Historically, many independent hotels have been operated as ‘lifestyle’ businesses whilst others have had greater commercial intensity at their heart. Whichever bracket you fit, what is consistent is the need to deliver profits and to meet financial obligations.
In uncertain times, the operating environment continues to become more complex, driving a requirement for greater commerciality and sophistication in terms of management expertise and technique. Many hotel owners and investors are now recognising the attraction of sub-contracting management to a professional third party.
THMC offers full hotel management services to independent hotel owners and investors. With a Board and senior management team representing some of the most experienced hoteliers from the independent and corporate hotel sectors, we pride ourselves on our:
Understanding – ‘the best vision is insight’ – Malcolm Forbes
Personability – ‘hotels are all about the people’ – Michael Gray, Hotel Director
Flexibility – ‘the measure of intelligence is the ability to change’ – Albert Einstein
Resources – ‘no man is an island, entire of itself’ – John Donne
Integrity – ‘truth never damages a cause that is just’ – Mahatma Ghandi
Transparency – ‘speak the truth. Transparency breeds legitimacy’ – John C. Maxwell
We would welcome a confidential discussion if you are considering appointing a hotel management company to manage your hotel interests.
This link provides An Insight into Hotel Management Companies and answers some common questions.
An Insight into Hotel Management Companies
Hotel Management Companies are a relatively new feature of the independent hotel sector and are often misunderstood. Below we summarise some of the questions we are frequently asked.
A professional hotel management company should take complete management control of your business, enabling you to focus on other matters whilst the performance of your business is enhanced and indeed optimised. They should remove responsibility and strain and whilst delivering your particular objectives.
As a hotel owner or investor, you should appoint a management company that understands the independent hotel sector. The challenges of operating in this environment are hugely different to operating a branded property where a franchise agreement exists. Independent hotels require a very individual and personal approach, so find a company that offers this, and where you are truly comfortable with the key people involved.
Simplistically, a hotel management company will enter into an agreement to operate a hotel on behalf of the owner or an investor. The terms under which they will operate are covered in what is normally referred to as a Hotel Management Agreement. This is a lengthy document which amongst other things, will cover:
- The term: normally between 3 and 10 years
- The services to be provided
- Terms under which both parties can terminate the agreement e.g. sale of the hotel, non-performance or other breaches by either party
- The fees – please see below
- Management of financial affairs
- Management reporting
Ultimately, the hotel management company will take full responsibility for operation of the business, reporting formally on a monthly basis to the owners. Owners are normally precluded from getting involved in the business in any way whilst the agreement is in force.
The company owning the hotel continues to employ all the staff including the General Manager. However, the management company will have full ‘hire and fire’ authority, only the appointment of the General Manager normally requiring the agreement of the owner.
You should expect to appoint a management company for a minimum of 3 years unless there are particular circumstances which preclude this. Most management companies will seek a minimum term of 5 to 10 years but with various break clauses which protect the owner in the event of non-performance and sale of the hotel.
Fees payable to management companies are generally in two parts. The first part is a Base Fee which is calculated as a straight percentage of Total Revenue net of VAT. This is likely to be in the range of 2% to 5% depending on circumstances e.g. the size of the hotel, current performance etc. In the independent sector, it is likely to be around 3% to 4%. The second element is called the Incentive Fee. This is calculated as a percentage of Gross Operating Profit (not to be confused with Gross Profit) and is normally in the range of 5% to 15%, again subject to circumstances. Expect something at the lower end of this range. Gross Operating Profit is defined as Total Revenue less Operating Costs and all Controllable Costs but tends to exclude Rent, Rates, Insurance, Depreciation, Tax and Management Fees charged.
The simple answer is ‘yes’, but it is important to appoint the right company. Look for like-mindedness, flexibility, depth of support resources, understanding of your particular circumstances, a structured approach and sound reporting protocols. Hotel management companies are a well-trodden path in the branded sector for good reason – they work. Their presence in the independent sector has been a more recent phenomenon. Either way, the process should work very well and should enable owners to step back and watch their business prosper.