5 More Money Saving Accounting Features for Hotels

Accounting should be able to provide a hotel owner reliable insight into the operations and financial well-being of their business.  Insightful reports must be available without delay all the time to all key personnel without the owner or others waiting for their accountant to get around to creating the reports.  To operate your hospitality business efficiently, here are some more features available in a good accounting program:

1. Strong Security – With a web-based accounting program you want to know that your data is secure. Data should be kept only on the server and there should be added security measures like encrypted communications and database encryption. Also, advanced security features within the software should allow you to control when and where your staff access the system. Your accounting software should also have the ability to let you assign specific roles and limitations to deny or grant access to individual line item accounts and processes. This specificity of control allows you to delegate more efficiently without compromising confidential information.  You control who sees what.

2. Drill Down Reporting – Have you ever been reviewing past profit and loss statements, and seen an unusually high expense? If you have to go track down invoices, you’re wasting your time. Look for a program that has drill down reporting. ‘Drill down’ means you can easily click on one journal entry and it seamlessly opens another inquiry screen until the original line item entry and even the document is revealed, and you can see who made the entry, or who approved it if it's approved.  Perhaps there was a large party which required extra supplies for that time period. With drill down report, you can accelerate your decision-making with quick access to past information and provide insights into future needs. 

3. General Ledger Consolidation – You can integrate financial reports across multiple hotels, still keeping separate books, to get consolidated financial reports. Use these reports to get an overview of your entire portfolio's performance in any period, or one grouping of hotels, with support for multiple ledgers. Also, it’s a great tool to compare hotel sets within your portfolio. To do this, maintain the three C's, same Chart of Accounts, same Calendar year, same Currency, at the hotels to be rolled up into consolidated reports.

4. Advanced Financial Reporting –Programs with advanced financial reporting offer integrated reporting tools which are customizable so you can design financial statements that are tailored to your hotel(s) and create multiple budgets for different scenarios. Take advantage of built in financial reports which provide year-over-year comparison and budgets versus actuals, or show expenses as PAR or POR, for a deeper understanding of operations. 

5. Integrations – Consolidate the tools you use to manage your business more efficiently with other products which integrate with certain web-based accounting programs. For instance, manage employ functions with an employee portal. Other simplifying integrations available include Accounts Payable Automation, Microsoft Office 365 and Power BI, to list a few. 

We will be hosting a free live webinar on how to get more from your hotel accounting on Tuesday August 2^nd. I hope you join us for this educational event focused on improving hotel accounting efficiencies. Register at http://mbahotels.com/?page=webinar_register

What are your thoughts on or frustrations with your current hotel accounting program?  Are you looking for a better solution?  I’d love to hear from you. Email me at Charlie@mbahotels.com.

‘Till Next Time,

Charlie Fritsch

www.mbahotels.com

5 Money Saving Measures Available with a Hotel Accounting Software Upgrade

In my 20 years of experience in the hospitality industry, primarily as a hotel real estate broker, I have seen thousands of hotel profit and loss statements. Over these years many successful hotel owners have grown their portfolio from one or two hotels, to 10, 20, or 100 hotels. One challenge of this growth of a hotel portfolio is that certain systems and ways of operating one or two hotels become dysfunctional or obsolete as an ownership or management company is managing 5 or more hotels, even if they are limited service hotels.  Full service hotel operators of even just one full service hotel may benefit from upgrading their accounting.  Almost all hotels have had their front office software updated in the last 5 years, so why would you still operate with the same old PC based or even web based accounting programs that have not kept up with the fast paced advances of the latest technology.

