put it back in the desk or bookshelf right after. Some say to us “I have never done a business plan where do I start?” Business plans do not need to be a novel or have to be so hard you want to work out at the gym just thinking about it. A good business plan should have where the business is at now, where the business needs to go in the first two years and what the business should perform a optimally in the fifth year of business. Example; If an investor or owner knows from the previous owner financials the hotel is performing at 60% occupancy for the year and the average daily rate is $109.00 for the past three years and the competitor in the area or the market are preforming at 80% occupancy and a $129.00 average daily rate for the past three years the business has room to grow. So the business plan should explain the plans for the Hotel/ Motel is to grow occupancy by 20% in the first year and by the fifth year the hotel should be running at market value in occupancy and rate. To some reading this this it must sound like a foreign language or could be over welling. This is why you have companies like mine that can assist, teach or do for you. Many owner or investor ask Steve how do I know what the market is doing? Well the answer is Smith Travel Research or PKF Consulting reports have the numbers and market information you are looking for. Smith Travel Research or known as STR in the industry (most hotelier pronounce it as “star”) is a market expert. Smith Travel Research has been in business since the 80’s and all chain hotels mostly report daily occupancy and rate to Smith Travel Research. Smith Travel Research will not show you which Hotel/ Motel in the market is preforming at the occupancy or rate exactly but it will just show a minimum of 5 hotel in the market and there averages in general. I tell very Small Superior Lodging owner or investor if you want the best price for your hotel sign-up with Smith Travel Research and report to them at least monthly. This will show the buyer major value and give you good leverage when negotiating a price for the Small Superior Lodging. PKF Consulting has been around since the 70’s and is the world leader in Hotel/ Motel market knowledge and statics. Owner or buyer these reports are very expensive, ranging from $5K to $10K but in the longer run they will save you money and really write your business plan for you. PKF as they are known in the Hotel/ Motel industry gives the investor and owners market knowledge of there “market tract” they are in and the entire Hotel/ Motel market. Market PKF reports comes out once a year and
predicts the following years occupancy and rate for the market. PKF has been wrong on predictions but most of the time then are right on the money for that market. If you are a current owner and want this info my suggestion is to call
your CVB, TDC or Chamber of Commerce and sometimes they will have a yearly STR for the market or the PKF for the market for free.
4. Budgets are the key to any hotels success story. When I talk to owners or investor who are having a blast with their Small Superior Lodging I say to them “you are knocking the budget out of the park right?”. They smile and say “yea, something like that”. I know as well as they do if you can see the road clearly your drive is smooth. The owner or investor that knows what his or her monthly forecast and financials will look like before they have to pay bills are solid owners. Just like your weekly paycheck is $6K every two weeks totaling $12K a month your bills (mortgage, lights, taxes, and Est.) should be less than your income every month or you need to make more money. This is a budget and many households
around the world have one. Many Small Superior Lodging owner or investor ask Oigidecht “how can I forecast my revenue?” In the 20th century any Small Superior Lodging can own a PMS (Property Management System). Years ago these system where confusing and expensive. Today they are online and Microsoft Windows based. If you can operate Face Book or Google you can operate a PMS and your employees no matter how old can operate the system with ease with a little training. He are a few PMS’s we suggested over the years ( www.roomkeypms.com or www.innquest.com ). These systems do three vital operations for a Hotel/ Motel 1) track reservations and offer confirmation of reservation to guests. 2) keep track of guest rooms occupancy and revenues. 3) provide finical management of the Hotel/ Motel and offer forecasting of revenue. If you knew over the last 3 years in September the Hotel is running’s 40% occupancy at a ADR of $59.00 compare the August which runs a 60% occupancy at a ADR of $129.00 as an owner you would budget not to spend as much money in September as you would in August. This my friends is budgeting, knowing your expenses and forecasting. As a Small Superior Lodging owner or investor you want to take this powerful information and budget accordingly. This also bring me to the final step.
5. Marketing of the Small Superior Lodging is the life blood of the business. As a Small Superior Lodging owner or investor you should know unlike an apartment building or rentals that News Paper advertising will not work to find guests. Many Small Superior Lodging owners or investors come to Oigidecht and say “I do not have much money to market the Hotel/ Motel” Or “I am spending a ton of money on marketing/ advertising.” Have you ever heard the phrase “Fish where the Fish are”. So many times Oigidecht asks a Small Superior Lodging manager for a list of items they are paying for and so many times the website is costing them an arm and a leg to run, CVB or TDC advertising costing a ton, or they have some travel book marketing/ print advertising that is costing bunch of money. If you have a solid business plan in place you should already have a solid marketing plan and direction of this marketing plan in place. If your business plan is to grow occupancy for the Hotel/ Motel owner or investor to make the banknote then your marketing plan and efforts should show the same with your expenses showing the max return. Here is an example out of my textbook from 2009; At La Siesta Resort was under preforming in occupancy but in ADR that resort was out preforming its competitors. So Oigidecht started to look at all the possible occupancy streams that could be added and should come into very Hotel/ Motel starting with the main number to the resort. When I called the main number to the resort for a test call the call went to a local singles line. I though this cannot be right, my investors just bought the resort surly they called this number. I tried the main number to the resort again and got the same singles line again and new the resort had an issue. After taking to the General Manager I found out he had stopped paying the bill on the main phone number to save
money for the previous owner. Needless to say we fixed both the phone number issue and decision making issue at the resort. At the same resort we found the hotel had no inventory on any of the OTA’s (online travel agents such are Expedia, Travelocity and est.). Just by signing up with these sites the hotel increased occupancy by 25% and held rate the same overall making the investors 3 times more then what the resort budgeted for that year. Many Small Superior
Lodging owners do not like the OTA’s because of the 18% to 28% commissions on room rate but if your Small Superior Lodging needs an occupancy boost during certain times of the year it might work for you. Personally it is better to have
then have not in marketing when it comes to the ability to manage these channels. If the business plan has good vision then the marketing plan has good results.
I hope this has helped you better decide to buy, manager or invest in a Small Superior Lodging
Oigidecht Hotels and Resorts
Below picture is from the TV show "Newhart" from the 80's.