The late Pointer O’Neill, a smart old political leader and Speaker of the House, on his profession, opinioned that “all politics is local”. So it is with Hotel Management. The top ranked brand-name chain image, their franchise quality control programs, their franchise assistance department, even the vaunted state-of-the-art central reservation system, while all essential, are not as reliable in insuring the business success of the hotel home as much as devoted regional management.
If you are considering an investment for a franchised hotel, you are aware that both the dangers and rewards are substantial. With that awareness, as numerous investors in your position have done, you might be tempted to turn over your hotel franchise software demo to your franchisor, especially if that company successfully operates their own homes, for example, companies like Marriott, Hilton, Sheraton, or Holiday Inns. Sounds sensible, due to the fact that they have the know-how and experience to make use of, that you don’t, and being astute, you know management is essential. However that might be a major error. Here’s why:
1. If you are an independent franchisee, chances are your hotel is not large by chain standards; while around 75% of all properties are franchised, most are under 200 spaces.
2. The franchisor/operator will supply you with a management contract making them the Management Operator over a specified period of years, perhaps as little as 5, and as numerous as 20. In that agreement, the Management Operator will receive a fixed rate, generally based upon a portion of the overall sales, and an additional fee versus a portion of the operating earnings, i.e. prior to repaired costs called an “reward cost”. The management cost, naturally. will consist of the manager’s salary that they supply, however the actual fee will be sometimes his income and will include various charges for appointments, marketing, and other services as a part of the local and national network of operated hotels. However that’s not the major concern; this is: the supervisor chosen for your 125 room residential or commercial property will be at the lower end of the experience scale so that his salary will be commensurate with the size of the home!
So now, you might have a problem. You’re going to have a genuine good hotel in an outstanding area with outstanding facilities and a great brand. You require good regional management, but you are not sure if you are qualified to pick and monitor one, nor even be able to tell if he is doing a good task. On the other hand, you’re not comfy with turning over your operation to a young adult whose guidance you are uncertain of. Besides, you don’t have that control over your operation in a franchisor Management Contract, and while there are incentive fees offered the operator for a more rewarding operation, there is no genuine downside for a franchisor operator if the hotel is less successful than expected. After all, they will still get their fixed charge, even if you have difficulty making your mortgage. There has got to be a third way. There is:
3. Check out the variety of smaller sized hotel management companies that do only that. They do not own and they don’t franchise and they don’t have that tremendous overhead that large chains have to spread among their operations and franchisees. What they do have is years of hotel operating experience, handling hotels in many instances of 500 to 1000 spaces in addition to all the smaller sized ones along the method. They also might put in a younger less knowledgeable regional manager, but they will monitor him, teach, and guide him as much as required since that is their income. They want to keep their customers and acquire new ones from recommendations.
Finally, the independent management business will be most responsive in terms of versatility in working out the management agreement with shorter terms, owner/management conferences and choices, as well as in difficult financial circumstances, reserved a portion of the fixed cost to the degree of the mortgage shortage, and naturally all of the services provided by the franchise are still available to the operator through the owner.
Focused, supervised regional management, a determined staff, and a management company devoted to the owner’s success will result in pleased guests and a high rate of return, both in guests and investment.