Budgeting and managing finances for vacation rental managers: An in-depth four hour boot camp incorporating more hands-on knowledge of how to manage the financial landscape and use budgeting as a foundational tool to grow the business and meet future goals.

2. Agenda
 Chart of Accounts, General Ledger and Transactions
 Understanding the Balance Sheet, the Income
Statement and the Cash Flow Worksheet
 Why You Need a General Operating Budget and How
to Create One
 Managing by Budget
 Avoiding Problems

3. Important Note
Any commission rates used in examples in this course are
arbitrary numbers.
They do not reflect industry standards or common practice
in any particular locality.

4. One Size Does Not Fit All
• We are aware that some of the suggestions we will make
in this course might not fit the size and scope of your
operation or your market.
• As such, please remember that the assumptions made
throughout this course are designed to represent an
average vacation rental company.
• We encourage you to speak up and share your
experience as another point of view.

5. Getting Started
“Everything is associated with money,
and the person who knows what they
have at all times wins”
Julie Aydlott owner of San Diego Business Accounting
Solutions, and author of The Quick Guide to Small Business
Budgeting

6. To be financially successful a VRM
must:
Have the financial knowledge and resources to meet the
company’s financial obligations
Ensure the company remains a going concern for the
benefit of owners, shareholders, employees, guests and
the community

7. Accounting vs. Bookkeeping
Bookkeeping is a systematic recording of every revenue and
expense transaction, including dates, amounts and
descriptions.
Bookkeeping is the financial infrastructure of your business.
 Accounting provides a bigger picture by tracking bookkeeping
transactions and using them to analyze business results.
Managers use the financial reports generated by accounting
to make decisions and plans for their business.

8. Why You Should Know Some
Bookkeeping and Accounting
To effectively manage your company to ensure it remains
a viable operation
To avoid being taken advantage of financially
(particularly embezzlement and fraud)
To assist in the planning and control of your business
To be able to knowledgably communicate financial
information to employees, potential lenders and
investors, shareholders, and the media

9. First Things First
Accounting systems and financial reports are only as
reliable as the information and processes used to create
them.
To create reliable information and processes, follow these
steps . . .

10. First Things First (continued)
Create clear, standardized policies and procedures
This consistency creates trust
Ensure policies and procedures aren’t just for accounting
employees—every employee is involved in some aspect of
financial accountability and needs to know where he or she
fits into the bigger picture
Start by reviewing the workflow of accounts receivable,
accounts payable and property management revenue to
ensure your company has a fundamental accounting
foundation

11. First Things First (continued)
Ensure that transactions are complete, accurate and
timely
Ensure that transactions have source documents
Hire knowledgeable, skilled employees
Create and enforce strong internal controls to
minimize errors and temptations to dishonesty as
well as to safeguard assets

12. First Things First (continued)
To create and enforce strong internal controls:
Segregate employee duties to provide checks and balances
—don’t have the same person process purchase orders and
receive inventory or write checks and reconcile bank
statements
Ensure all transactions have verifiable source documents
and are properly stored
Consider using electronic storage to save money and space

13. First Things First (continued)
Ensure proper authorization of transactions, such as
requiring two manager signatures to approve a transaction
over a specific amount
Ensure physical control of assets, such as limiting employee
entry and exit routes, installing fences and locks, using
surveillance equipment, conducting unexpected inventory
counts and inspections and establishing inventory par
levels

14. First Things First (continued)
Check references or perform background checks before
hiring new employees
Perform independent checks on performance, such as
requiring employees to take vacations and using a
substitute while gone
Review “7 Signs of Internal Accounting Fraud” article at end
of Student Workbook
Consider doing some of your own bookkeeping at
first so that you understand how your accounting
system and transaction processes actually work

15. Chart of Accounts
List of all the accounts your company uses to track
transactions
Types of accounts or categories: assets, liabilities,
owner’s equity, revenue, and expense
Assets are anything your company owns that has
monetary value

