Industry Report. Motels Market intelligence specific to your industry. Provided by. Macquarie Business Accountants

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1 Industry Report Market intelligence specific to your industry Motels Provided by Macquarie Business Accountants

2 Industry Statistics Sector Overview 4 Industry Statistics 4 Employment Data 5 Key Benchmark Comparison Income 8 Less Overheads as % of Total Income: 8 Net Profit (bos*) per... 8 Total Income per... 9 Non Personnel-Related Overheads per... 9 Personnel (fte personnel numbers) 9 Other Information 9 KPI Feedback KPI Feedback 12 Action List Maintain or Increase Sales 14 Improve Gross Profit 14 Reduce and Control Expenses 14 Improve Occupancy Rates 15 Ratio Definitions Ratio Definitions 17 2

3 Industry Statistics Sector Overview Industry Statistics Employment Data 3

4 Sector Overview This data is provided by the Australian Bureau of Statistics (ABS) as at November The ABS reports that employment numbers for the Accommodation and Food Services sector as at was 786,200. This employment figure changed by 11.6% over the past 5 years. Forecasted growth for the sector over the next five years is 8.5% or 66,800. The percentage of employees for the sector outside of state capital cities was 38% and 24% of all sector employees were aged 45 years or older. Industry Statistics The number of Managers, Hotel and Motel nationwide was reported at 20,200 as at November The industry has shown an average growth rate of -18.1% over the past five years. Forecasted growth for the industry is weak (less than or equal to - 1.6% per annum) over the next five years. 4

5 Employment Data - The following employment data is sourced from the Australian Bureau of Statistics (ABS), dated November Weekly income for Hotel and Motel Managers (earnings before tax - EBT) is around $900 per week. - Weekly income for Hotel Service Managers (earnings before tax - EBT) is around $943 per week. 5

6 - The highest percentage of Hotel and Motel Managers employees lies within the age bracket, while the median age is The highest percentage of Hotel Service Managers employees lies within the 25-34, age bracket, while the median age is 33. 6

7 Key Benchmark Comparison Income Less Overheads as % of Total Income: Net Profit (bos*) per... Total Income per... Non Personnel-Related Overheads per... Personnel (fte personnel numbers) Other Information 7

8 Your Business: 2013 Turnover: All Firms Average Net Profit per Owner: Less than $60,000 Net Profit per Owner: $120,000 or more Income Total Income $1,082,633 $876,864 $1,483,909 Less Cost of Goods Sold 11.52% 11.48% 12.71% Equals Gross Profit 88.48% 88.52% 87.29% Less Overheads as % of Total Income: Advertising, Promotion & incl Franchise/Group Fees 3.58% 5.61% 3.20% Accounting & Legal Fees 0.83% 0.99% 0.85% Commissions to Agents 0.92% 1.33% 0.95% In-room Supplies 0.90% 0.70% 1.17% All Insurance 1.61% 2.09% 1.33% Interest, Bank Charges etc 5.80% 5.94% 5.32% Print/Post/Stationery 0.48% 0.65% 0.39% Rent of Premises 15.54% 16.09% 15.57% Other Occupancy Costs 7.13% 7.88% 6.89% Other Depreciation, Lease and HP 3.21% 5.14% 3.08% Replacements, Repairs, Maintenance, Hire of Plant & Equipment 4.27% 6.41% 3.75% Staff On Costs 1.79% 2.15% 0.93% Telephone & Fax 1.23% 1.42% 0.94% Employees' Wages & Salaries 17.06% 15.18% 17.48% Vehicle Operating Costs 0.71% 1.01% 0.45% All Other Expenses 4.00% 3.75% 1.89% Total Overheads 69.06% 76.34% 64.19% Net Profit (bos*) 19.42% 12.17% 23.10% Net Profit (bos*) per... Working Owner $155,771 $30,386 $334,559 Owner Workhour $64.17 $13.60 $

