6 Things You Must Know Before Buying A Hotel Franchise
If you have a hotel, but you do not have the internal system to handle a situation or event that is affecting your development, you know you can employ an external consultant.
If you have a hotel, but you do not have the internal system to handle a situation or event that is affecting your development, you know you can employ an external consultant. The truth is that it is challenging to invest in new capabilities and strategies on your own even if you know you have to improve areas of your business. Before buying a hotel franchise, it is common to ask yourself, “where do I start?”
Unfortunately, every time you get stuck and make a decision, your business suffers because the market is changing faster than you are. Sadly, not all hotels are able to make the required changes to stay afloat. In fact, hotel insolvency is often the best route out of financial ruin for businesses in this industry.
The good news is that a consulting and management hotel service such as IHCS Hotel Consulting could help you find and negotiate with a third-party company to run your hotel. After all, your goal should be to add value to your hotel over the long term.
Finding the right model is vital if you want substantial improvements in the near future. Here at IHCS Hotel Consulting, we have identified several crucial considerations for hotel owners seeking to improve profitability.
Types of Hotel Models
To make a hotel more attractive to lenders and add value to guests. There are three main types of models:
- Lease: an agreement by which one party transfers land, property, and services for a time, usually in compensation for recurring payments.
- A Hotel Management Agreement (HMA): a brand or management company will acquire the affairs of a property from the partner in exchange for a fee. The owner will endure all the risks, including employment contracts, while the operator handles all management matters.
- Franchise: a franchise has the power to use the brand, distribution means, and other proprietary know-how of a franchisor. The owner holds all risk and liabilities of the business, but, unlike an HMA, maintain management of the property.
If you’re set on buying a hotell frnachise but don’t know what type of hotel model is right for you, contact International Hotel Consulting Services as they have the experience and knowledge to help you find the best solution for your business.
Lease Pros and Cons
Party |
Pros |
Cons |
| Owner | ● Limited knowledge
● Low risks ● Shorter-term ● Easier to anticipate earnings |
● Low interest from brands
● No control over the property or hotel operations ● No upscale business |
| Tenant | ● Control over the quality of the business
● Growth of the brand ● Potential of increasing profitability |
● Higher costs
● Rent payments ● Contract termination might be challenging |
Hotel Management Agreement (HMA)
Party |
Pros |
Cons |
| Owner | ● Limited knowledge required
● No management work ● Access to improvement support from the brand company |
● No control over hotel affairs
● No control over brand name ● Higher risks |
| Brand Company | ● Brand expansion with low investment
● Lower market exposure ● Chance of earning incentive rewards |
● Income limited to payments
● Incentive payments dependent on higher market risks ● Potential brand exposure |
Franchise Pros and Cons
Party |
Pros |
Cons |
| Owner | ● Full business control
● Strong potential earnings ● Support from brand to improve growth |
● Higher risks are taken
● No control over brand exposure ● Knowledgeable business team |
| Brand Company | ● Growth of brand with low investment
● Low operating risk ● Increased brand payments with a small investment and minimal effort |
● No control over:
○ Guest and employee satisfaction ○ Brand image ○ Quality of operation ● Fees limited to franchise payments ● No contribution to the growth of the business |
When considering the above pros and cons of the models, it is essential to notice that most hotels are focusing on franchising.
The five most branded hotel companies, IHG, Accor, Marriott, Hilton, and Starwood, account for thirty percent of the current global hotel market. This shows that the market is moving away from independently operated hotels worldwide.
As hotel brands increase their presence, independent hotels are finding it increasingly difficult to compete. But, this also developed new opportunities and franchising potential for hotel business.
Things To Review Before Buying a Hotel Franchise
If you are thinking about hotel franchising, IHCS has identified five things you need to consider before making a decision.
1. Brand
One of the most relevant things to consider is to decide what type of facility and quality you want. For instance, Hilton is known for having first-class facilities, while Holiday Inn is more affordable for travelers looking to stay within a budget.
You can see that both of these brands targeted different types of markets. You need to select a brand that will fit into your market segment.
