The Motel Association of New Zealand held their annual conference in Wellington recently which was as usual a valuable benefit for it’s members. Below is a brief description of the event.
Day One
John Key was as usual a very dynamic and informed speaker. Information of the economy, the world and tourism in NZ all delivered with a good dollop of laughter and affinity to the ordinary kiwi person.
Following this Steve Lange the owner who grew Tony’s tyre service to 20 stores gave plenty of advice about customer service, expectations and tips to get all your staff on board with the ethics of your business. Turning complaints in to loyal customers and exceeding your competitors was another strong message to come through.
Debbie Mayo Smith followed up with 8 tips to free up time and make more money. Smart phones were a tool of the customer and needed to be considered from a business point of view. Outlook tips also gave ideas to be far more efficient with the email tasks.
A good time for visiting all the suppliers enabled delegates to make the most of having them all in the one place and get the maximum amount of information without having to spend hours by phone or email contacting them all.
The day was wrapped up with two workshops from Harman’s lawyers and Blakemore group valuers. Seaton Read and Brian Burke discussed improvement rental and the impact on both lessee and lessor and the factors effecting the termination of a lease for various reasons. Bruce Mainwaring gave delegates an insight in to valuation and arbitration processes and highlighted points in a lease which could affect a valuation
All in all it was a very full day loaded with information and tips for delegates. Top this off with the networking and discussions between moteliers and it is not surprising there were so many positive comments from delegates at the end of the day saying how glad they were they had made the decision to attend.
Day Two
Day two contained the AGM where Peter Blackwell was awarded an Hon life associate membership and the marketing plan of where MANZ is heading in the future. After lunch delegates were given a look at the new website from Maree Surrey along with the capabilities it had and tools it would provide for members. There was also a raft of tips and things delegates should be doing with their own websites. After lunch Jennifer Rolfe gave a fantastic insight in to branding, what it is and how to review or develop your brand.
Of course the night displayed all the delegates in their finery at the Gala Dinner. The mass of black ties and fancy dresses created an amazing atmosphere which set the scene for a great night. During the night The AA host supreme award was won by Roselle and Peter from Shadzz in Palmerston North. Congratulations to them on this. Then in typical conference tradition there was dancing well in to the night.
Day Three
Today had Kerry Prendergast describe the direction and activities of Tourism New Zealand and then a final session by Pam Corkery Which was highly entertaining but also very poignant and reminded us to make sure our life was full of good memories by ensuring we create them with the way we live our life.
This conference certainly delivered what it needed to for its delegates. Everyone should go home with ideas for their business, new skills and highlighted areas to expand their learning and knowledge, but also with new friends or further cemented old friend relationships. Moteliers are a special group of people and those proactive ones who attended conference have shown just how good they are.
August 02 2012 | Articles for current moteliers and Changes in Motel Trends and Entering the Motel Industry and Uncategorized | No Comments »
One of the newer additions to social media is Foursquare. This basic concept is that people check in when they are visiting places such as cafes shops etc and the person who visits the one place the most becomes the mayor of that place. To learn more look at this website http://foursquare.com/businesses/
Some businesses are using this concept to their advantage by creating added value for people who use the foursquare concept. This builds your current customers in to more loyal customers and can also attract new customers.
One icecream shop gave the mayor for each day a free icecream and increased their business substantially. If there is a choice between shops and you may get something extra from one place then it is most likely you will choose that place.
Another example is a hotel who offer a bar discount to their patrons who check in on four square http://www.hotelworldnetwork.com/customer-loyalty-programs/aloft-introduces-social-networking-rewards-9746
All these things create loyalty with customers and increase your exposure on the web. What can you do with this type of advertising media to improve your business?
December 13 2010 | Uncategorized | 2 Comments »
There are three main types of business structures in New Zealand to choose from when purchasing a business and the type of structure you use will be determined by the needs you have and which structure will best suit your individual circumstances.
1) Sole Trader
A sole trader operates the business on his or her own. This is easy to set up in that there are no legal requirements for registration or formal processes to follow. The owner in this business structure does everything themselves controlling, owning and managing the business. They are entitled to employ staff to help run the business but are entitled to all profits and are personally liable for all taxes and debts.
There are some disadvantage to this structure including that you have unlimited liability for your debts which may put your personal assets at risk. It can also be harder to secure loans or investors in the business and the sole trade structure can only last for the lifetime of the person.
2) Partnership
Partnerships are where two or more people run the business together. Each partner shares responsibility for running the business shares the profits and shares the liabilities. Partnerships are usually formed with a formal partnership agreement. The profits from a partnership are not taxed in the partnership but are distributed to the partners as per the partnership agreement and taxed as individual income for that person.
