Motels & Hotels

Ep 34: Farmer’s Daughter

We chat to Peter Picataggio from the Farmer’s Daughter hotel in Los Angeles about building a successful boutique hotel.
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Ep 31: Equathon

Alex and Rebecca Watson share their experiences running Equathon, an award winning horse tour operator.
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Ep 30: Landing Pads

We chat with Matt Brass about how Landing Pads has managed to achieve a 93% rating on Hostelworld.
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Ep 28: United Backpackers

Anna Heaton, the General Manager of United Backpackers, tells us about branding and launching the hostel, and how she anticipates the future growth of the business.
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Ep 27: Searching for the Right Motel

We chat to Chas Dale, the owner and operator of Comfort Inn Foster, about searching for the most ideal motel.
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6 Ways to Avoid Burnout With Your Motel Business

Motels change hands, on average, every four to five years. Often, it’s not for business reasons. It’s just that the owners are battle weary. They have ‘lost the love’ and need a long extended break.
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Motels change hands, on average, every four to five years. Often, it’s not for business reasons. It’s just that the owners are battle weary. They have ‘lost the love’ and need a long extended break.

Are you in this situation? Is your business underperforming as a result of your lack of positive energy?

Here’s some symptoms that your motel business has worn you down:

  1. You don’t sleep as well as you used to.
  2. Once a bubbly and friendly person, you still are, but only on the surface. Your default mood is…grumpy.
  3. Your relationships are stretched.
  4. You don’t make time for exercise, to read, listen to music, cook, or catch up with friends.
  5. You have stopped implementing new ideas into the business, looking for ways to improve, or seeking feedback from patrons (or worse still, caring!).
  6. Your standards are dropping…you can’t be bothered pestering the cleaners again, so you just let it slip…it’s not that bad.

 

Motels are a great business. But to be able to deal with people all day long, you have to be switched on and running at 100%. Without the right strategies, it can wear you down.

If you and your motel aren’t maximising your potential, there are some things you can do to get back in control and make the business work for you, on your terms.

Here’s six ideas from successful moteliers we have spoken with:

 

1. Take Regular Holidays

 

It’s kind of bizarre that you spend your days helping other people enjoy their holidays. Laughing, lighthearted and recharging, yet you have stopped giving yourself the same privilege.

 

“Alternating periods of activity and rest is necessary to survive, let alone thrive. Capacity, interest, and mental endurance all wax and wane. Plan accordingly.” 
Tim FerrissThe 4-Hour Work Week

 

I am sure you can think of some problems with getting away, such as:

Problem: “Who will run the business?” Solution: Get relief management. A basic Google search brings up numerous providers such as www.caretakersaustralia.com.au or, if you can’t afford professional help, make it your goal to provide intensive training to a family member or friend. Find a solution.

 

Problem: “We can’t afford it.” Solution: Test your assumptions regarding affordability. Firstly, going on holiday brings you back relaxed, motivated, and inspired. Feeling alive and refreshed will help you make far more money than the cost of the holiday!

 

Secondly, perhaps reconsider the type of holiday you want. Yes, packaged holidays staying at five-star resorts can be very expensive, but it doesn’t need to be cost-prohibitive.

One of my favourite spots is Koh Lanta in Thailand. There are cheap flights aplenty and then a hut on a long beach costs about $35AUD a night, and beers cost less than $2 each. Search the web, ask friends, and get off the beaten track. Often, this type of getaway is far more fun. For ideas, visit www.nomadicmatt.com

Being rested and inspired will make you money. But even if I am wrong on that statement, seriously, who cares? Put the numbers aside for a minute. It’s better to make $150k for the year and be happy than $300k living like a miserable asshole.

One of the best ways to create action, which I use regularly is to just book the flights and worry about the rest later! Once you’ve paid for the flights, you will find solutions to whatever ‘problems’ occur regardless if they are imagined or otherwise.

