Layout the Future
- Posted By Andrew Morgan
A part of the purchase process of a motel that commences well before settlement date includes laying out a plan for the future. This may not necessarily be written down, but can be simply a consideration of the future even before signing on the bottom line. It may be a few dot points or ideas through to an extensive list depending on each individual. Having some idea of how one expects the future, should all go to plan, is a great idea to begin with. One possible future plan may look something like this: -
Week One After Settlement
1. What will be the first thing we want to change immediately after settlement?
2. Will we start renovating rooms?
3. Is a major clean-up of the property the first matter to tackle?
Six Months Later
4. Once we complete the above items how will we work on increasing the occupancy rate?
5. How can we improve our office and working processes?
6. How can we increase our tariffs?
7. What expenses can we target that we can eliminate or reduce?
Two Years Later
8. How can we get away more now that we have the business running as we would like?
9. Can we employ additional staff, utilise a relief manager or employ a full time manager?
Four Years Later
10. Should we look to sell and buy a larger motel next year, or take some time off or perhaps retire?
11. What do we expect the market to look like for what we will be selling next year?
Depending how particular or meticulous one is, may mean the above short list is far more detailed. The more detail the better I would think. This doesn’t mean the plan will play out exactly as written five years down the track, but it’s more a guide for a new owner/operator to work towards. This way various matters can be dealt with and prepared so that the lead up to going to the market is smooth and organised, as opposed to playing catch and being unprepared.
Different types of motels or accommodation businesses will have very different plans and considerations. A leasehold motel owner’s plan may be to work hard for three years, on sell, then buy a freehold. The plan may be then to work hard for another three years, then on sell a lease and live off the tenanted investment. This is a common plan I discuss with clients entering the motel industry. Other discussions include a straight out “five-year plan” which I think is seen as not to short and not too long before one will be ready for a change. Five years also seems to be considered as long enough to achieve goals more related to improving the operation and financial performance of the business to be able to make a substantial capital gain upon future sale.
The hard part of the plan is how to follow through and make it a reality. How to execute and achieve it. Over time I would say that the statistics show the average length of tenure for the operation a motel is approximately three years. This obviously does not marry up with the five-year plan mentioned, however leasehold tenure is often less than freehold, and the five years relates more to freehold acquisitions.
As with any business operation, it is a fluid situation, circumstances change, and plans get re-evaluated. Who’s to say that one needs to stick to the original plan? If an offer comes along that change’s things, run with it. Make a new plan and move forward. The best laid plans do not always come to fruition, as life gets in the way. Therefore, once the business is operating the way the operator wants it to, different options and opportunities can often present themselves when least expected.
The role of the operator in being able to execute the plan needs to be considered. This all revolves around avoiding falling into the old trap of not only working in the business, but on the business as well. One needs to consider that trying to fulfil the roles of everything and everyone within the business will not result in achieving the goal. It simply puts pressure into the operation, and all involved.
Further to the above, another goal most business operators have is trying to conserve costs and run a business as efficiently as possible. This unfortunately works against other goals such as the five-year plan. The line between doing a job yourself and delegating to an employee is a difficult one for most people. Motels are a seven day a week operation and working all day every day is not realistic, especially over a five-year term. Something in the end will have to give, and often the result is a rash decision to sell before the goals are reached.
Burn out is often the main reason the five-year plan ends up being reduced to an average time frame of 3 years before selling and moving on. When a motel owner/manager is attempting to do all roles within the business inevitably they get burnt out and look to sell the motel. In many cases this ends up in selling the motel at a lower value than could have been achieved had they been able to see their original plan through to fruition. A typical example is when a new owner takes over, spends a large sum on capital improvements or refurbishments and sells out short of their planned time frame, prior to realising the full benefits of their investment.
Delegating some roles within a motel is important, whether it be management, reception, accounts, cleaning, meal preparation, etc. If an operator can free up some of their time by allowing employees to handle certain roles, this will assist in freeing up time for the operator to work on improving the business or taking time out to recharge the batteries. Delegating jobs or just taking some time off each week or month, may cost a little more in wages, but in the long run it may be a cost that will be recouped at the end of the five-year plan.