The partnership structure is not as common as in the past as more people are now able to use a company structure. One of the disadvantages of a partnership is that each partner is liable for all debts within the partnership even those incurred by another partner and thus may put personal assets at risk. Also if there is a conflict within the partnership, a partner wishes to leave or a partner dies it can cause problems in the running of the business.
3) Limited Liability Company
A company is a formal and legal entity in its own right and is separate from its shareholders (group of people who own the company. Because of the formal structure the company governs the relationship between shareholders, directors and creditors and so usually fosters more confidence in a business than the previous two structures.
The liability of the shareholders is limited to their stake within the company, unless they have given personal guarantees, the company has traded while insolvent or has been trading recklessly, and so provides more protection for investors. This can make it easier to attract investors or loans. It is important for directors to clearly understand their responsibilities under the company structure though as the limited liability can be eroded by personal guarantees.
These are the three main company structures but there are other structures which may be relevant to your personal situation. It is very important when purchasing a business that you consult with your professional such as accountant or lawyer to determine which is the best option for you.
Information Sources: http://www.business.govt.nz/companies
November 29 2010 | Changes in Motel Trends and Entering the Motel Industry | 3 Comments »
For those of us who have been in the Motel Industry for a long time the answer to the above question seems obvious but we forget the day when we first entered the industry and asked the very same question.
There are three ways of entering the industry. Buying a Freehold Going Concern motel ( land Buildings and business), buying an Investment Motel (land & Buildings only) or buying a lease motel (business only). The lease business is the most common way of entering the industry with approx 90 to 95% of motels run under a lease situation.
In the lease situation a purchaser buys the right to operate the motel business from the premises for the number of years determined by the lease, the goodwill of the business and the chattels.
The lease is the document which dictates the terms and conditions within which the purchaser must operate the business. There is no standard motel lease and they can be quite varied so it is essential when purchasing a motel that the purchaser has a solicitor familiar with the motel industry review the lease and advise them on the various terms. The lease will specify the obligations of both the lessor (landlord) and lessee(purchaser). Once the lease is set up the terms are valid and can only be changed by mutual consent of both parties. The terms of a lease are usually relevant to the use of the land & Buildings and not specific to the way in which the business is operated. For example the lease may stipulate the building must be painted every 10 years but would not stipulate where the business was to advertise.
If the lease is purchased from an incumbent lessee then the purchaser is assigned the lease with the current terms and conditions and therefore becomes bound by those terms. The length of the lease is an important factor as this provides for you to operate the motel in the premises for that length of time. It is usual for a purchaser to want a lease with at least 20 years still to run. If the lease is shorter than 20 years the lessor may extend the term and it is usual for this to attract a cost.
The goodwill of a motel lease business includes the client base and business procedures which the current owner has developed. If a purchaser was buying a new motel with no previous history they would need to develop a customer base and would only gradually build the occupancy and turnover. By purchasing an established business this has already been developed and means the incoming lessee can expect a general level of income right from day one. This goodwill may also include branding, logos, websites etc. and the database of customers for the motel.
The chattels are a tangible asset; they usually consist of all the furniture within the motel, the carpets, curtains, appliances, fridges, stoves etc. If anything is hired this should be disclosed within the information provided to purchasers enquiring about the motel. A chattels list will be provided with the motel information or as part of the due diligence process at the latest and these items become the property of the purchaser.
Thus when buying a motel lease a purchaser is bound by the terms of the lease but has the ability to operate the actual business in a manner which they wish to. The financial decisions, the choice of chattels & soft furnishings, the marketing decisions and the operational decisions such as staffing are all undertaken by the lessee without needing the input of the landlord.
If you have any specific questions relating to motels or leases please feel free to comment or contact me directly and I will endeavour to answer them for you.
October 18 2010 | Uncategorized | 10 Comments »
This workshop was conducted at the recent Motel Association of New Zealand Annual Conference, by a panel of the MANZ Consultant Motel Brokers: John Griffin, Malcolm McCrae, Kelvyn Coffey and John Harrison, answering questions and giving advice as to how you should prepare your motel for sale.
It was a very informative workshop with many points raised and many questions answered by the professional brokers. The key points being; Profit & Loss accounts, Chattels, Presentation and Leases.
Profit & Loss Accounts. It is from these accounts that the purchaser will calculate the return they will get on their investment and therefore the accounts need to be accurate and presenting as much profit as possible. A purchaser or their accountant will expect 3 years accounts not just last years, so you need to ensure your accounts are showing the best profit for the three years not just the year you decide to sell. If you take cash from your business and people are looking for a 20% to 25% return then every $1 you take out costs $4 or $5 on your sale price. $20 dollars in your pocket is $100 off your selling price.