16. Chart of Accounts (continued)
Current Assets can easily be converted into cash (cash,
savings, checking, accounts receivable, inventory)
Non-Current Assets cannot easily be converted into cash
(equipment, real estate, other capital assets)
Establish a minimum asset to avoid wasting time tracking
low cost assets

17. Chart of Accounts
Liabilities are anything your company owes to people
or businesses—they are financial obligations
Current Liabilities are payable within one year (wages,
accounts payable, taxes, etc.)
Long Term Liabilities are payable after one year (long term
leases, long term debt, pension obligations, etc.)
Owner’s Equity or “capital” = Assets - Liabilities

18. Account Organization
Keep it simple
You decide the number of accounts within each
category and level of detail
When naming accounts, use common terminology
that quickly allows managers and employees to
determine the meaning of a specific account
Organize the chart of accounts to allow decision
making employees to quickly understand transactions
and financial information

19. Account Organization (continued)
Only create material accounts
Once chart of accounts established, ensure
employees are consistently coding to these accounts
and minimize creation of new accounts
Consistency is the key

20. Simple Chart of Accounts
Account Number Account
100 Assets
200 Liabilities
300 Owner’s Equity
400 Revenue
600 Payroll/Wages
700 Other Expenses

21. General Ledger and Transactions
General Ledger (G/L) is the part of your accounting
system used to record (post) transactions
Two methods of recording transactions in G/L: cash
and accrual
Cash Basis
Revenue recorded upon receipt of cash
Expense recorded upon payment of cash
No accounts payable or receivable

22. General Ledger and Transactions
(continued)
Accrual Basis
Revenue is recorded when earned
Expense recorded to match revenue or in period in which it
is incurred
G/L uses a Double Entry accounting system
For every transaction, two accounts are affected
One is debited and the other credited

23. General Ledger and Transactions
(continued)
Type of
Account
Debit Credit
Asset Increases acct Decreases acct
Liability Decreases acct Increases acct
Income Decreases acct Increases acct
Expense Increases acct Decreases acct
Owners Equity Decreases acct Increases acct

24. General Ledger and Transactions
(continued)
Example #1: Receive deposit from guest
Debit Credit
Account # 101 202
Description Cash Advance
Deposits
Type Asset Liability
Amount $2,000.00 $2,000.00

25. General Ledger and Transactions
(continued)
Example #2: Receive utility bill
Debit Credit
Account # 702 201
Description Utilities Accounts
Payable
Type Expense Liability
Amount $500.00 $500.00

26. General Ledger and Transactions
(continued)
Example #3: Pay utility bill
Debit Credit
Account # 201 101
Description Accounts
Payable
Cash
Type Liability Asset
Amount $500.00 $500.00

27. Important Financial Reports and for
Vacation Rental Managers
Statistics/Metrics for the VR Business
Balance Sheet
Income Statement
Cash Flow Worksheet
Review and verify all transactions posted to the G/L
for reasonableness and consistency
This information is typically prepared and reviewed
each month after month end close

28. Statistics & Metrics
Performance metrics measure an
organization's activities and performance.
It should support a range of stakeholder
needs from customers, shareholders to
employees.
Traditionally many metrics are finance based,
inwardly focusing on the performance of the
organization.

29. Sample Statistics & Metrics
Total Available Nights
Nights Net Available Nights
Guest Occupied Nights
Owner Occupied Nights
Occupancy %
Average Daily Rate (Guest nights only)
Management Commissions
Commission Per Property
Average Length of Stay Number of Reservations

30. Sample Statistics & Metrics cont’d
Total Available Nights – include ALL nights available
to sell. (Number of properties * 365)
Nights Net Available Nights – Total Available Nights
less Owner/Maintenance Use Nights.
Guest Occupied Nights – Paying Guest Nights
Owner Occupied Nights – Owner or Non-paying
Guest Nights

