Somewhere on most hotel financial statements, usually towards the bottom, is a major heading called Fixed Expenses. I firmly believe that General Managers and Comptrollers created this title for two reasons. Either owners handled the items bundled in there or General Manger and Comptrollers didn't want to assume responsibility for the items they placed there.

Fixed Expenses usually includes items such as rent, real estate taxes, personal property taxes, building and contents insurance, interest expense, depreciation and amortization. 

Other items which might appear there are equipment leases, cable TV and who knows what else occasionally. While not classified as fixed expenses, payroll taxes, unemployment insurance and other benefits - both those discretionary to the operation and those which are mandated by government regulation - are thought of as fixed expenses by many hoteliers.

I don't believe there is a fixed expense in a hotel. There are simply some expenses which take longer to reduce than others! Many of these are the same ones that can be controlled by planning and negotiation when the acquisition or development is planned.

General Managers and Comptrollers (management) should not divorce themselves from these issues any more than an owner would. One way an owner can enhance these key employees' interest in these expenses is to make their incentive pay tied to his or her real profitability. This is also t rue of management company incentive fees.

Real Estate Taxes

Management can help the owner in a number of ways with these different expenses in addition to increasing revenues to cover them. An an example, real estate taxes are usually considered outside of the control of management.

Real estate tax assessments, their calculations and their payment are a matter of public record. By research other hotels' tax rates at the county offices and understanding their calculations, management can begin to ascertain whether the taxes assessed their particular hotel are relatively fair or not. 

If they appear to be unfairly high relative to the competition and the hotel's circumstances, management can, at a minimum, sit down with the tax assessor and discuss the issue. S/he will answer questions, ask for more information and possibly lower the taxes. In areas where there are personal property taxes, the system works much the same way.

If the taxes are apparently unfairly high and the assessor does not agree, management, with the owner's approval, can begin the appeals process. In a simple case, much of the work can be done by management. There are lawyers who specialize in this area of the law. They can be retained on a fee or contingency basis. Real estate taxes should be examined every three or four years, depending upon local circumstances.

Workers Compensation 

Workers compensation insurance can be attacked from several directions. The most obvious is to in sure that all employees are properly classified because different classifications have difference insurance rates applied to them.

Next, management should insure that workers compensation insurance is being bought from the least expensive source available to a particular hotel.

Another factor affecting workers compensation insurance is a particular location's injury experience. Records of previous losses must be reviewed and action taken, either through staff training, physical changes in the hotel or in methods of accomplishing tasks. 

Remember, even an injury sustained while walking out to their car can result in an accepted workers compensation claim. We had one workers compensation claim for an employee who tripped over a cat on the way to her car.

In Minnesota, the law and regulations promulgated based on that law have created a burdensome system. The limits are high, the definition of injuries, the time limits and the bureaucracy all contribute to one of the highest expenses in the Midwest. By lobbying together and making legislatures and the administration aware of the problem, management can contribute to reducing this expense.

Minimum Wage

Minimum wage is also a "fixed expense" by acting as a baseline for wages. At the state and national levels, one must participate in the process of government to affect change. 

With both the Minnesota Legislature and the U.S. Congress, at President Clinton's insistence, contemplating increases, we must be doubly careful. Remember, when there are two different laws on the same subject, the one most beneficial to the employee, not the employer, is the one that applies.

Other than managing your labor force more efficiently, reducing staff and lowering service to your guests, the only control management has over this expense is through joining with others in the hospitality industry through our state and national hospitality associations.

Interest and Lease Expenses

Getting your interest and lease expenses reduced may be as difficult as reducing government-mandated expenses. Interest and lease expenses are negotiable at the time the agreements are entered into. Many times they can be reduced simply by asking at a later time.

The hammer management has is the lender/lessor knowing that you can go out and g get a new loan, buy out the lease or do business in the future with another lender or leasing company.

It is a difficult and time consuming task, but a worthwhile one. Given the recent increase in interest rates, deals made in the most recent few years may be as good as they can be for the foreseeable future.Work with your owner and network with your local banks. You should at least be able to g get their rooms, meeting and party business!

When considering new loans or leases, remember that the items or equipment you are purchasing are a separate transaction from the loan or lease. Just like soap and toilet paper are commodities, so is money. No lender or leasing company is doing you a favor by giving you access to money. You are a customer helping them reach a sales budget. Shop for the best deal. The leasing company suggested by the vendor m may not necessarily offer the best deal.

Insurance Cost Is Controllable 

Insurance of all types is a completely controllable expense within certain limits. Deductibles, co-payments and proper valuation of the building and furniture, fixtures and equipment replacement cost are all components of the insurance premium. The hotel's loss record enters into the calculation also. Changes in any or all of these items will affect your premium cost.

Different insurance companies charge different rates for insuring hotels based on their loss experience and appetite for hotel insurance risk at a particular time.

Work with your in insurance agent to understand what and where s/he has been shopping for your insurance. Are the companies (agencies refer to insurance companies as "markets") your agency has been considering regular insurers of hotels? Ask your agent why s/he doesn't investigate other markets. Use two agencies and have the second agency shop other markets. Look for agencies which have several other hotel clients and experience handling hotel claims. If you have the financial stature to do so, give serious consideration to self-insurance.

Cable and satellite TV expense are also manageable. Reducing premium channels offerings is a quick way to reduce cable expense. Don't let cable companies fool you with their claims of regulations and community controlled tariffs. Usually those only apply to residential consumers. 

Look into pay-per-view providers such as SpectraVision and satellite companies now so you will be prepared when the current cable contract expires. In many cases, pay-per-view can be layered on top of the cable system so the hotel can earn some offsetting revenues.

In summary, look at fixed expenses just as you would any other expense. You can often make a greater impact on the bottomline through these items than by reducing food cost and they are not as difficult to maintain.