Hotel Pre-opening: Budgeting Process, Staffing, and IT

Hotel Pre-opening: Budgeting Process, Staffing, and IT

University of Houston : Agnes DeFranco, Ed.D., CHAE,CHE, CHIA, CAHTA

Arlene Ramirez, MBA, CHAE, CHE, CHIA, CAHTA

HotStats: Tanya Venegas, MBA, MHM, CHIA

Webinar for HFTP, July 9, 2019

Pre-Opening Survey: Four Areas of Study

DemographicsPre-Opening Experience

Pre-Opening Budget

IT System Selection,

Installation and Training

20 Participating Executives

On Average Overseeing 22 Hotels

(Range 1 - 90 Hotels)

Management Company

75%

Owner/ Management

Company 15%

Owner 10%

Demographics

> 3025%

21 - 3050%

< 2025%

Years in

Lodging

Industry

> 3025%

21 - 3040%

< 2035%

Years in

Finance

Specific Role

Pre-opening Experience• Who

• Who

• Where

• What

70%

15%

5%

10%

0% 20% 40% 60% 80%

1 to 5

6 to 10

11 to 15

Over 15

Hotels Opened In The Last 5 Years

57%

Corporate

26%

Regional

17%

Property Level

Level of Management

62%

North

America

9.5%

Central/South

America and

Caribbean

5%

Europe

9.5%

Middle

East/Africa

14%

Asia

Pacific

80%Luxury

45% Upscale

30% Upper Midscale

25% Midscale/Economy

Chain

ScaleHighway 10%

Airport 20%

Suburban 45%

City Center 85%

Hotel

Location

*Totals more than 100% as participants opened more than one hotel

type in more than one location.

25%

90%

10%

45%

25%20%

15%

*Totals more than 100% as participants opened

more than one hotel type in more than one location.

Hotel

Type

95%

500 Rooms or

Less

5%

More Than 500

Rooms

• Salary and related expenses for employees on the property opening team, both

onsite and off

• Training costs and meals for newly hired employees

• Staff recruiting costs

• Hotel charges, meals and transportation for the opening team.

• Costs incurred AFTER construction is completed for security, property taxes,

insurance and utilities

• Consulting costs related to feasibility studies, accounting, legal, tax and

governmental affair

• Nonrecurring operating losses

• Depreciation of assets placed into service, such as computers and other

communication devices

Considered Pre-Opening Expenses

Source: AICPA SOP 98-5 and FASB ASC 720-15-55 and http://hospitalitybusinessnews.com/20160124255/hotel-accounting-

preopening-expenses

• Property advertising costs

• Coupon giveaways

• Costs of furniture, fixtures and equipment

• Security, property taxes, insurance and utility costs

related to construction activities

Not Considered Pre-Opening Expenses

Source: AICPA SOP 98-5 and FASB ASC 720-15-55 and http://hospitalitybusinessnews.com/20160124255/hotel-accounting-

preopening-expenses

a. Coupon giveaways

b. Staff recruiting costs

c. Training costs and meals for newly hired employees

d. Hotel charges, meals, and transportation for the opening team

a. Coupon giveaways

b. Staff recruiting costs

c. Training costs and meals for newly hired employees

d. Hotel charges, meals, and transportation for the opening team

Pre-Opening Budget

Budgets Used For:

✓New builds: 100%

✓Brand conversions: 65%

✓Take-overs: 65%

Record Keeping

Excel, 65%

Existing G/L,

23%

Custom Project Mgmt., 12%

0% 20% 40% 60% 80%

Full or

Abbreviated

Full

71%

Abbr.

29%

Chart of

Accounts

SOP-67%

Checklist-89%

Critical Path-

89%

Created by Developer-6%

Created by Brand-6%

Created by Management

Company-88%

Determined by:

• Critical Path-59%

• First Employee Hired-17.5%

• Construction Milestone

(Top Off)-17.5%

• Other-6%

PRESS

START

Typical Timeline

17.5%

59.0%

17.5%

6.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

0 - 6 Months 7 - 12 Months 13 - 18Months

19 - 24Months

Those Who Reforecast--82.4%

Frequency?