2. Your Customer’s Profile
It is essential to consider where your guests are initially from. For example, if the majority of your guests are from Spain, affiliating with an American hotel chain could not be your best option.
Affiliating with popular hotel chains in the market you are targeting will be wiser to increase brand recognition. If you are going down the professional route when it comes to how you want your brand to look, you may want to make sure that they wear uniforms, similar to these personalized polo shirts that you can get from Imprint (https://imprint.com/shop/custom-apparel/polos) to help you look professional amongst your customers, as this is one of the most important aspects of a business to think about after all. Customers are at the heart of your success.
3. Fees and Costs
You need to understand that the royalty fee is only a fraction of the cost of affiliating with a hotel chain. There are many fees and expenses you will be charged, such as:
- An initial payment for becoming part of the chain
- An annual cost of the reservation system
- Marketing programs
- A liquidated damage fee if you want to end the affiliation before the period ends
It is vital to add all the expenses you will pay for the entire agreement to see if it is convenient for you.
4. The Franchisor
Before making any decision, you need to investigate the franchisor. You have to remember that your success depends much on the actions of the franchiser.
It is an excellent strategy to talk to other hotel owners who have franchises to see how well the agreement is going. If possible, try to find out if there are any active litigations between the franchiser and hotel owners that could indicate the type of problems you can encounter in the future.
5. Profits
The main reason you are considering an affiliate business model is to generate more revenue by increasing occupancy. The franchisor should prove to you their advantage over the other hotels in your market. Don’t be afraid to ask for current operating results to see if the deal will be profitable.
6. Understand the Agreement Period
Usually, hotel franchisers have a duration of 20 years, which is a long time business relationship. During the agreement’s length, the franchisor will have total control of the brand image of the chain.
It is essential to know that during this time, your hotel will be entitled to property inspections. If the hotel doesn’t comply with the standards of brand management during the inspection, the contract can be terminated.
Before deciding which brand management is your best choice, you need also to consider:
- What is the chain marketing plan?
- How much money is the chain spending in technology?
Buying a hotel franchise: How To Select The Right brand?
To select the right hotel franchise, you need to analyze your options thoroughly and understand the issues involved in the transaction.
IHCS Hotel Consulting is an international firm that is an authority on hotel management. They have the skills and knowledge to help you achieve the success your business deserves.
How Can IHCS Help You?
If you are unfamiliar with the franchise world, IHCS can help reduce the deal’s uncertainty. These professionals serve as knowledgeable as they have the background to guide you through the barriers and opportunities franchising offers.
When you work with IHCS, you have the insight of an experienced professional at your fingertips. They have the knowledge to anticipate common problems and would spend time strengthening your business.
As an entrepreneur, it can be challenging to deal with the franchise industry. A hotel consultant will help you navigate the system like a professional.
IHCS Hotel Consulting will help you find problem spots with each franchiser to help you decide which one is the best option. Besides, it will help you identify the goals of your business.
With so many options IHCS Hotel Consulting will help you evaluate your business, identify your goals, and develop a plan to achieve them, including which franchisor is best for your circumstances.
One of the main advantages of working with IHCS Hotel Consulting is that they allow you to personalize your consulting experience to fit your needs, market, and communication style. You have the power to decide which sections of your business you had like to examine. If you are in need of a broader consulting firm such as Porte Brown, you will need to do your research into other areas, especially if your business delves into many sectors.
After all, your hotel consultant should be someone you can be pleasant and trustworthy with. This means you can be sure you are making the best decision for your business when buying a hotel franchise. The experienced consultant at International Hotel Consultant Service can help your business become more efficient and profitable.
With 24 years in the hotel industry worldwide and hundreds of satisfied customers, you can be sure you will find the solution you are looking for.
Finally, IHCS will represent you in front of these brand companies and investors to negotiate contracts when buying a hotel franchise. They have the expertise and skills to negotiate the best terms for your business.
Contact IHCS today and request your first consultation free. Remember, IHCS offers their hotel consultant service around the world, so can achieve results, improve your reputation, and increase your earnings.