31. Sample Statistics & Metrics cont’d
Occupancy % - Total Occupied Guest Nights/Net
Available Nights
Average Daily Rate (Guest nights only) – Gross Rental
Revenue/Total Occupied Guest Nights
Management Commissions – Gross Rental Revenue
less Payments to Owners
Average Length of Stay - Total Occupied Guest
Nights/Number of Reservations

32. Sample Statistics & Metrics cont’d
Total Available Nights – include ALL nights available
to sell. (Number of properties * 365)
Nights Net Available Nights – Total Available Nights
less Owner/Maintenance Use Nights.
Guest Occupied Nights – Paying Guest Nights
Owner Occupied Nights – Owner or Non-paying
Guest Nights

33. Sample Statistics & Metrics cont’d
Review Sample Statistics and Business Metrics

34. Balance Sheet
Also known as Statement of Financial Condition
Provides a snapshot of your company’s financial
condition at any one point in time
Assets = Liabilities + Owner’s Equity
Typically compared to last year’s Balance Sheet at
same point in time

35. Statistics Model

36. Balance Sheet (continued)
Helps you determine if your company can withstand
typical market fluctuations, if you can expand and if
you need additional cash reserves
Helps you spot trends in accounts payable and
receivable
Frequently required by potential lenders and
investors

37. Reviewing the Balance Sheet
Review each account for reasonableness
Perform an Acid Test
Also called Quick Ratio or Liquid Ratio
Acid Test (current assets – current liabilities) measures the
ability of a company to use its current assets to
immediately satisfy current liabilities

38. Reviewing the Balance Sheet
(continued)
The Acid Test indicates a company’s capacity to maintain
operations as usual with current cash; thus, this test
implies a liquidation approach and does not recognize the
revolving nature of current assets and liabilities
Generally, the Acid Test ratio should be 1:1 or better;
however, this varies widely by industry

39. Income Statement
Also known as Profit and Loss Statement or Earnings
Statement
Reports how well your company operated over a
period of time. Did it make or lose money? What’s
the bottom line?
Revenue - Expenses = Net Income (or Loss)
Net Income (or Loss) gets moved to the Balance
Sheet and becomes Owners Equity

40. Income Statement (continued)
Typically compared to budget and prior year’s
operations
Helps you determine which areas are under or over
budget
Frequently required by potential lenders and
investors
Investigate each variance

41. Reviewing the Income Statement
Top line revenue—Did you hit your forecast?
Payments to owners—What is the percentage of top
line? Are you paying more than you should? If so,
why?
Review all other revenue accounts for
reasonableness

42. Reviewing the Income Statement
(continued)
Review all expenses for reasonableness
Compare each account to budget and prior year
Focus on variances
Net operating income—Did you hit your forecast? If
not, why?

43. Cash Flow Worksheet
Part of a larger and more complex report called
Statement of Cash Flows
Reports cash generated and used by your company
over a period of time
Don’t confuse profitability (revenue – expenses) with
cash flow -- you can be profitable and still lack cash
and still go out of business

48. Cash Flow Worksheet (continued)
Helps you determine if you’ll have enough cash each
month
Helps you assess capability of generating future cash
flow
Focus on including all line items
Cash Flow Worksheet is only as good as information
provided therein

49. Reviewing the Cash Flow
Worksheet
Ensure all accounts and transactions are included
Look for irregularities or short falls in cash
Short falls in cash will require you to add additional
capital to your business
Simple planning can negate or minimize the need for
additional capital

51. What is a General
Operating Budget?

52. A Financial Planning Tool
that…
 Is an itemized summary of projected income and
expenses for a period of time
Helps you identify your company’s financial values,
prioritize your spending, manage your money and
track performance
Provides a means of managing your actual
performance against your projected performance

53. What You Need a General
Operating Budget
To achieve your company’s goals
It allows you to more effectively and efficiently manage the
financial operation of your company
It can provide you with a better basis for understanding
your company’s operations in relation to the general
environment
It leads to faster reactions to developing events, which
increases your company’s ability to perform effectively