Here are Five Ways to Profit More by Upgrading Your Hotel Accounting:

1. Use the three C’s: Calendar, Currency, and Chart of Accounts 
   The main advantage of using the same Calendar year, Currency, and Chart of Accounts across your hotel portfolio is that the books can be easily consolidated with a more sophisticated accounting software. A thorough profit and loss statement for the portfolio can indicate the financial health of the portfolio as a whole. Individual hotels can also be compared side by side; this is especially useful with hotels of the same brand or brand family to spot increases in supply cost or sliding performance. The Uniform System of Accounts for the Lodging Industry, Eleventh Edition, is an excellent resource for sticking to clear, consistent, and thorough chart of accounts.  For the growing hotel portfolio, having consolidation points of P&Ls can provide new actionable intelligence that you miss out on with old school separate accounting of each hotel. 


2. Put In More Detail for More Profitable Decision Making 
   Use detailed line item income and expense categories in order to better understand the health of the business cash flow. The deeper analysis of expenses gives you information to make cost saving adjustments. The result is better budgeting, more control of your expenses, and in the end, more profits. For example, by more accurately predicting the hotel’s needs, you can try to source the best deals for the busy season, but not overspend on inventory in the low season.  Limited service hotel operators may lump payroll costs into one-line item.  Breaking payroll out by department, and tracking unemployment insurance, worker’s compensation insurance, and all other payroll costs separately is also necessary to control those costs.


3. Use Efficiency and Automation to Save Time and get Paid Faster 
   A robust accounting platform has built in automation of processes to save the organizations most valuable people's time. Use these advancements to control payables and receivables with more accuracy, have faster turnaround on invoices, and get paid sooner on direct billed accounts. Manage payables more efficiently with new software and specialized service providers of automated AP processing, that can reduce your AP processing costs by 60%, while still giving you absolute control over what gets paid and when.  Meanwhile the improved efficiency means your employees can get more done in less time, reducing payroll costs, and allowing them to attend to guests needs and other more important jobs that drive revenue.


4. Your Books Should Be Accessible Anywhere
    Accounting software that requires manual backup on a hard drive is at risk to theft, destruction, corruption, or loss. But the real advantage of a cloud based (online) accounting platform, is that it is accessible anywhere, allowing key personnel to be informed at all times. The responsibility of the security and backups falls to the service provider. 


5.  Delegate to Your Employees 
   Take advantage of accounting software that includes fine-tuned user level security settings in order to delegate very specific tasks to lower level employees, like a night auditor, while keeping sensitive information inaccessible to them.  With this feature, owners and management companies can have night auditors or front desk staff enter receivables or do other specific tasks, without seeing or accessing sensitive information like profit and loss statements or specific account information.

You may be thinking, “Right, but I can't afford such a sophisticated accounting system!”  That's where you would be wrong.  You may also say a sophisticated system like this will be too difficult for me or my people to learn.  However, new training methods like YouTube videos and Universal Search and Help guides make learning a new system easy, and are also available with at least one new hotel accounting platform that YOU CAN AFFORD, and YOU CAN'T AFFORD NOT TO TAKE ADVANTAGE OF. 

Exactly what that system is will be revealed in our Upcoming Webinar on Tuesday August 2nd. Stay tuned for that announcement

Till Next Time,

Charlie Fritsch

www.MBAHotels.com

When 'Git It Done' Applies to a Transfer PIP

As a hotel broker, one point of contention I see in many deals is the arrival of the franchise property improvement plan, a.k.a. the PIP. Hotel franchise companies often take advantage of the license transfer to require more extensive renovations than is required of the seller to continue with the flag. Franchise companies know that hotel buyers can obtain financing to cover larger renovations included in the acquisition loan. In fact, for the buyer, financing the PIP in the new mortgage is indeed the best way to finance the cost of a PIP.

However, a large transfer PIP can come as a surprise to both buyer and seller, especially if the seller had no outstanding PIP list items. The contract sale price is negotiated with an expectation of the cost of franchise required renovations in mind. When a PIP arrives larger and costlier than expected, it can disrupt the deal. If the actual PIP is significantly higher than the expected cost of the PIP, the contract price may be re-negotiated as a result.

It is sometimes possible to negotiate or delay certain PIP items with the franchisor. While for various reasons, the seller and/or buyer may consider this strategy, it is usually in the new owner’s interest to renovate the hotel and complete the PIP as soon as possible after closing.

