GRAND RAPIDS — Two companies recently put their heads together and formed Trans Management Advisors to offer financial consulting services to the hotel industry.
Trans Management Advisors basically helps hotel investors improve the performance of their hotel properties. The company offers an independent assessment of hotel operations from both an operational and financial perspective.
The company looks at a hotel’s policies and procedures and conducts a financial statement analysis, as well as risk management and fraud assessments. The goal is to maximize investment return for hotel investors.
The firm, which opened last November, is a joint venture of Trans Inns Management Inc. of Farmington Hills and Cendrowski Corporate Advisors of Bloomfield Hills.
Trans Inns Management Inc. is a hotel management company that operates and develops hotel properties licensed under brands such as Marriott’s Courtyard and Fairfield Inns, Holiday Inn, Holiday Inn Express, Holiday Inn Selects, Staybridge Suites, Hawthorn Suites, Best Western and Super 8 motels. The company operates four inns in Grand Rapids.
Cendrowski Corporate Advisors specializes in fraud deterrence and detection. Founding member Harry Cendrowski said the two companies had collaborated on some projects prior to starting Trans Management Advisors. Cendrowski also is the co-founder and president of the CPA firm Cendrowski Selecky PC.
“We bring together Trans Inn’s day-to-day hotel experience together with our experience in the fraud area,” Cendrowski said. “We inform them as to what frauds are currently out there and how to prevent them, maybe from an electronic basis or what managers should look at.”
He said the idea for the new firm came about in the wake of the Sept. 11, 2001, terrorist attacks. The hospitality business post-9/11 was hit “very, very hard” across the country. Occupancy rates dropped quite a bit so it became difficult to get financing, cash flow wasn’t good, and it really seemed there was no end in sight, he recalled.
Cendrowski Corporate Advisors had clients who already had hotels in their portfolio, and other clients who were considering investing in hotels. For those clients, Cendrowski’s firm would tap Tran Inns Management’s expertise in running hotels, which is how the relationship came about.
“What we did was bring two firms with specialized knowledge together and we think that’s a better formula than having everyone in-house,” he said. “We take senior members of Trans Inns Management and senior members of Cendrowski Corporate Advisors and put together a team that’s the best for the client’s needs.”
A single hotel might have one to five investors, depending on the overall size and scope of the hotel, he said. It depends on the number of rooms, the location, the amenities and additional facilities a hotel offers, and what else it connects with that’s within walkable distance — such as a convention center, restaurants and retail businesses.
A client might seek help from Trans Management Advisors, for instance, if the hotel he has invested in is only at 90 percent of RPAR (Revenue Per Available Room) while the hotel down the street is at 110 percent.
“A lot of clients are going to own more than one hotel and it might be with the same franchise, so you want to make sure that you compare the two locations and understand why they have differences in their operations,” said Jim Martin, senior manager at Cendrowski. “It could be the age of the building, it could be the sales director, or it could be that one is in an area that allows it to get a better rate.”
With the cooperation of senior management, it normally takes about two to three weeks to assess a hotel’s operations and do the financial and fraud assessments, Cendrowski said. As part of the overall assessment, the company will recommend that every so often certain operational or financial areas be scrutinized more closely than others.
He advises an “annual checkup,” but that doesn’t mean redoing the entire assessment. He said it means testing to see if hotel management is really following through on all the recommendations and that they’re being consistent on that follow through.
“The big item here is consistency and not just doing things on a hit or miss basis. If we’ve recommended that a certain part of their operation be reviewed daily, you want to make sure they’re actually reviewing it daily and not just checking it off the list.”
Martin said it’s really about looking at the processes that are in place to make sure everything works correctly.
“In terms of follow-up, it’s making sure you proactively go out and help management identify where the processes could be continuously improved,” he explained. “Also, the training really helps hotel management understand the process expectations and to be able to identify the early warning signs that a process might not be working as correctly as it could be.
Studies by the Association of Certified Fraud Examiners consistently show fraud robs businesses of up to 6 percent of gross revenue each year, Martin pointed out. Hotels are probably a little more susceptible to fraud because it’s a service industry and there are a lot of cash transactions. He said there are a lot of ways customers, employees and vendors can defraud a hotel that aren’t as easily noticed as it would be in, say, a manufacturing environment. A lot of the fraud is internal.
If, for instance, a customer paid for two rooms in cash and the night manager pocketed it, part of the process would be to check how many rooms were cleaned that day and see whether it matches up with the revenue from all the hotel rooms rented that day, Cendrowski explained.
Though it sounds like a very simple process, many organizations don’t match those up, he said. Fraud can happen in any part of the hotel operation. A supplier could give somebody a kickback in exchange for a cleaning service contract for the sheets. The possible fraudulent scenarios are never-ending, he said.
The annual “checkup” is really important, according to Cendrowski. What his company finds from time to time is that a hotel may appear to be a good investment but there’s actually money being left on the table in many different ways because the operation isn’t being assessed and people have become somewhat complacent. Or, they may say they’re not doing well because the overall industry isn’t doing well and they’re not really focusing on what’s going on every day.
“A lot of people look at hotels as a real estate investment, but that’s not the right way to look at it,” Martin concluded. “It’s an operating business that you have to monitor day by day and night by night. What are your operating statistics? A slow degrading of those statistics over time will really affect the operation long term.”