54. Why You Need an Operating
Budget (continued)
To plan for your company’s future
It allows you to be prepared—you can either “wing it” or
you can plan for profit, cash flow, and the financial
condition of your business
It allows you to anticipate change and adapt, such as a
downturn in your company’s performance
It is an indicator of financial health, stability and
sophistication to any potential lender, investor or buyer

55. Why You Need an Operating
Budget (continued)
To obtain the most productive and profitable use of
your company’s resources—not to limit expenditures

56. Creating a General Operating
Budget
Be kind to yourself (and others)—Realize that you’ll
make some mistakes and that there is a learning
curve
Start in October or November
Make time for budgeting
Use last year’s financial statements to provide the
foundation for this year’s budget, then you can
evaluate assumptions each year and make
corrections

57. Creating a General Operating
Budget (continued)
Create a realistic and detailed budget—record true
and accurate revenue and expense assumptions—
avoid “sand bagging”
Review your budget every month and revise your
forecast (a revision detailing material increases or
decreases to your budget) regularly
Use it for restraint and not constraint

58. Involve Your Managers
Have your managers create financial plans for the
year, including specific objectives and means of
accomplishing those objectives
Review those plans with your managers and reach
consensus among your team
Incorporate those plans into the General Operating
Budget

59. Involve Your Managers
(continued)
Have your managers review budget versus actual
throughout the year and make mid-course
corrections via a forecast
Support their budget-based management decisions
throughout year
This process helps managers do a better job of
forecasting

60. Involve Your Managers
(continued)
This process motivates managers and employees,
particularly if you tie incentive bonuses to financial
performance
This process allows you to more effectively monitor
and manage against departmental/employee
performance

61. Identify Revenue Sources
Use last year’s revenue as a guide—pull amounts from
your reservation system
Be realistic and conservative—Don’t overestimate
income
Understand Key Metrics and Terminology
Focus on Gross Lodging Revenue because it will allow
you to forecast expenses
Determine what you’ll charge for services and fees—use
your market to determine a viable price structure

62. Develop Key Revenue
Schedules
Based on Gross Lodging Revenue and other key
metrics
Housekeeping
Maintenance

63. Identify Direct Operating and
General & Admin Expenses
Direct Operating Expenses
Are typically variable and fluctuate with Gross Lodging
Revenue
Examples include housekeeping, maintenance, and hourly
payroll
General & Administrative Expenses
Are typically fixed —they stay the same each month
Examples include rent, management salaries, and vehicle
lease payments

64. Identify Direct Operating and General
& Admin Expenses (continued)
Use last year’s expenses as a guide
Be realistic and conservative—Don’t underestimate
expenses

65. Develop Key Expense
Schedules
Payroll
Leases (office, vehicles, copier, postage machine,
etc.)
Marketing
Housekeeping and Maintenance (included in General
Operating Budget Worksheet—not done separately)

66. Remember Consensus is the Key
Meet with dept managers to explain reason for
budget and set goals
It is their planning tool
It is their chance to make requests (wish lists)
It is their opportunity to reveal their planning skills
It is their statement of resources required to meet their
goals

67. Remember Consensus (continued)
Set thresholds
Give dept managers a timeframe to complete and
submit their budgets
Ask them for a narrative to accompany budget
Allow dept managers to manage against budgeted
items
Don’t micromanage your employees
 Manage against performance

68. Finalize the First Draft of Your General
Operating Budget
Analyze
Conduct a detailed review and make adjustments
Duplication
Reasonability checks
Staffing requests
Wishful thinking
Poor calculations
Denials
Omissions

69. Finalize First Draft (continued)
Return to dept managers with request to cut money (not
everyone)
Prepare add/subtract list by department
BALANCE THE BUDGET! Worst Case!
Note that Income Statement and General Operating
Budget look identical

70. Creating a Capital Budget
Capital expenditures are recorded when a company
spends money to acquire or upgrade fixed assets
Examples are equipment, property and buildings