 

2. Get “Off-Site” Regularly

 

Too much time in one place drives anyone nuts. Tom Hanks in the movie, Castaway, became best friends with a volleyball. Don’t let that be you! Similar to going on holidays, you must find relief staff who can make it possible for you to take time away from the property, daily, to do all the things you aren’t making time for now.

Once again, if your mind turns to “I can’t afford it,” put energy into finding a solution, which will allow you to afford it. Until you do, you don’t have a sustainable business.

 

3. Outsource and Reduce Your Minimal Impact Labour

 

List the things you least like doing. How can they be done by someone else? For example, if you spend all your time and frustration trying to keep up with your monthly accounting requirements, but you love the marketing side of the business, change your focus.

What if instead you paid a bookkeeper $1,000 a month to look after your books and then you spend those saved hours on promoting your business. That could result in the equivalent of five to ten room nights a month that you need to obtain to cover the cost. What if instead of spending your own time doing your accounts, you paid someone so you could promote your business? Could you attract ten more room nights? If so, why are you spending your time working on accounts, or any other task you despise?

Look at the types of technology you are using to run your business. Tools like Xero www.xero.com can save you time on high labour admin tasks.

What part of the business do you love? Devote your time to that. Find ways to get other people to do the stuff you suck at and that exhausts your energy. Then put your time into things that have the highest impact on your well-being and the success of your business.

 

4. Be Special

 

It’s boring being average. So many motels are boring. They’re doing everything the same way. What can you do differently to make your motel stand out from the crowd? How can you amaze and excite your customers?

Look for inspiration from those who are out there kicking goals. Australian companies, such as 8 hotels are doing fantastic things - http://www.8hotels.com/. Get inspired by what others are doing well. As Sam Walton, founder of Walmart said, "…most everything I’ve done I’ve copied from somebody else..." You don’t have to re-invent the wheel. Look far and wide for ideas and case studies you can replicate or improve upon.

 

5. Keep Learning and Growing

 

“The secret to mastery in any field is to forever be a student.” ~Martin Palmer

The above quote says it all. The fact is we are happiest when we are learning and growing. Take on the spirit of a student and enjoy learning and improving your motel business. Listen to podcasts on the industry, such as www.upsidehl.com.au/hub and keep growing.

 

6. Smile

 

Being rundown and stressed is the short track to burnout. The above six points will help make you a happier person. When we are happy, we attract success.

Success in your motel business is a journey. Try implementing some of the ideas listed here for the next 30 days.

How about starting with booking your next holiday, today? Just do it!

How to Value a Freehold Going Concern Motel

When looking through listings, it is important to remember that the listed prices are solely the price the vendor or agent hopes to get so there is room for negotiation.
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What is a Freehold Going Concern Motel?

 

Buying a Freehold Going Concern (FHCG) motel means you are buying both the property (Freehold) and the motel business that trades at the property (Going Concern). So, how do you establish the value of a FHGC and the price you are willing to pay?

First, let’s consider the market value. The International Valuation Standards Council International Valuation Glossary defines market value as:

“The estimated amount for which an asset or liability should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.”

The most interesting line from the above is, “Wherein the parties had each acted knowledgeably, prudently, and without compulsion”. The fact is, as the excitement of buying a FHGC motel kicks in, this compulsion to not miss out can often lead to the buyer paying too much.

 

What to Look For When Purchasing a Motel?

 

Most often these days, the search for a FHGC motel starts online. When looking through listings, it is important to remember that the listed prices are solely the price the vendor or agent hopes to get so there is room for negotiation.

So how do you determine what you should pay? The fact is, if you ask 10 different people you may well get 10 different answers. It is not black and white when it comes to determining a fair price.

Some people go more for gut feeling. Others are strict number crunchers and make every decision on dollars and cents. In my opinion, somewhere in the middle is good ground. It is crucial however to carry out your own in-depth research as well as getting independent advice from an accountant or specialist valuer.

The method I find most useful, especially as a starting point, is to split up what the business and property would be worth if purchased separately.

