“Your room is the most perishable good, because if not sold for a night it can never be recovered. It is important for you to know how many rooms you sell each night and at what average rate, net of breakfast and taxes.”
When an investor decides to build a hotel, he has a dream; either he has seen a need and a gap in the market that he wants to capitalize on or he sees it as a profitable business that he would want to venture into, or maybe he wants to invest in a hotel as a liquid asset or he just wants to actualize his dream of owning a hotel. Therefore, an investor is not necessarily a hotelier. To sustain and grow this business, he has to hire skilled management and personnel to run the hotel for him. Whatever the case, it is important for the investor to have an idea of what the hotel business entails.
Plan beforehand
It’s painful to imagine a hotel can run without budgets. Before the onset of your financial year, the management of the hotel should draw both the revenue budgets and expense budgets, and report to the owner how much they intend to make, spend, and present as profits for the coming year. This is a bible; a point of reference; a KPI that the owner will use to rate the management of his hotel. The owner should look at this, ask questions and when satisfied, both him and the manager should sign off and use it as their working document. Without this, a hotel is high maintenance and every coin that comes in can easily be expensed – and with justifiable reasons. With the budget plan, you will also be able to accrue for larger expenses and trim expenses during months when business is low.
Your most profitable and perishable commodity
Did you know? Your room is the most perishable good, because if not sold for a night it can never be recovered. It is important for you to know how many rooms you sell each night and at what average rate, net breakfast and taxes. It is also important to know the revenue per room available, which is the total net revenue divided by your room inventory. It helps you to understand how well you are filling the rooms and how much you are able to charge per room. It also shows how effective the revenue management strategy is.
Look at the books and scrutinize them
Many reports can be generated from a proper hotel Property Management System. There are a few I recommend that the hotel owners should look at in detail. These are the reports that tell you how the business is running so you are not caught by surprise during the annual reporting. Besides the glossy presentation, the management company gave you when signing up, these reports will make you understand if truly they are meeting their deliverables, and you do not need to wait until the end of the year to know this. It is important to ask questions as often as possible. (I will discuss this in detail in my next article).
Invest in your product
A crack today, is a gaping hole tomorrow. A stain on the carpet translates to mismanagement and poor hygiene. Chipped and stained crockery speaks of a hotel whose standards are going down. Ensure your product is well maintained and in its best shape at all times. Regular maintenance will save you from potentially big expenses when you have to redesign the hotel.
Your primary point of contact
The General Manager and the Financial Controller should be your primary point of contact and should be ready to answer your questions with utmost sincerity and accuracy. It is okay for you to grill them in the boardroom but bear in mind that they are the guardians of your investment, and so you need to treat them with respect. It is also important to channel your observations to them, and they can cascade the information to the heads of department and the team. This builds confidence and structure in the running of the hotel.
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This is very well researched article. If only the hotel owners could follow this advice, they are bound to get their return on investment much more faster than they had envisaged. Hotel owners, take particular interest on the last paragraph about the financial controller and the general manager.