HOW TO SCALE SERVICED ACCOMMODATION TO 200+ UNITS

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. The key points can be broken down in the 5 foundations of scaling your serviced accommodation business:

 

1.) SET YOUR OBJECTIVES

Unless you know what you’re trying to achieve, how can you possibly hope to achieve it?

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.

 

2) KNOW YOUR MODEL

If you want to make money from serviced accommodation, then you need to make sure that the model you are using is profitable. Sounds simple? Many people struggle to get this fundamental right prior to scaling their business, and run into issues as a result…

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. She quickly found that relying on Booking.com and Airbnb as a model simply was not profitable, and struggled to keep the business afloat. 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.

 

3) BUILD, TEST, SCALE

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.

I suspect that, with the number of people realising serviced accommodation is much harder and less profitable than it originally seemed, and the number of poor quality deals being sold by sourcers to unsuspecting newcomers, that figure within serviced accommodation is likely to be closer to 80%.

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?

Assumptions.

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. But for the first 6 months, he only took on a handful of units, in order to allow him to successfully test the model and build the team and systems in the business – an important part of “testing the model”. In the 6 months after that, he took another 30 units under management, with much less risk to the owners and with the capacity in place to handle the additional workload.

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. By her own admission, if she had started with 1 property to test the model prior to transitioning to her new model then it would have been easier, she’d have lost a lot less money and gone through much less stress!

Andi & Lloyd took on 3 pubs at once, with 60+ serviced rooms. 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.

 

4) SYSTEMISE

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. However he knew that the systems he had built would give him the capacity for growth, and now his he managing nearly 50 units using the same systems he was running when he had only 5.

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. By breaking down each stage of the booking process, it brings repeatability (and with it consistent quality), allows you to deskill and use VA’s in a very effective manner, and brings accountability as you always know who did what and when, and what stage each booking is at. It’s this level of detail and accountability you need in order to successfully scale your business.

 

5) BUILD YOUR TEAM

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. By taking on a property manager to handle all on-site work and guest communications, it allowed her to focus on the most important role she has to play within the business – maintaining her client relationships, and spending time on business development.

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.

 

THE BOARDROOM MASTERMIND GROUPS

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.

We were there in the trenches with Karen when her business was in trouble – jumping on phone calls every week, working out the best ways to plug her cashflow gaps and formulating longer term strategies to move the business out of the red. When her hard work pulled off and her long term bookings started coming in, she was able to look at the businesses around her for the best practice in scaling up.

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. If you would like to find out more, please go to www.thesapodcast.com/boardroom to book a free consultation.