To establish what the property component is worth, ask yourself, “If I didn’t own the business what would the property be worth?” And vice versa.

 

Valuing a Motel’s Property

 

A good guide in determining this is to figure out what the market rental for the property be? For a leasehold motel for example, the rental should be about 25% of turnover. So if you are looking at a FHGC motel, multiply the turnover by 25% to determine the likely market rental for the property.

Eg. If the turnover is $400,000 then approx. $100,000 ($400K x 25%) is the rental the property could generate if you bought the FHGC and decided not to operate the business.

If instead, I purchased the above property for $1,000,000 and it had an annual potential market rental of $100,000, my return (if I leased it out) would be 10%. This return is called a capitalisiation rate (cap rate).

Once you work out what the annual market rental is, you can call local agents, valuers, research comparable sales etc to determine average capitalisiation rates for the area you are buying into. That way you know roughly what the property component is worth.

 

Valuing a Motel’s Business

 

Based on the above example, assuming the location has a 10% capilisation rate, the property component is worth approx. $1,000,000. So what would the business be worth?

With a FHGC you need to look at the purchase of the business component as if that is all you were buying and the vendor was charging market rates for rent.

To do this, obtain the most recent Financial Year Profit & Loss statement for the FHGC you are looking at buying. Add-back to the net profit any interest/rent, depreciation and wages (drawn by owner). As well as any other genuine addbacks and this will give you a net profit after addbacks figure.

Deduct from this figure the market rental if you only owned the business but had to pay rent at market rates. This figure is the profit someone could make if they bought only the business component from you and you charged them market rent. (Depending on location, lease term etc buyers will typically pay a ratio of 3 – 4 times this figure for the business)

Let’s say turnover is $400,000 and net profit after addbacks is $240,000. If you deduct the rent you would need to pay ($100,000) from the net profit, you could earn $140,000.

So someone (pending location, lease etc) would pay 3 – 4 times this ($420,000 to $560,000) for the business. You will need to call local agents, valuers, your accountant, industry specialists to determine a fair market multiple for the location/business circumstance but you get a rough guide.

 

Determining a Motel’s Market Value

 

The combination of this figure, let’s say $420,000 at a 3 x multiple, and the $1,000,000 we established as the property value above results in an indicative FHGC valuation of $1,420,000 which gives you a good guide as to what the FHGC valuation should be.

Working out the capilisation rate to adopt, ratio/multiple on the leasehold, rental etc comes down to doing a lot of research and ultimately this is what valuers do when valuing a freehold going concern.

Other factors such as the condition of the building, underlying land value etc also come into play but the above gives you a good starting point to understanding how to value a property. Most importantly, however, get advice from an accountant experienced in motel freehold going concerns.

A good place to end is a quote from the world’s greatest investor, Warren Buffet.

 

“Price is what you pay; value is what you get”

 

Ep 22: A Motel Owner's Perspective

We went on location to speak to Doug and Lorraine Webb about what it's like owning and operating motels in Victoria, Australia.
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Ep 11: Hotel/Motel Marketing Cost-Effectively

Hotel sales & marketing consultant, Jodi Ryan, offers tips on where to invest your money to help you maximise revenue whilst minimising expenses.
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Ep 10: Marketing a Hotel/Motel Competitively

Hotel Marketing Consultant, Jodi Ryan, provides a wealth of advice on pricing, the importance of online presence, social media and more.
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Ep 9: Hotel Industry - A Marketing Perspective

Hotel Marketing Consultant, Jodi Ryan, discusses Australia's hotel industry in terms of current trends and bookings psychology.
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Motel Guide

Looking to purchase a motel? Here are 10 things we suggest every motel buyer considers before signing a contract.
  • Consumer Guides

Click to view.

Hotel Guide

Looking to purchase a hotel? Here are 10 things we suggest every hotel buyer considers before signing a contract.
  • Consumer Guides

Click to view.