While a hotel may be performing well at purchase, delaying improvements may jeopardize current market share or future growth. Meanwhile a renovated, updated hotel can usually drive rate and occupancy. The goal with any renovation is to make back what was spent and more, adding to the overall ROI. Increased revenue, and renovations also increase the value of a hotel. Franchise required PIP items usually do just that, although sometimes there are simply brand standard items that don't really add to the guest experience, but simply distinguish the brand from other. Those kinds of PIP items are prime targets for owners to negotiate or delay, whereas all renovations that improve the guest experience and satisfaction, should be accepted and done with enthusiasm.

One advantage of SBA 7A and SBA 504 loans is that they can include PIP and renovation funds in the mortgage. So it's my advice to buyers to not begrudge the PIP, and include PIP costs and funds for any non PIP renovations required in the acquisition financing when possible, and 'git it done'.    

If you like my blog, please share it with friends and colleagues. 

'Til Next Time,

Charlie Fritsch

www.mbahotels.com

Get Ready! The SBA 504 Refinance is Back!

On May 26^th the Small Business Administration (SBA) made the 504 Refinance Program permanent.  This is great news for hoteliers!

How it Works

The SBA 504 Refinance loan program offers up to 90% loan to value for real estate property.  The effective interest rate on the SBA’s portion of the loan is low, as low as 4.22% in June, and is always fixed for 20 years.  It is also possible to get cash out for operating expenses with up to 75% loan to value.

If refinancing real estate only with no cash out, a bank or private lender funds 50% of the Project costs, while an SBA-approved Certified Development Company (CDC) finances 40%, and the borrower puts in equity of 10%. Read Forbes article.

The ‘Wall of Maturities’

We are nearing ten years since hotel values peaked in 2006-2008. Many of these hotel loans are now coming due in what has been called a “Wall of Maturities”. Read Huffingtonpost article. Unfortunately, in some cases hotel values have not appreciated much or at all in that time. The high loan to value for the 504 Refinance program is good when hoteliers do not have a large amount of equity. The SBA 504 Refinance program is applicable for maturing conventional and smaller CMBS loans. Even though the 504 Refinance requires personal guarantees from the borrowers, unlike CMBS which is non-recourse, it may still be a good option for some hotels. 

Lower Debt Service

The low interest rate, fixed for 20 years is another advantage of this program. Hoteliers who refinance with the SBA 504 from higher interest conventional loans can reduce the cost of their debt service, thereby increasing operating income. At a time when so many brands are announcing new brand standards, freeing up financial resources is a boon to hotel owners.  Also, don’t forget that the Federal Reserve will likely raise interest rates a second time this year, with incremental increases surely to follow. This is a great option to secure a low interest rate while they are still historically low.

Talk to an Expert

With over 20 years of experience personally in arranging hotel financing, I know every situation is different. There are restrictions to eligibility and use of funds for the 504 Refinance. If you have a coming loan maturity or are considering refinancing, talk to an experienced mortgage broker to see if the 504 Refinance would work for you. I can’t recommend anyone more highly than Lynda Drehmer of MBA Capital Funding, affiliate company to MBA Hotel Brokers. Lynda has over 30 years of experience in banking and in depth financing knowledge specific to the hotel industry. Learn more here or contact Lynda@mbacapitalfunding.com.

Or email me with your comments or questions on your hotel financing situations. 

‘Till next time,

Charlie Fritsch

www.mbahotels.com

www.mbacapitalfunding.com 

Direct Booking Increases Your Bottom Line

Hotel values are driven by room revenue and net income.  So whether you are considering selling or refinancing now or later, the more revenue your hotel generates, gross and net, the greater it's value and the greater your exit profit.

