An owner of several hotels tends to build a head office without meaning to. A finance person, someone on revenue management, a shared sales lead, an HR function, and the owner's own time spread across every property. Those costs are real. In many groups they are paid by whichever property had the cash that week, and never charged to the others.
The result is property results that look better than they are. The strongest properties carry the weakest, and nobody can see by how much.
Separate head-office costs first
Before allocating anything, put head-office costs in one place. That can be a separate management company that owns no rooms, or a head-office department in the books. Either way, its costs should stop appearing in individual property ledgers.
This step catches the most common problems. A shared salary paid from one property's account. Insurance paid by one property for the whole group. Workers' compensation charged to whichever property happened to process payroll. Route those through head office so each property's own costs stand on their own.
Choose an allocation basis per cost
No single basis suits every cost. Match the basis to what drives the cost.
| Head-office cost | A basis that usually fits |
|---|---|
| Accounting and finance | Number of entities, or transaction volume |
| Revenue management and distribution | Rooms available, or room revenue |
| Sales and marketing | Room revenue, or group and corporate revenue |
| HR and recruiting | Headcount or payroll cost |
| Insurance and workers' compensation | Actual premium by property where possible |
| Owner and executive time | An agreed split, revisited each year |
Keep the methods written down and stable. A basis that changes every quarter makes every comparison between properties unreliable.
Charge it through a fee or intercompany entries
There are two common ways to move the cost.
A management fee. The management company charges each property a fee, often a share of revenue plus an incentive element. This is familiar to lenders and investors, and it mirrors how third-party hotel management contracts work.
Intercompany allocations. Head-office cost is allocated monthly to each property at cost, through intercompany entries. This shows the true cost more directly but needs the entries to be eliminated when the group is consolidated.
Whichever you choose, apply it consistently, document it, and make sure intercompany balances net to zero in the consolidated view.
Read property results at two levels
Look at each property before and after allocation.
Before allocation shows how well the property itself is run. This is the number to hold a general manager to, because it reflects what they control.
After allocation shows whether the property earns its share of the group's cost. A property that is profitable before allocation and loses money after it is not covering its share of head office. That is a strategic question for the owner, not a performance question for the manager.
What allocation will not fix
It will not make head office cheaper. It shows what head office costs and who carries it. Whether that cost is worth it is a separate question.
It will not settle financing questions either. Lenders underwrite each property on its own cash flow. A property that relies on head office absorbing its costs will look different to a lender than it does in the group's internal reports.
Frequently asked questions
How should a hotel group allocate head-office costs to properties?
Separate head-office costs first, then allocate each one on a basis that reflects what drives it, such as rooms available for revenue management or headcount for HR, and apply the methods consistently.
Should a hotel management company charge a management fee to its own properties?
Many groups do, often a share of revenue with an incentive element, because it mirrors third-party management agreements and is familiar to lenders. Others allocate actual cost through intercompany entries. Both work if applied consistently.
Why do property results change after head-office allocation?
Because shared costs such as finance, revenue management and the owner's time are added to each property. A property profitable before allocation can be loss-making after it, which means it is not covering its share of group overhead.
How do intercompany allocations affect consolidated results?
They should net to zero. Charges from head office to each property are eliminated on consolidation, so the group total is unchanged while each property shows its full cost.
Where CFOLogic fits
We separate head-office costs, set and document allocation methods, and run the monthly entries so each property shows results before and after allocation. Navigator, our software, rolls every company into one picture each morning and cancels out money moving between them, so the group total and each property can be read side by side.