71. Conducting a Final Review and
Sign Off
Review all budgets one last time with overall picture
in mind
Add items or money as needed
Cut items or money if you do not feel it is necessary to
obtain department or company goals
Distribute to Dept Managers

72. Managing by Budget
Review actual versus budget on a monthly basis
If income is down, why?
If expenses are up, why?

73. Managing by Budget
(continued)
Pay particular attention to:
Wages and employee benefits, including overtime
New project expenses
Accounts with previous problems
Workman’s compensation and other taxes
Advertising
Housekeeping income versus expense
Laundry income versus expense

74. Managing by Budget
(continued)
Drill down as necessary
Adjust and adapt as necessary
Evaluate extra expenditures
Are they in the budget?
Exceptions for catastrophic omissions only or unique
opportunities (CEO decision)
Ideally exceptions exchanged somewhere else

75. Managing by Budget
(continued)
Consider implementing a “Think Tank” day
Conducted off site just before budget is prepared
Every department is evaluated
Allows everyone a say in what needs to change and how to
run things more efficiently and effectively
Not punitive
Use results to adjust your budget if appropriate

76. Managing by Budget
(continued)
Consider implementing a “Kick Off “ Day
Unveil budget and projections for new year for company
and specific departments
Allow employees to see which of their ideas influenced the
budget

77. Avoiding Problems
Avoid “I don’t really need to use it” mentality
Avoid “I’ll trade it for something else” mentality
Avoid “I’ve got extra money to spend” mentality
Make thoughtful decisions

78. Avoiding Problems (continued)
Do not implement across the board cuts
Discourages padding
All items are not equally sacrificial
Closely monitor assumptions for accuracy (# of
reservations, # of work orders, high income season
daily/weekly)
Look for problems EARLY

79. Avoiding Problems (continued)
If you’re a company owner
Stick to your own budget
Don’t jeopardize company by dipping into reserves
Assess at end of year (end of quarter at most)

80. Conclusions and Summary
Know where your checkbook should be EVERY month
Be prepared to adjust if necessary
Hold dept managers accountable for their expense
budgets
Meet your budget goals
Consider bonus incentive for dept managers who
meet goals

81. Conclusions and Summary
(continued)
Benefits if you use a budget:
Stronger company
Unified approach to planning
Respect from banks and greater chance of successful
financial requests
Higher market value for your company
Positive equity position

82. 7 Signs of Internal Accounting
Fraud
1. An in-house accountant works without direct
supervision on every aspect of a company's financial
operations. When one trusted bookkeeper or accountant is
responsible for records, payroll, receivables, deposits,
payments and so on, the company is placed at risk for
fraudulent activity.

83. 7 Signs (continued)
2. An in-house accountant refuses to follow recently
established accounting and/or payroll guidelines. In such a
case, owners should demand that guidelines be strictly
followed and investigate financial and payroll records for
up to several years in the past.
3. An accountant continually works after hours, comes in
frequently on weekends or insists on taking work home.
Fraudulent activities are easier to accomplish when work is
unobserved and unsupervised.

84. 7 Signs (continued)
4. An accountant refuses to take a vacation. This individual
may be thought of as a highly dedicated and hard-working
employee, but it could be that he or she simply doesn't
want anyone to discover how the books are being cooked.

85. 7 Signs (continued)
5. An accountant insists that he or she handle activities for
which other departments are normally responsible. These
can include picking up the daily mail (for fear that
something could arrive that would tip-off management),
acting as the sole go-between with the company's financial
contacts (banks, auditors, creditors, etc.) and working with
police when items or money are found missing.

86. 7 Signs (continued)
6. An accountant continually misfiles important items such
as payroll receipts, deposit records, supplier
correspondence and estimates.
7. Deposits frequently seem too small. Owners should
always carefully monitor income and deposits, comparing
sales receipts against actual amounts put into the bank.
(Reprinted from National Federation of Independent
Business 04/ 15/ 2002)