Last month Choice Hotels became the latest Franchisor to join the so called ‘Direct Booking Wars’.^[1]  Earlier this year Hilton launched its “Stop Clicking Around” campaign and claims that HHonors enrollment on its website is up 90% since starting the campaign.^[2] Most other major franchisors also have direct booking initiatives including Marriott, Hyatt, IHG, and Wyndham.

In addition to promising the ‘Best’ rate, some Franchisors offer benefits like mobile check-in and free Wi-Fi when customers book direct. 

As a franchise hotel owner, these Franchise wide campaigns are a win-win for you and your franchisor. The cost of Online Travel Agencies has always been the burden of the hotel owner. The commission structure for OTAs can range from 10 – 30%. In addition, OTAs with the merchant model, that collect the consumer’s fare up front and then pays the hotel a pre-negotiated net rate, the cost of the OTA is never even accounted for in the P&L because you only show your income for that room sale NET of the OTA. Up until now the cost of OTA distribution has been largely unchecked.^[3] To the extent that the new push for direct booking moves rooms booked from the OTAs to your direct franchise channel, it will add to your hotel’s income and bottom line.

According to one report by Hospitality Upgrade, direct bookings are about 9% more profitable for the hotel industry, than OTA bookings, when costs including commissions, transaction fees, loyalty fees, and other direct channel costs are considered.^[4]

Marriott says it’s too early to tell the success of their members-only rate, but that early response is positive.^[2] For the hotel owner too, we will just have to wait and see how the direct booking campaigns affect net profits, and influence hotel valuations, but we would expect any movement of revenue from OTAs to direct channels to be positive for hotel profits and values.

Have you seen any changes in reservation trends at your hotels since the start of the ‘Direct Booking Wars’? What are your thoughts on the push by franchisors? And the push-back from the OTAs? Remember to share if you like this blog.

Till next time;

Charlie Fritsch

See Hotels for Sale at www.mbahotels.com
Thinking of Selling? http://mbahotels.com/?page=sell-your-hotel

Matching your Skillset, Risk Tolerance, and Capital to a Hotel Investment

You're looking for a hotel acquisition.  You've identified some target criteria;

• States or markets of interest
• Limited, Select, or Full service
• Possible brands
• Price limit
• Number of rooms, etc.

You may also have in mind target parameters such as cap rate, price per key or a room revenue multiplier that fit the product and market.

However, I'd say it's also important to match your skillset and capacity with the opportunity.  Not only financial capacity, but the time required from you and your team to acquire, execute your strategy, and operate the hotel.  A performing hotel with steady revenue and strong profits may only need a standard PIP, or none at all in rare cases, to stay at the top of its market segment and improve guest reviews and drive ADR. This type of investment offers predictable returns on investment and is lower risk for the owner, as well as the lender. However, for the well performing hotel, the buyer may pay a higher price per key and revenue multiplier, in keeping with the lower risk.  Is that the right investment for you? 

An example of this kind of asset is the Holiday Inn Express Limerick, Pennsylvania which I sold for $7,225,000. in 2012, when the industry was just recovering from the lean years. At the time of the sale, the hotel was only 2 years old and was achieving well over 100% RevPAR penetration of its competitive set, and revenues were still climbing although a new Hampton was being built nearby. The buyer was an experienced business person, but this was their first hotel acquisition in the U.S.  The hotel sold for $101,760 per key, which most buyers found to be a higher price per key than they could accept in a smaller suburban market, yet it was just 3.46 times room revenue, and sold at a high cap rate.  It was a good match of the opportunity to the experience level of the buyer, and he also retained the existing successful experienced G.M., which was a good decision.  The sale was a win-win for both buyer and seller.

More experienced hotel operators with the time and resources for a turn-around re-positioning opportunity may look for a hotel that is under-performing in its market, and likely in need of a major renovation PIP and/ or re-branding. There’s greater risk but also greater potential profits, IF the buyer can execute the re-positioning as planned.

