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Hotel and Motel Owners Ready to Reserve Accounting Services

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December 20, 2013

There’s a vacancy at many hotels and motels that have room for a good accounting firm, according to a new report.

Sageworks, a provider of private company financial information, is advising accounting firms that want to find new clients or to offer business-advisory services to existing clients to consider checking out hotel and motel owners and operators, given the industry’s recent business and financial trends.

A financial statement analysis by Sageworks indicates that privately held hotels and motels, on average, are seeing their third year of solid sales and profit growth. Net profit margins at privately held hotels and motels have turned positive in recent years, with tourism and business travel continuing to improve after the recession.

Sageworks examined private-company financial statements from the past 12 months and found that hotel and motels are generating nearly 8 percent annual growth, on average. That’s in line with growth rates in 2012 and 2011 and above the five-year average growth rate of about 4 percent. It’s also noteworthy, given that privately held companies across all industries have seen slower sales growth over the last 12 months than in 2012.

Profits among private hotels and motels, on average, are about 33 percent higher than they were in the year-earlier period, on top of 30-plus percent growth during each of 2012 and 2011. In addition to benefiting from the higher sales, profits are being helped by net profit margins that, on average, are approaching 5 percent. That is on par with the average net profit margin in 2012 and a turnaround from the 5-year average margin of negative 1 percent.  Ratios of costs (including direct labor) and other expenses (such as rent and advertising) relative to sales have been stable during the last few years, so the increased sales appear to be a major factor in the improved performance.

Liquidity ratios for private hotels and motels are stable to improving, based on Sageworks’ industry data. Quick and current ratios for the past 12 months are also above the five-year averages.

“Many U.S. hotels are taking advantage of the recent business trends to renovate their facilities,” said Sageworks. “Accounting firms can help hotel and motel owners assess their capital needs for renovations, help business clients obtain loans where appropriate and forecast the impact of any new borrowing. Accountants can also help hotel and motel owners who are looking to expand to additional locations by providing cash flow projections and forecasts for new expenses related to expansion efforts or by benchmarking their properties’ performance to peers in the same region to ensure rapid growth in sales doesn’t result in snowballing expenses.”

Besides the usual turnover in rooms, the hotel industry is also experiencing some turnover in investors, which may provide opportunities for accounting firms’ clients, both within and outside the hospitality industry. Blackstone Group has announced plans to hold an initial public offering of shares in its Hilton chain, and other purchase and sale transaction activity remains heated, according to industry players (even though no hot plates are allowed in the rooms). Accountants offering valuation services or succession planning may be able to assist hotel and motel owners in the current environment.

The Sageworks data looks at financial statements ending in the 12 months between December 2012 and December 2013. For additional metrics for the hotel and motel industry, or another of about 1,400 industries, at no cost, visit the Sageworks Industry Data for CPAs page.

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