Weekly13%

Monthly61%

Quarterly

18%

Other13%

Cash Budget

Included in

Reforecast

94.1%

Characteristics of

Budget Variances• Average range 5% to 10%

• Largest is labor

• Most common cause delay in

opening date due to construction

Overruns Most

Commonly Covered

by Owner

Items In

Pre-Opening

Budget

(As a % of Total

Budget)

Working Capital

▪Cash requirements for covering costs first few weeks of opening.

▪Not an expense a cash request provided to operator by owner, developer, bank loan or management company.

Security Deposits

• Usually a current asset,

but can be long term

depending on the holding

period.

• Not an expense a cash

outflow which will be

refunded at some point in

the future.

Previous Pre-Openings 47%

Project Pro Forma 41%

Other Methods 12%

Determining

Labor Costs

Hiring

Timeline

Weeks Before

Hotel Opening

a. GM and Director of Finance

b. GM and Director of Sales

c. GM and Sales Managers

d. Director of Sales and Sales Managers

a. GM and Director of Finance

b. GM and Director of Sales

c. GM and Sales Managers

d. Director of Sales and Sales Managers

Percent That

Are Local

Hires

Percent of

Positions

Where

Relocation is

Paid

Percent of

Positions

Where

Relocation is

Paid But

Capped

88.2% include relocation costs in Pre-Opening Budget…of those:

OPERATING EXPENSE

Even if hired during

pre-opening, costs

incurred “after”

opening would be in

operations.

75% 25%

PRE-OPENING

EXPENSE

Regardless of when

incurred, always

Pre-opening cost

Covered Relocation Costs

Tax Cuts and Jobs Act of 2017

Prior to January 1, 2018—Deductible as Moving Expenses, Even if Reimbursed by Employer

• Shipment of House Hold Goods (including pet and automobile shipment)

• Storage of House Hold goods (first 30 days, having them moved in and out of storage)

• Final Move Expense (airfare, mileage reimbursement)

After January 1, 2018—Not Deductible and if Reimbursed by Employer Taxable Income

Technology

HARDWARE INFRASTRUCTURE SELECTIONMONTHS PRIOR TO OPENING

HARDWARE

INFRASTRUCTURE INSTALLATION OR CONFIGURATION MONTHS PRIOR TO OPENING

a. Wireless network and backup servers

b. Wired network and backup servers

c. Wired network and windows domain servers

d. Backup servers and storage servers

a. Wireless network and backup servers

b. Wired network and backup servers

c. Wired network and windows domain servers

d. Backup servers and storage servers

Final System

SelectionMonths Prior to

OpeningHotel Admin.

Financial Reporting

Hotel Management

Check In

Reservations

Revenue Management

Room Management

User

Management

Check Out

Software

InstallationMonths Prior to

Opening

Software

TrainingMonths Prior to

Opening

IT Project Factors

▪Location

▪Size

▪Concept

▪Branded vs Independent

Tech Challenges

▪Technology Expertise▪ Inhouse

▪Consultant

▪Timing

▪Design

▪Construction

Tech Challenges

▪Construction Timeline▪Coordinating construction completion and installs

▪Communication is key!

▪How do you handle time overruns?

▪What happens if you have deliveries arriving and the hotel is not ready?

▪Back-of-House Spaces▪Design is key!

▪Don’t only think about current use, but future as well

▪ Closets changed to offices?

Tech Challenges

▪Network Infrastructure▪Nearly all tech runs on the network, so network infrastructure is a key element of the entire project

▪Technology is changing quickly, think about future needs

▪Once installed, confirm everything is working

▪Wired vs. Wireless

Tech Challenges

▪Lack of Coordination▪Coordination with everyone involved in the design, construction, purchasing and installation of IT infrastructure and software

Adefranco@uh.edu

Aramirez33@uh.edu

Tanya.Venegas@HotStats.com