Chattels: When selling it is important to have a complete and up to date chattels list available. The purchaser will want to see this in order to assess the business and a delay in receiving it sometimes looses your buyer.
Presentation: This is paramount when purchasers are looking at a motel. Any deferred maintenance should be completed. Fix that leaky tap so the purchaser doesn’t wonder what else needs doing that they can’t see. Clean and tidy, so it all looks pristine and orderly. A disorganized and dirty complex may make the purchaser think the reason is that the motel is too much work and put them off buying it.
Leases: Leases were the major topic in regards to the length of the lease and terms in them. Currently The Motel Assoc of NZ is working on a draught motel lease to try and replace the old ADLS leases and others which are not motel specific . This new lease will be availabe to new properties as those with existing leases in place cannot be changed unless by mutual agreement. It is becoming common for new leases to be 30 or 35 years in length and most buyers are looking for at least 20 years. Extensions can be granted by lessors but this is usually at a cost per year. There is no set figure per year as it is an individual agreement between lessor and lessee and each motel is a unique business so age & condition must be taken into account. Buyers are insisting on leases over 20 years so it is important to ensure you can extend your lease. This does not have to be done at sale time and can often be negotiated as a part of a rent review. A trade off for a rent increase could be the lessor extending the lease.
For more information on any of the above you can contact one of your professional accredited motel Brokers John or Kathie at John Griffin Realty ltd. Hamilton. E-mail kathie@shepard.co.nz
August 13 2010 | Uncategorized | No Comments »
In the motel industry the question of staff contracts and definitions is often raised with me. It is interesting to hear all the different interpretations and methods of employing staff and paying wages. Legally however as an employer a motelier is bound by statutory law and must abide by the obligations under these laws.
Probably one of the biggest misnomers is that cleaning staff in a motel are casual employees. The term casual employee is loosely used to describe someone under a fixed term contract. This is clearly defined in the act as
Fixed term employment
- (1) An employee and an employer may agree that the employment of the employee will end—
- (a) at the close of a specified date or period; or
- (b) on the occurrence of a specified event; or
- (c) at the conclusion of a specified project.
-
The act goes on to specify that this type of employment contract must not be used to
- to exclude or limit the rights of the employee under this Act:
- (b) to establish the suitability of the employee for permanent employment:
- (c) to exclude or limit the rights of an employee under the Holidays Act 2003
In many cases motels call their staff casuals and pay them as if they are under a fixed term contract in that they pay holiday pay as a percentage of their wages on a weekly basis. Motel cleaners work variable hours but have an expectation when they finish work for each day that at some stage in the near future there will be further work for them. Under the terms of the act treating cleaners as fixed term contract employees is illegal and should the employee have issues at a later date they can claim that they have not received holiday pay and the motelier may be required to pay holiday pay on top of the wages already received.
A motel cleaner is a permanent part time employee with variable hours. They can be employed on a basis where you call them when you need them and tell them when they are not required but they are entitled to all the benefits that any other permanent employee is entitled to. Their employment contract must be in writing stating the terms and conditions of their employment. The holiday pay must be paid when they take their holiday not as a percentage each week. The essence behind holiday pay is that the employee has a break from work as much as that they have holiday pay so it should be paid to them when they are having time off. If they do not have regular rostered days each week then a day they are not working could be considered to be a holiday and paid as such. This must be shown clearly on the pay slip and pay records.
Many motel operators have employees who do not have an employment contract and who are paid holiday pay as a percentage of their weekly wage. As a business operator you can chose to operate in which ever manner you wish but you must be aware that this style of employment relations may leave you open to possible problems at a later stage should your employee become disgruntled and take the issue further. If you are unsure of the Employment regulations and what your obligations are as an employer you should seek legal advice to make sure you are in fact doing things correctly.
April 14 2010 | Articles for current moteliers and Changes in Motel Trends and Entering the Motel Industry | 3 Comments »
Ever wonder why some motels seem to survive over many decades and others falter after a seemingly small period of time. One of the causes for this can often be a lack of maintenance which creates a slippery downward spiral.