9 Your Business: 2013 Turnover: All Firms Average Net Profit per Owner: Less than $60,000 Net Profit per Owner: $120,000 or more Total Income per... Person $207,266 $256,657 $186,623 $ of Wages # $4.69 $3.18 $4.50 Guest Room $29,569 $27,187 $32,987 Non Personnel-Related Overheads per... Person $101,353 $147,191 $85,583 $ of Wages # $2.38 $1.91 $2.16 Guest Room $14,419 $14,895 $16,009 Personnel (fte personnel numbers) Working Owners House and Kitchen Staff Any Other Staff Total Personnel Hours Worked per Owner per Year 2,380 2,730 2,317 Other Information Owners' Equity as % of Total Assets 35.76% 5.20% 51.68% Asset Turnover $3.95 $6.83 $2.31 Asset Turnover (excluding land & buildings) $5.16 $7.74 $3.77 Proportion of Income derived from Accommodation 84% 81% 82% Number of Guest Rooms Average Guest Room Area (sq mtr) Occupancy Rate for Year 66% 63% 71% Growth Capacity 18.13% 16.11% 22.15% Current ratio Acid test Stock turnover Days' debtors Liability turnover $10.22 $8.51 $7.15 Interest cover: business

10 - * bos - before owners' salaries and benefits # including owners' notional wage of $35 per hour 10

11 KPI Feedback KPI Feedback 11

12 KPI Feedback 12

13 Action List Maintain or Increase Sales Improve Gross Profit Reduce and Control Expenses Improve Occupancy Rates 13

14 Maintain or Increase Sales Strategy - Increase the number of customers: Effective advertising, particularly to lift occupancy at 'quiet times'; Linkages and contact with (eg) bus or tour operators; Convenient access to your site; Exterior appearance / identification; Referrals from existing customers; Regular functions held in your restaurant (if you operate one) Strategy - Increase the average sales size: Upgrading facilities to a higher quality; Merchandising and 'shop' items; Accessories or add-ons (promoting breakfasts, or other use of restaurant; a range of souvenirs; packages offering accommodation plus meals; commission arrangements with local tour operators etc); Encouraging 'the extra day'. Strategy - Increase repeat trade from customers: Staff attitude and friendliness; Staff service ability; Business image / appearance / housekeeping; Provide high quality service; Frequent stayer or other loyalty schemes; Getting to know guests and their travel patterns; Investigate association with travel and tour groups. Improve Gross Profit Strategy - Reduce the high cost of purchases: Avoid placing too many small orders with high freight costs; Avoid dealing with too many suppliers and losing quantity discounts (no stock rationalisation); Take advantage of settlement discounts (where they are worthwhile); Planning purchases to match seasonal needs; Use 'in season' ingredients in meal menus. Strategy - Improve stock receiving practices: Check all stock is received in good order; Check quantities received against quantities ordered and only pay for goods actually received; Minimise damage to goods while in storage or on display; Minimise loss through theft by either guests or staff. Reduce and Control Expenses Strategy - Improve cost control: Budget costs annually; Review costs against budget regularly; Is each expenditure item necessary?; Look for better or less-costly ways of operating the business; Investigate energy - saving devices (eg long-life globes etc) to minimise in-room energy costs; 14

15 Investigate a range of price / quality points for in-room supplies (soaps etc) so that you buy and provide a suitable quantity and quality of items relative to the motel's rating; Keep a regular maintenance programme, so that minor items are fixed early before becoming major costs. Improve Occupancy Rates Strategy - Increase the Occupancy Rate: Monitor occupancy rate on a weekly basis; Calculate your actual return on daily tariff after discounts and group costs; Ascertain your marginal nightly room cost; Set your cut-off time beyond which you are willing to negotiate rate; Make contact with tour and coach groups for bulk accommodation; Promote special deals or packages to fill quiet times. 15

