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I recently interviewed 5 serviced accommodation businesses for The SA Podcast, finding out more about how they scaled up.
Between the 5 businesses they operate or manage just
over 200 units, and they had lots of valuable advice to help
you scale your own businesses. It might sound obvious, but most businesses develop
and grow naturally, with very little thought to what impact it will have on their owners lives.
That can mean growing a business that takes over your
life, working 70 hour weeks - when your original
objective was spending more time with your family! For Lisa Hudson, her objective
was simple: to create a business that covered her family’s
living costs, while allowing her to spend time with her children as they grow up.
 She’d already built a reasonable large business - a recruitment
agency, which at one point had more than 60 staff - and knew that this size
of business wouldn’t deliver the lifestyle she wanted.
This clarity of objectives makes all of her decision making easy, from structuring
deals and building teams to deciding which properties to take on. Andi Cooke and
Lloyd Gerardi’s objective was to build
a sizeable
asset base to create long term wealth, and a legacy for their children.
Serviced accommodation came almost by accident, as it became clear it was the best way to squeeze
their assets. Focusing on assets - while simultaneously maximising cashflow from
those assets - has allowed them to build a portfolio of single
lets, HMO’s and serviced accommodation to around
160 units in just 4 years.
Ritchie and I have found that unless we check in with our objectives every 3-6 months, our businesses will start
to drift off in ways which don’t suit us. In the past this has meant growing
businesses too much, launching new services or taking on commitments that drain large amounts of our
time. Now that we review our objectives every 3 months, we’ve found it much easier to manage our business development to deliver our personal objectives.
If you want to make money from serviced accommodation, then you need to make sure that the model you are using is profitable.
Hitesh Mistry started off by taking on a number of guaranteed rent
properties, and planned to use this model to scale serviced accommodation business.
After modelling his business growth with me, it became apparently that although currently profitable, after scaling - and critically, hitting the VAT threshold - it
would take a large number of units to achieve his objectives.
By switching to a management model, it became immediately apparent that he could achieve his
objectives with a relatively small number of units, simply because the model scaled much more profitably.
He’s now gone well beyond that number, to build a business that
continues to remain profitable as it grows.
Karen Miknas started her SA business in Crawley, thinking
that with a major international airport on her doorstep the
short stay demand would be strong. It was only
when she transitioned her model to direct long term bookings that her business became profitable,
scalable and more resilient, as she was no longer reliant on the OTA’s.
With Andi Cooke and Lloyd Geradi, they had already established a model for their serviced houses.
However during their strategy review with me, it became clear
that with a small piece of "paper restructuring" we could generate
a further £30,000 per year profit without any increase of income.
That’s the power of getting your model right! Having had various ventures in Serviced Accommodation previously, when Ritchie
and I started our management business, we wanted to focus on specific property type, in a specific area, that we knew would be profitable.
This "niche model" meant we could understand the market, have confidence in the performance
and remove the risk for landlords and investors.
Every year in the UK more than 600,000 new businesses
are started, and yet in 5 years time at least 40% of them will have gone out of business.
Risk is therefore a MAJOR factor when it comes to serviced accommodation, as there
is a strong chance that any new deal you take on might not
be profitable.
So where does the biggest risk lie within your SA business?
You assume you can achieve a certain rate per night for your property, that your target market is sufficiently large to sustain good occupancy, and what your running
costs will be for a property. But if any of these
assumptions are inaccurate, there is a strong chance that the deal - and potentially your business -
will fail. But what if already had properties of this
type in the area, achieving good occupancy at your projected rates?
Clearly, because your assumptions have been tested on other properties -
your "niche model", as discussed above - your risk has been hugely reduced and the property is much more likely to be successful.
This is the key concept behind the Build, Test, Scale model
- testing your assumptions before scaling reduces
your risk to minimal levels.
This means you’ll have a more secure income stream, and be able
to scale your business larger. Graham Lindley knew he wanted to use the management model from
very early on, after listening to our podcast episode on the different models available.
Karen Miknas scaled to 3 units before fully testing the model, and
as a result nearly went out of business several times.
This put her under huge amount of stress, caused big cashflow issues and forced her to inject cash into the business.
While they had good reasons for doing so, had their assumptions not turned out to be accurate they would have been in a very bad position. While it has worked out well for
them, even then during quiet times they have occasionally
had to put cash into the business, and Andi said he wouldn’t necessarily recommend
anyone follow the same path they did.
Lisa is the perfect example of following the Build, Test,
Scale model. She established that she wanted to
do management from the start, due to the lower risk, less financial exposure and relative ease of
scaling. However she didn’t want to test the model at someone else’s expense,
and so she took on 2 units using the guaranteed rent model for 12 months.
This gave her time to understand the market, and build her systems and team, so that when she did start
expanding she could do so with much lower risk to her landlords and investors.
When Ritchie and I started our serviced accommodation management business, we
only took on 6 units for the first 6 months of operation -
despite employing a full time property manager! This was quite painful and even embarrassing for
us, as we were used to running larger hotel-type sites.
However this patience allowed
us to test the model, and build the systems, team and capacity for growth
which allowed us to expand with a further 15
properties in the following 6 months. We all know that serviced accommodation is a very systems
driven business. But as you scale your business, the reliance on systems increases further and further.
Your Property Management System (PMS) might manage your bookings and synchronise with the
OTA’s, but what about your bookkeeping, reviews, and cleaning and laundry, to
name just a few? Graham Lindley - unsurprisingly as an engineer - build very sophisticated systems from
the very start.
By his own admission, they were complete overkill for the number of
units that he had, and even his own staff would tease him
about it. When Andi & Lloyd decided to take back control of
their properties from the local agents, they realised that the first
thing they needed to put in place was the right systems.
