Knowing your business’s vital statistics

AccomNews Sunday, January 22, 2012

0 4 minutes read

For the sports fan the mention of the phrase ‘vital statistics’ may prompt a conversation around the for and against points score of their favourite team or the number of tries or goals their favourite player has scored this year compared to last.

To a management rights operator, though I would hope it would refer to something much closer to home. Success in the management rights industry often depends on relationships with loyal tenants and guests, the body corporate and the body corporate manager, honest tradesmen and reliable suppliers. While all these relationships hum along nicely you need to be able to measure the impact of this harmony. The way to do this is by knowing your vital statistics – the trading figures of your business.

Consult your verification report – When you originally bought your business, the vendor’s accountant would have produced a ‘net profit for sale’ statement detailing the direct income generated by the complex, as well as the direct and general expenses incurred. Your accountant would then have prepared a verification report to assess the reliability of the figures provided. Since then this report may have lined the bottom of your filing cabinet or gathered dust on a shelf, but it’s worth reading as it’s an important document for helping you understand your business and how it compares with your peers.

The verification report assesses each area of income and associated expenses and recommends whether:

• the business income level is accurate and sustainable

• margins are close to industry norms

• any improvements can be made.

Without proper measurement against industry benchmarks, it’s difficult to determine whether the services you’re currently focused on are producing the results you want. A comparison of your current level of income with the verification report’s assessment may find the business is no longer making the margins it used to. Even if you were running a charity (which you’re not) you would be looking at ways to improve your margins. The insights you gain can then become the platform from which you can justify changing your offering or adjusting tariffs, rents or charges – but you can’t do that if you don’t know what your profit margins are.

If the net profit from certain sources such as cleaning, linen, repairs and maintenance is noted as being on a par with, or above, industry averages from comparable complexes, the ways to increase your income will differ from a resort that is underperforming. For the ‘on par’ or ‘above average’ complex there is still potential for what agents love to call ‘upside’ – room to improve your income.

Critically assess your complex – Assess your complex. Does it have unique features, special facilities or a location that has the potential to earn extra income? Some operators are skilled at deriving useful income from multiple sources, offering value added services that optimise income streams.

For the beachside resorts, extra income might come through offering surfboards or boogie boards for hire, as well as beach umbrellas, sunbeds or towels. You might offer a special rate for guests who book their round of golf through your resort (rather than with the golf club), hire out tennis equipment, and arrange barbecue food and wine packs for an evening cook-up. Dry cleaning, DVD hire and morning newspaper sales are further examples. The possibilities are as only as limited as your imagination.

Pass on costs where you can – For below average income resorts, a different strategy is required. Review costs and charges. A common concern among complex managers is the fear of losing a unit from the pool because you pass on these increased costs. But if service providers’ costs are increasing, don’t be afraid to pass these on, especially if you can do it in stages rather than in one big jump. If you are a large or busy complex, you may even manage to negotiate a better rate with your service providers to keep costs lower.

Before you pass on increased costs to unit owners, however, check that your letting appointments allow for this. If they don’t, you can update them. The current Queensland letting appointment form (PAMD 20a) has a schedule that can be attached to the main form to deal with this very situation.

Consult the specialists – If you can’t track down your original verification report there are still ways of finding out how your business compares with its peers. Experienced industry professionals understand these matters. An industry specialist accountant or your lender will usually analyse this information annually and, with a portfolio of similar clients, should be able to advise on your comparative performance. Talk to your lender or accountant about this.

Another information source are industry associations. The Australian Resident Accommodation Managers Association carries out an annual members’ survey and collects information on charges and costs; all participants receive the results. If you purchased your complex since the last survey, check with your local ARAMA office for help.

Understanding how your business is performing today is the secret to determining if the services you currently offer are winners or losers. The information you gather will help you better direct your efforts to the areas that will most positively influence your baseline numbers. Remember, any other profitable services you offer mean more income coming your way. When it comes time to sell, this is likely to translate into an increase in what a purchaser is willing to pay for your complex. And that can’t be bad.