One scenario will show a motel which has operators who do the bare essentials when it comes to maintenance and take out all the excess money as profit on the motel. They do not spend any money on replacements until items are irreparable. They then sell the complex at a reasonable price because the profit looks good and the next operators use the same ethics when operating the motel. After three or four of these types of operators the motel has deteriorated badly. The tariff cannot be increased as the guests will not pay more for a sub standard unit, the number of return clientele decreases due to people being dissatisfied with facilities which do not work or look old and uncared for and the cost of all the deferred maintenance is too much for the operator. This results in the business profit reducing and the value of the business decreasing. At some stage one of these operators will need to spend a large sum of money on maintenance or sell for a lower price than they purchased at.
The alternative scenario shows a motel which has operators who continually upgrade their facilities. They replace items on a regular basis and before they become sub standard, they continually look for additions or improvements which will enhance the guests stay and they build the business year after year. By having a complex which is perceived by the customers as being cared for and providing good facilities they have a strong customer base and therefore are able to increase tariffs periodically. This ultimately results in a higher profit and a more valuable business when it comes to the selling stage. A change of hands in this scenario sees the new operators continuing with these ethics and the value of the business continuing to grow.
The underlying point is that a motel operator needs to look at a bigger picture than just how much profit is in the bank today. The impact of this profit on the future is just as important. By spending money on your motel when it is needed you will retain the quality of your business and make a larger profit at the selling stage. There is an old adage which holds true even today. Sometimes you have to spend money to make money.
February 15 2010 | Articles for current moteliers and Entering the Motel Industry and Uncategorized | No Comments »
Do most managers lease or own the motel?
Do they hire managers or manage it themselves?
Is it more of a lifestyle or a big business investment?
These were some questions posed after one of my recent articles and so I thought they would be a great topic to follow on with. As most of you who have stayed in motels will know they can all be very very different. This is reflected in both the experience you get from staying in a particular motel, and also the experience for someone owning that motel.
Most motels are run under a lease situation. Without doing any specific research an educated guess would put the figure of lease motels at about 90 – 95% of all motels. This means that about 95% of motels have one entity owning and operating the business and they in turn lease the land & buildings from a different entity. On some occasions this can be the same person using two entities for tax purposes and on other occasions the two entities are completely separate people.
The decision as to buying a motel business only ( usually referred to as “the lease”) or a freehold going concern which includes the business, land and buildings is often governed by the amount of money available to invest. The return on investment for a business (lease) ranges from approx 20 -25% , a freehold going concern return on investment is around the 10% figure. Please bear in mind that these are rule of thumb figures and can not be applied rigidly to all motels as there are many other contributing factors in each motel.
If we take a scenario where someone has $1 000 000.00 to invest they may expect to achieve a $100 000.00 return on a freehold going concern or a $250 000.00 return on a lease. This would in turn dictate the type of lifestyle they could achieve in the motel. The freehold going concern may be an older 9 unit motel whereby the owner was required to do much of the physical cleaning themselves. Alternatively the lease may be a newer complex with more units and thus the owner is required to be in a more managerial type position with staff available to undertake the physical work. The lifestyle choice comes down to what the purchaser is most comfortable with
It is not just a difference between a freehold going concern and a lease which will give a different lifestyle but also within the different types of motels. A lease priced at $350 000 may have a $70 000 cash surplus ( earnings less expenses but prior to interest, tax depreciation and drawings). This would probably necessitate you having to do some physical cleaning and is sometimes described by non-motel people as buying yourself a job. It is very important to remember with motels however that as an owner there are practically no living expenses. Accommodation, phone, vehicles, power and insurance amongst other things are paid for by the business and a tax adjustment made at the end of the year. If employed elsewhere a person would need to earn the amount of these costs plus a third again for tax to get the same benefit. With living costs already taken out it can be argued that the cash surplus is a return on your total investment with no need to adjust for owners salaries as in most other businesses.
As we get to the more expensive lease operations the returns are percentage wise the same but dollar wise obviously more. Someone investing in a larger lease showing a return of $250 000 would expect a return of approx 25%. This would give them a business where they would do less of the hands on work and more management and promotion of the business. Once again all the living expenses are included in the business. If someone purchased this and employed a manager they could still probably expect after deducting a managers salary a return of about 18%. As we are seeing more of the larger more profitable motels within the industry the practice of having a lease business run under management has become more prevalent.
As you can see from all this motels can be both a lifestyle and a big business or a combination of both. There are many different and unique factors in each motel so the purchaser must be aware of these differences and ensure they choose a complex which will meet their needs. It is essential therefore to use the services of an experienced motel broker who understands motels, how they operate, the differences between them and how this all relates to the purchaser. Being empowered to make an informed decision at this stage can prevent a lot of distress after the purchase is complete.
September 01 2008 | Changes in Motel Trends and Entering the Motel Industry | 4 Comments »