As a result they started speaking to us, as we’d known each other for
a few years and they were aware of our expertise in systems and automation.
We put in place systems for property management, payments,
bookkeeping automation and guest management that have allowed
them to take back control of their properties,
delivering a high quality guest experience with just a small team.
Ritchie and I have always run heavily systemised
businesses.
When we ran our clutch repair business, we developed systems such as instant quoting based on your number plate, which blew competitors such as Mr
Clutch (with a 8-figure per year turnover) out of the water.
So coming into serviced accommodation, we knew and understood the importance of systemisation.
However, we found systemisation in serviced accommodation somewhat lacking.
Aside from your PMS - which is useful for bookings
management but generally has LOTS of business functions missing - there were lots of disparate systems, most
of which people didn’t know much about. We identified bookkeeping as the biggest pain point for scaling a business,
so we built a fully automated system integrating Tokeet and Xero, and
turned it into a solution that most of our clients
now also use.
This reduces the bookkeeping time and cost to virtually zero, and
allows us to produce accurate, detailed and virtually instant
client reports. We also looked at guest management and
realised that PMS’s are very bad at breaking down workflow into a "task-by-task" basis.
As a result we started working with Graham Lindley to develop
his workflow system into a solution that could be rolled out
to ourselves and our clients. Serviced accommodation is very much a team
sport - and like most team sports, your performance depends as much on not having any weak links as
it does on having a star performer. Hitesh Mistry realised having a team
was important, and so employed a property manager from day one.
However after a while, he realised it wasn’t really
a team at all - it was one person, running his business for him, and he didn’t know
a lot about what was going on within his own business!
He spent 3 months restructuring the business with
more diverse roles, with the right systems and accountabilty in place.
As a result he now has a much more resilient business
as one member of staff can cover for another, and if any one person leaves it won’t cause chaos within the
business. Karen’s model of focusing on long term corporate bookings mean that there isn’t a huge amount
of guest management or operational work.
However being that she lives 25 minutes away from her properties,
visiting the properties to perform any work on-site would take large chunks out of her day.
Graham used his elaborate systems as a platform to build a team of overseas VA’s including guest communications, bookkeeping
and technical functions. His UK based VA slowly took on more and
more responsibility, until the point now where she is
general manager for his management business and he is no longer involved in the
day-to-day operations. This came primarily from two things -
building a system, and plugging the right people
into that system. Ritchie and I have built a team in our management business, and
its all come from building on the previous foundations: setting our objectives, knowing our model, using "build, test, scale" and systemising.
Ritchie and I are the last people
to sing our own praises, and would never try to take credit for
other people’s success. But the fact is that all 5 of these businesses also had
a big positive impact from being involved in The SA Boardroom mastermind groups.
Hitesh completely changed his business model based on our work together, and has used the peer
group and accountability to help scale his business.
Graham has worked with us to develop and improve his already
impressive systems, and has used the success of those around him to increase his motivation and scale
serviced accommodation businesses more quickly.
Andi & Lloyd came to us when their business was taking
a small downturn, and we helped them to focus on direct marketing campaigns - resulting in a booking
potentially worth £1.3m! We helped them to systemise their business in all
areas, and to train their existing team on the nuances of serviced accommodation. Lisa found
clarity from our initial strategy review and fully embraced the
build, test, scale model. Now she has a business that delivers nearly
twice her family’s living costs, and she uses the boardroom groups to learn the best ways to focus on efficiency, improve performance and increase the quality of her guest experience.
While this post is genuinely to help you to scale
up your business, one of the factors which has helped all of these businesses is The
SA Boardroom.
 I had the perfect
opportunity this week to buy a couple of micro-apartments
in Cape Town that were perfect AirBNB opportunities.
There was a confluence of circumstances that would have
made it so easy to pull the trigger - all I basically had to do was Sign up as Co-host
some documents. The apartments are actually built with a view to being utilised for AirBNB and the building rules explicitly
allow it. The area has typical 65% occupancy at average rates of
R900 per night, and as I don't want to run around organising keys and cleaning
etc, I would retain an AirBNB management company for 17%
of gross. All of this adds up to a self financing investment with the capital paid off in 10-15 years (depending
on how smoothly things go). But I'm not going to
do it because I have no guarantee that the business model will
be allowed to operate in future.
We work with landlords and developers to enhance their income potential and sweat their assets.
Serviced Accommodation is a powerful cash flowing strategy when targeted to the correct markets and guest avatar.
So what is a serviced accommodation management agreement and how can it benefit
you if you are a landlord, a developer or someone who is interested
in the model. A serviced accommodation management agreement works very much
the same as your standard single let management agreement with a letting agency.
We take control of your property and look after the guests.
We then get paid a monthly commissionable fee for
our involment.
So what is different and how can a serviced accommodation management agreement
benefit you? 1. It is a lucrative investment strategy, therefore, you
will benefit more from your income. 2. We offer long term contracts for clients who want more flexibility to enjoy their life without having to worry
about their property. We can offer both three year and five-year contracts.
3. Because of the nature of our business, your property will be furnished
to a professional, modern standard and kept in showroom condition for
the duration of our contract. 4. Grandeur
Property will get paid on a commission basis. At the months end the client will receive ALL of
the profits. 5. The property refurbishment, maintenance and the day to
day upkeep will be managed by us with zero involvement needed from the client.
We let the property to both tourist
and business guests who are either visiting the area
or are here on business but cannot commit to a
6 month AST. Diversifying our market allows us to increase our reach and
optimise our occupancy and income targets.
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