16 Ratio Definitions Ratio Definitions 16

17 Ratio Definitions Total Income is all income from accommodation and meals, plus any other trading income. Cost of Goods Sold These are the costs directly associated with the 'retail' or 'food' parts of the business. High results might reflect an aboveaverage mix of 'retail' revenue for the motel; alternatively, high results could simply reflect poor purchasing or pricing, for example, or high levels of wastage of perishable items. Gross Profit Aim for a higher Gross Profit margin - it reflects better overall purchasing and pricing policies. A high gross profit margin could also indicate that a motel has relatively low sales of 'goods', so this ratio must be read in conjunction with the '% of accommodation revenue' ratio later. Overheads as %s of Total Income Lower results are generally better here. However, the real issue is to maximise the value from each expense item. Any payments to or for the owners (eg wages, superannuation, FBT, etc) have been omitted from this list - they have been treated as part of the profit figure below. Net Profit A higher Net Profit will normally reflect a more efficient or profitable operation. It will also be influenced, however, by structural considerations such as the number of employees (whose salaries are included as part of the overhead structure) as opposed to active owners (whose salaries are included as part of 'Net Profit' rather than 'Salaries'). The decision to 'own' or 'rent' a business will also impact on the underlying cost structure too. Note that owner wages have been excluded from Overheads, so that 'Net Profit' represents the total return available to the owners. Net Profit per Working Owner This ratio is calculated by dividing the Net Profit by the number of owners actively working in the business. Owners are expressed in terms of Full Time Equivalents - see Personnel for the definition of the term. 17

18 Net Profit per Owner Workhour Higher results are better here. This figure represents your effective 'hourly earning rate' from the business, pre-tax. Total Income per Person This is the Total Income divided by the number of working owners and employees, in Full Time Equivalents. See Personnel for the definition of the term. Aim for higher results. Total Income per $ of Wages # the notional owner wages is calculated here and elsewhere by multiplying the hours worked by the owners in the year by a notional hourly rate of $35. Higher results are better. Total Income per Guest Room This is the Total Income divided by the number of available guest rooms. A higher result should be aimed for as it means that the business is getting a better return on its use of space. Non Personnel-Related Overheads per Person, per $ of Wages, per Guest Room These calculations are basically the same as those preceding it, but the numerator (the top line of the calculation) is made up by adding together all the non-personnel overheads. Essentially this is all the overheads except wages and staff on-costs. Lower costs are better here as long as the rooms and fittings are being maintained properly and the business is being promoted effectively. Personnel Personnel are calculated in terms of Full Time Equivalents (FTEs). This means that if an employee or owner works in the business, say 2 days per 5-day week, this person has a FTE of 0.4. Similarly, if a full time position started half way through the year, the person in it would have an FTE of 0.5. Averages are presented for owners, house and kitchen staff, and 'any other'. Hours Worked per Owner per Year This is the total hours worked in the business by all owners within the financial year, divided by the number of working owners (in FTEs). Owners' Equity as % of total assets is the proportion of assets which are funded by the owners. When arriving at Total Assets and Total Liabilities both here and elsewhere in the figures, loans to and from owners and 18

19 related companies are excluded. We treat them as drawings (reduces equity) or contributed capital (increases equity) respectively. Asset Turnover is calculated by dividing Total Income by Total Assets. Aim for higher results here - it indicates that you are earning more revenue from each dollar of assets. This first 'asset turnover' calculation relates all revenue of the motel to the entire asset base, including buildings if applicable. Asset Turnover (excluding land & buildings) is calculated by dividing Total Income by the sum of all assets excluding freehold buildings. Aim for higher results here too - it shows that you are getting better returns on the operating assets that all motels must have. Proportion of Income derived from Accommodation is calculated by dividing the Accommodation Income by the Total Income, then expressing that as a percentage. Number of Guest Rooms, Average Guest Room Area, Occupancy Rate for Year as reported by the businesses. Growth Capacity This is a ratio which shows whether the firm can afford to fund its growth. If the result here is a large positive number, then 'growth' should be reasonably easy to fund; if the result is negative, then growing the business will demand more working capital than the additional profit which is generated. A negative (or even a low positive result) is therefore a warning sign. To improve this ratio, either work to increase the 'profit' aspect of the equation, or work to reduce the working capital requirements of the business. Your accountant can help you with advice tailored to your own specific situation, if required. Results for motels should be reasonably strong, as you have reasonably low levels of current assets and liabilities, and high proportions of long-term assets and debts in many cases. 19