Each third-party management company will charge accordingly to what it offers, industry experience and its economies of scale. In general, however, most require a flat percentage of the gross income with a monthly minimum. For the majority of operators, this averages between 4 percent and 6 percent of the monthly gross revenue.
Mitigating factors that could move that percentage up or down include the facility size, number of locations and services requested. When selecting a management company, Shipley advises that owners ask about any other fees they may be charged. “Many management companies provide services such as sales centers and Internet marketing that require an additional charge but would eliminate the need for outside vendors supplying these services, and often reduce the expense you are currently paying for these services.”
While it seems like the fees add up, the third-party management company’s sole purpose is to increase an owner’s revenue. “The owner should be able to pay for the management services with the increased revenue the management company expects to bring in,” Springer says. “While the first year of revenue could be slightly less than the owner was receiving due to the management fee, the increase in revenue over the subsequent years should more than offset the increase in added expense.”
Just as an owner has expectations of his staff, he should have clear expectations of his management company. You’ll likely have overall goals in mind, which may include broad objectives such as increasing revenue, staff training or new marketing, and specific items such as a financial reporting timeline, creating a Twitter account or overseeing a renovation project. “Be detailed in what you as an owner expect, and make sure the company you are dealing with knows exactly what you expect,” says Holsinger, who suggests you ask the company to give you a detailed list of what it will accomplish each month, quarter, year, etc.
You should find out if the company can provide an operating budget, how often a company representative will visit the property, marketing avenues they’ll seek, what kind of reports you can expect, and when they will be delivered. “These are just some of the ways you as an owner can ensure you’re receiving the services you’re paying for,” Holsinger says.
Because you’re no longer in charge of the operation on a daily basis, you should also expect your management company to bring any concerns or ideas to you that will boost your facility’s revenue or growth as well. “They should have the tools to recognize immediate areas for opportunity within your facility as well as problem areas that require quick action,” Shipley says. “It’s also important your management company have a seasoned, detail-oriented accounting team. You want strong oversight of all financial areas of your facility and confidence that your operation is being run by a professional, highly competent accounting group.”
As with any partnership, communication is critical to ensure everyone is working toward the same goal. From the start, the owner and management company should agree on “a flow of communication and stick to it,” Ballard says. “Moreover, owners should be on their sites looking to see if everything is according to plan.” If it isn’t, they should contact the management company rep and discuss a cure or path of action to take.