HOTEL MANAGEMENT BUSINESS – THERE IS A LEVEL FOR EVERYONE

This is a business for graduates of Marketing, Business Administration, Hotel

Administration and also retired experienced staff of reputable five star hotels. It is a
well-known fact that many hotels are not properly managed. People who built them
either do not know how to manage them or are already behind in terms of current
hotel management practice. Such hotels lack patronage, have dilapidated facilities
and are generally operated at a loss.

So if you set up a hotel chain management business, identify hotels that need help
and approach them. Your management service can either be offered in two areas.
One, you can lease the whole hotel, i.e., total operation of the hotel is handed over
to you under a fixed term contract, say, 2-5 years. You run the hotel and only pay a
rent to the owner. You will be expected to hire (and fire) staff, provide services,
handle maintenance of all facilities and take care of the outlook of the hotel.
Calculating the rent payable should be done by discounting the expected income
from all services of the hotel over the contract period against the background of
expected cost over the same period. An agreed percentage of the projected profit is
paid to the owner as rent while the rest is retained and which will be your
remuneration. In this area you may have to bring in your own capital which will have
to be deducted at cost.

The second one is to just offer management/consultancy services. You will have to
use available resources and facilities, i.e., staff, equipment, capital, etc. You will only
give management support. In this direction, your remuneration will be a fixed fee,
which may be a lump sum or a percentage of total income normally called
commission.

A very ingenious and interesting dimension of hotel chain management service,

which will appeal to people with limited resources, is to zero in on one or two aspects
of the hotel business. For example, in any hotel, you will find a restaurant, laundry,
conference room, living rooms, supermarket, car hire, etc.

You may pick first the restaurant and offer hotel restaurant services. Package a
proposal and start with hotels in your locality. Then you can expand to take over
 restaurant services of all hotels in your state. The same thing can be done for
laundry services or car hire.

The main consideration of hotel chain management business is service. Quality of

service should be uppermost in your mind. Hotel service is hospitality business
providing total comfort for guests at all levels of service delivery within the hotel,
right from when the guest steps in and throughout his stay. To facilitate a quality
service tradition, a computerized reservation system is recommended. Innovative
marketing strategies like discounts, giveaways, group rates, should be incorporated
to turn around the fortunes of a hitherto dying or moribund hotel.

Starting the Business

You don’t have to be the size of a Protea or Sheraton or Holiday Inn to set up an
Hotel Management business. It can start with the common one star hotels that we
have all around us. Actually you can even say that your own is to manage just one
star hotels and nothing more.
Somebody who is starting from the scratch can even elect to start from one aspect of
the Hotel’s operations. For example, somebody can set up a management company
to manage restaurants of Hotels or the bar or the laundry or the gymnasium.
Starting from a small part of the Hotel’s operations will enable you gain a foothold
into the business and help you gain proficiency fast. For those who have their eyes
on the big side of the business you need a proper set up to compete effectively with
the established Hotel management companies.

Funding the Business

1. This business is best done as a partnership. This is because it is more of a

knowledge business than capital intensive. It is recommended that the partners
are experts in hotel management business. For example one may be an
operations person while the other person may be a marketing person. Since
capital requirement of the business is minimal, the partners will only be required
to contribute money to buy basic office equipment for the office.
 2. The other type of funding for the business is savings of the promoter. This will
ensure that ownership is not diluted until the business grows so as to enable the
promoters preserve the vision being unnecessarily tampered with by new
investors.

Marketing the Business

In Hotel Management business image is everything. This translates to the fact that effective
branding must be put in place to succeed in the business. For example, the Protea brand,
which is a South African brand has well focussed vision concerning the ambience of its
hotels. You will recognize a Protea Hotel right from the colour of the hotel, the external
façade, its furniture and fittings. Such quality standards must be put in place to enable your
brand stand out. So, effective branding is a marketing tool in the business. The branding
must be extended to service delivery in all the facets of the hotel’s operations. This means
that in any of the hotels under management the same type of service quality must be
available.

The next consideration is the location of the hotels under management. The profile of the
hotel will determine where the hotel will be located. For example, a management company
managing five star hotels will always locate in High brow environment so as to attract the
kind of patronage that will fit the profile of the hotel. Most five star hotels are located close
to international airports or at upbeat commercial centres. A five star hotel being located in a
low income neighbourhood will be economic suicide. The same if a one star hotel is located
within an upbrow neighbourhood.

The next point is the pricing of the services of the hotel management company. There are
usually three ways Hotel management companies charge for their services. The first is the
basic management fee. This is usually a percentage of the income of the hotel under
management. It is usually between 7.5% to 15% of the gross revenue of the hotel. The
second is the marketing fee. This is the amount that the management company will spend
on corporate promotions for the hotel. It is also fixed as a percentage of the income of the
hotel. It can be from a range of about 5% to 10% of monthly revenue of the hotel. The final
fee is the performance/incentive fee. This is the fee payable should the management
company exceed the income target of the owners of the hotel. The incentive fee most of the
time is a rolling percentage depending on the income achieved for that operating year.
The last consideration is the issue of promotion. Hotel management business is sold via
talking to existing hotel owners with the view to taking over their management after doing
remodelling of the existing structures. Another way to promote the business is to advertise
in magazines and publications target at the hospitality industry.

Capital Requirement

Rent of Office Space for 2 years @ N500,000 per annum N 1,000,000

Official car N 1,500,000
Office Equipment and Furniture N 750,000
Generator N 250,000
Working Capital N 300,000
Total N3,800,000

Profit Considerations

The income of the business is based on the income of the hotels under management. Let us
say for example that the Hotel Management company has two hotels under management
and each of the two hotels has N5 million income per month. If the management fee is 15%
per annum and the two hotels make N10 million per month, the management fee is N1.5
million per month and N18 million per annum. Let us also assume that the management
company just achieved the target revenue and is not entitled to any incentive fee.

Profit Summary

Gross Income – Income based on 15% management fee for 2 hotels

with each hotel earning N5 million per month N18,000,000

less

Rent of Space N 500,000

Salary of 2 office executives @ N75,000 per month N 1,800,000
Salary of 2 Partners @ N150,000 per month N 3,600,000
Electricity N 15,000 per month N 180,000
Diesel N30,000 per month N 360,000
Maintenance of Vehicles etc. N20,000 per month N 240,000
Cost of Capital N3.8 million being paid back at 20% p.a N 760,000
Others N20,000 per month N 240,000

Total N 7,680,000

Net Profit N 10,320,000

Comment

From the above analysis it is possible to pay back the N3.8 million facility taken to set up
the hotel within 6 months.

Busayo Ogunmade
CEO – Learning Platform Ltd
08034101694