hotel pre-opening: budgeting process, staffing, and it
TRANSCRIPT
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