The Comfort Inn Fort Mill, South Carolina was in receivership, then bankruptcy court when MBA Hotel Brokers sold it, and it needed major repairs and capital improvements. The buyer was a hotel industry veteran with past experience overhauling mismanaged and under-performing hotels. The sale price per key was $21,895, but the PIP was estimated to exceed $1,000,000.  While this experienced operator was successful in bringing the capital needed to do the big PIP, and had the skill set necessary to organize the renovations needed and get them done in a timely fashion, we have seen some other buyers who have not been successful at this for multiple reasons.  Other than uncontrollable changes in the local market, often in these cases the buyer assumes they can get the capital to do the big PIP later, or just puts it off, and eventually letting a hotel decline by not keeping up with PIP requirements, competition with new hotels, and market expectations, leads to a loss of business and failure to compete, with ever declining RevPAR.

Finding the right investment for you will be a match of your desires and your capacity, financial and otherwise, and the skill set of all of the buyer's players, partners, management company, professional advisers, etc., with the opportunity of the hotel. Most hotels have room to improve performance in some way, it’s just a matter of scale and risk. So it's not only “What's in your wallet?”, but what's in your skill set and the new ownership's level of commitment to the success of the acquisition that matters.  If you are buying a hotel with partners, matching partner expectations, capital, and skill sets, with the project and keeping everyone working together with the same goal in mind from the beginning to exit, is critical to the success of the hotel investment.  There are hotel investment opportunities in every phase of the industry and economic cycles.  Finding the opportunities that fit is the ongoing challenge everyone faces.  

Honestly assessing the limitations of your access to capital, skills, focus and determination, as well as market limitations, before you begin a hotel investment search is the most important recommendation I could make.

Till next time;

Charlie Fritsch

Timing a Hotel Sale to the 'Larger' Season

In many markets, summer is the peak season of the year and hotel investors like to time purchases to take advantage of this strong revenue season. Yet, it may be far more important to time a hotel transaction to the larger ‘season’, or cycle, of the hotel industry.

By some accounts, the hotel industry seems to be moving into the ‘Autumn’ season, but for the mid-sized single-asset sale, the data shows we are still in peak ‘Summer’ season.

Hotel values have been recovering since the 2008 market crash and 2015 saw a high level of transaction volumes. However, much of the volume of hotel sales in 2015 were large portfolio and entity-level transactions. This is part of a larger trend of consolidation in the industry. Single-asset transactions are still trending up. Transactions of single-asset, under $25 million, hotel sales were up 24% in Q1 2016 compared to last year, according to Real Capital Analytics Q1 Trend Report. 

In the Linked-In post by Monica Wolfson of Real Capital Analytics, she says “To the extent there was a bright spot in transaction activity in the hotel sector in Q1’16, it was in the smaller assets and markets”. Read the Original Post Here. 

RevPAR continues to trend upward, but RevPAR growth has slowed, according to Smith Travel Research March 2016 Monthly Numbers, See the Aritcle Here. Financing, principally bank and SBA funds (see my blog on CMBS VS. BANK AND SBA), continue to be readily available and still at historically low rates, particularly for deals under $20,000,000.  So we see financing and transaction volume of single assets under $25 million staying strong through 2016. 

The immediate sale value of a hotel can go down somewhat if buyers lose the timing advantage of the peak season, and buyers may want to pay less if closing in October rather than April in Northern markets. This is true of the hotel industry larger ‘season’, as well.  Those of us who have weathered multiple cycles of the hotel industry have seen substantial value waves rise and fall.  The question to ask yourself, as a hotel owner, is “Do I want to hold onto this hotel through the next market ‘down season’, or make my exit now?”

If your answer is “No, I don't want to hold through the next down cycle”, then the TIME IS NOW to sell your hotel and maximize your investment return while buyer interest and financing is still strong.  How much longer that will continue we don't know.  Contact MBA Hotel Brokers for a hotel valuation by one of our experienced hotel brokers.

Do you agree with this outlook on the hotel market? Let me know your thoughts in the comments below. If you enjoyed this post, please share it.

Till next time;

Charlie Fritsch