Finding different areas where hoteliers can cut their operational expenses is a key part to making their properties as profitable as possible.
HOUSTON—To achieve targeted profitability, hoteliers push to maximize their revenue, but there’s more to it than that. Along with driving higher rates and desired occupancy levels, hoteliers must also find what expenses they should cut and determine the best way to go about it.
During the Hotel ROI segment of the 2017 Hospitality Law Conference, panelists in the “Minimizing costs” session outlined different avenues for reducing operational expenses at hotels.
Make a budget, plan ahead
Many times, single-property owners, even those who own two or three hotels, don’t budget their expenses and don’t know where the money is going, said Sawan Patel, CEO at Unity Hotels Group and managing partner of Views Management Group. Budgeting is a basic part of business, he said, but many still don’t do it because they feel they don’t need to do it.
It’s important, he said, to keep track of expenses to understand how much money is going where so that you can decide what cuts to make.
“Budget your expenses; that’s the best way to start,” Patel said. “You can’t control (costs) if you don’t know where they’re going.”
Whatever form that takes, he said, the important part is that managers or operators are able to organize expenses incurred at their properties.
Many brands offer forecasting tools, Patel said, and hoteliers can use those to forecast occupancy, which means they can better staff their properties. It can be helpful to update forecasting budgets on a monthly or quarterly basis, he said, and hoteliers can also reach out to local chambers of commerce or convention and visitors bureaus to see what help they can provide.
Mitigate, reduce expensive liabilities
Hoteliers can audit their properties as a proactive way of heading off any potential lawsuits, said Pamela Williams, partner at Fisher Phillips. Audits can help find deficiencies that could open them up to claims through such laws as the Americans with Disabilities Act or the Fair Labor Standards Act, she said. That way, hoteliers can rectify issues before they become a problem.
“Labor and employment claims are very expensive to defend, even if you prevail,” Williams said. “It’s normal to spend $100,000 to $150,000 defending them.”
Wage and hour claims through the FLSA are rampant in the U.S. because they’re easy for attorneys to file, she said. If the employee wins an overtime claim, the employer might have to go back as far as three years to make restitution. If it’s determined the employer didn’t act in good faith, the plaintiff could be awarded an additional settlement plus attorney’s fees.
“You want to mitigate against that any way you can,” she said.
Performing an FLSA audit would work in an employer’s favor in such a lawsuit, Williams said. Employers would be able to argue they acted in good faith by auditing their practices to determine whether employees were paid appropriately.
“In that instance, I would say if you undertook an FLSA audit and you were hit with a claim, you can argue good faith,” she said. “Even if you were found to be improperly paying the employee, it could cut your damages by half.”
Insurance policies can help with the cost of lawsuits, Williams said. While general liability can protect against some claims, she said, employment practices liability insurance can help cover costs for claims such as discrimination, wrongful termination and harassment.
“I strongly recommend looking into this,” she said, adding the benefit of coverage can far outweigh the cost of the insurance.
Cut down on employee turnover
While a new employee might start out at a lower pay bracket, employers need to account for the cost, both in time and money, of searching for, hiring and then training new employees when more experienced ones leave for other jobs.
Hotels are competing with each other for employees by offering more opportunities for advancement, Patel said. There’s not much leverage for employers with select-service hotels, he said, because many of the responsibilities and duties are the same.
If the employee is a great asset, the employer needs to decide whether the company can afford to pay more—or afford to lose the employee. Citing a personal example, Patel said his arguably best employee approached management about leaving for another job.
“Now we have to revisit with her, see what does she want and can I afford it because I don’t want to lose her,” he said.
The supply of potential employees comes and goes, said Hitesh Patel, CEO and president of Capital City Hospitality Group, and while people are always looking for jobs, it’s about finding the right quality of person for the job.
“You might have to pay a dollar or two more an hour,” he said. “You have to analyze. What kind of employee do you want—someone who is engaged, a go-getter, or someone who just stands there? You might be saving $2 an hour in paying them, but you might lose three roomnights because they’re not giving their full attention.”
If an employee lasts at the job for three to four years, he said, the hotel will tend to have smoother operations than if the hotel has a high turnover rate. Consider employees as investors in the company, he said, because employees who do not invest in the business will hurt it.