Vacation Rental Income Statements "How-To" Ben Edwards, Weatherby Consulting

Ben Edwards

UNDERSTANDING THE INCOME STATEMENT

Ben EdwardsWeatherby Consulting, LLC

Office: (888) 304-1405Fax: (888) 304-1405Cell: (850) 496-7360

WeatherbyConsulting.com

http://weatherbyconsulting.com/

Understanding the Income StatementAbout Ben Edwards

As a respected and innovative industry leader, Ben Edwards has been positively affecting the real estate and vacation rental industries for over 15 years. From managing small resorts, to financial and operational auditing, to opening large scale resort developments, Edwards’s unique background provides a multi-level approach to consulting, transaction and advisory services.

Edwards’s experience includes: President, Vacation Rental Managers Association VP Business Development, Newman-Dailey Resort Properties, Inc. President of Weatherby Consulting, LLC Vice President, Royal Shell Vacations, 2,000+ properties HomeAway Advisory Board Committee Flip Key Advisory Board Committee President, Waterstone Resorts and Vacation Homes, 1,000+ properties Board of Directors, Florida Vacation Rental Managers Association GM, ResortQuest SW Florida, 2,400+ properties Board of Directors & Treasurer, VRMA, 6 years Advisory Board Member, Vacation Rental Expo

Understanding the Income Statement

Session Focus

• Designed to provide more information about the Income Statement, providing vacation rental managers the tools necessary to get the most out of your business and financial reporting• Proper financial management of your operation

helps to make the business more sustainable, while managing expenses and increasing the bottom line

• Before we get started….


One Size Doesn’t Fit All

• Some of the suggestions made in this session may not fit the size and scope of your operation or your market.

• As such, please remember that the assumptions made throughout this session are designed to represent an average vacation rental company.

• We encourage you to speak up and share your experience as another point of view.


Let’s get started….

Nomenclature:

• Income Statement

•Statement of Earnings, Revenues and Expenses

•Profit & Loss Statement

•P&L


What is the Income Statement and what does it do?

• Summarizes a company's revenues (sales) and expenses

• Revenue/Expense accounts are nominal accounts, which means that they’re closed out on an annual basis and the net income of the business is transferred from the income state to the balance sheet in the form of Owner’s Equity

• This closing process allows the nominal accounts to start the next accounting year with zero balances.

First things first….

• Garbage in…Garbage out…

• Accounting systems and financial reports are only as reliable as the information and processes used to create them.

• Ensure proper accounting setup• Chart of accounts

• Reservation system coding and setup

• Proper coding at the local level

• Consistency in coding


Chart of Accounts – Summary Rental and Fee Revenue

Account Classification• Gross Lodging Revenue Income

• Payments to Owners (Contra) Contra Revenue

• Rental Management Commissions Income

• Guest Resort Fee Revenue Income

• Guest - Cancellation Fee Revenue Income

• Guest - Amenity Fee Revenue Income

• Guest – Damage Waiver Revenue Income

• Guest - Pet Fee Revenue Income

• Guest - Other Revenue Income

• Sample Chart of Accounts


Income Statement Format


Income Statement Accounts – Multi Step Format

• Gross Rental Revenue – It is imperative to track GRR at this business level. Most VR companies are not tracking this and are missing a key component and driver of the business

• Payments to Owners – It is important to understand the $ payout to Owners, but more importantly the % payout as compared to GRR.

• Rental Management Commissions– It is important to understand the Commission/Company $, but more importantly the % payout as compared to GRR.



• Total Revenue – Gross Rental Revenue, Total Revenue and Profits are the true measure of a Vacation Rental Business.

• Direct Operating Expenses – Generally, those expenses that are tied to reservation. Most reservation systems track direct operating expenses such as housekeeping expense, maintenance expense, guest satisfaction expense, owner satisfaction expense, damage wavier expense, etc.

• General & Administrative Expenses – represents that static or fixed expenses in the business



• EBITDA – Earnings before Interest, Taxes, Depreciation and Amortization. Generally used as a basis to value companies.

• Net Income – Cash expenses less Depreciation, Amortization, Interest Expense…


• High-level Income Statement Review

• Calculate all things a a % of Gross Rental Revenue or Total Revenue.

• Establishing a % of Revenue will allow you to manage certain line items more acutely, ensuring the finances are properly reviewed.

• Work towards proper increases and decreases as a % of revenue.

• As revenue increases, certain direct operating expenses should go up

• As revenue decreases, certain direct operating expenses should go down

• The key is to ensure increases and decreases in revenue properly correlate to expenses

• Sample Income Statement


Statistics & Key Performance Indicators

• Now that you’ve created consistency and reliability in your income statement, your ready to move forward in your review.

• As you begin to review the company’s financials, it is important to focus on the metrics and statistics that comprise to form Gross Rental Revenue.

• Gross Rental Revenue/Occupied Nights = Average Dailey Rate

• Occupied Nights/Net Available Nights = Occupancy %

• As Gross Rental Revenue increases or decreases, it is being driven by either the rate or occupancy…it is important to know which.

• Sample Statistics….


Budgeting Basics

Start conservative

Use prior year Occupancy and Average Daily Rates to budget for Revenue and work form there…

All accounts have a metric in which to effective budget

Housekeeping cleans (Avg clean fee * projected # of reservations)

Look at actuals and the percentage of revenue to deliver accurate projections

As accounts are to be updated throughout the year, revised and create a forecast to ensure projections are met.

Note Stats Model (can be used for Budgeting)


Accounting Review• Financial management

• Start with intensive financial review each month

• Review key accounts in total and as a % of gross rental revenue or total revenue. This helps to create benchmarking.

• Reduce financial summary to writing

• Establish monthly meetings/conference calls

• Actual vs. Forecast/Budget should be a focus


In conclusion, successful Vacation Rental Managers know their financial results, profitability and key operating statistics acutely.

Knowing this information and using it to make informed, data driven decisions will ensure your company remains a sustainable and profitable operation for the benefits of all stakeholders.

Ben Edwards

Weatherby Consulting, LLC

Office: (888) 304-1405

Fax: (888) 304-1405

Cell: (850) 496-7360

WeatherbyConsulting.com


http://weatherbyconsulting.com/

Vacation Rental Income Statements "How-To" Ben Edwards, Weatherby Consulting

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