Oh, planning and budgeting. That thing that slaps you with dread, overwhelm and/or makes you as excited as a kid opening a brand-new, 2,000 piece puzzle on Christmas Day. (Yes, some people out there actually LOVE budgeting, crazy – I know!)
The ultimate goal of the budgeting and planning puzzle: keep maintenance fees as low as possible while funding reserves and paying all the bills. If done properly, you’ll walk away from your puzzle with a beautiful depiction of the vacation ownership resort’s fiscal health, but if it’s not done properly you’ll be left screaming frustrations at a pile of random pieces. This month I spoke with Emily Baxter, MBA, and Controller at Defender Resorts about some tips for making the budgeting and planning process a little smoother and more successful.
So, what pieces make up a great budget? One of the most helpful elements is proper forecasting.
“Forecasting is the most important tool for keeping the budget analysis current throughout the year,” said Baxter “You should be adjusting your forecast every single month with every expense so that it is an always shifting document that remains accurate.”
To continue to adjust your forecast you should be looking at the actual income and expenses compared to the budget so you can determine if you are going to be over or under and determine what adjustments need to be made in operations to stay on track and bring the budget back in line. In short, you can’t have a “set it and forget it” mindset when it comes to forecasting. It has to be ever changing and analyzed regularly.
As for the initial budget, don’t wait until budget meeting time. According to Baxter, she creates a budget shell in late summer so that she’s prepared ahead of time for the budgets of the 39 associations which make their way to her desk all at once. Her budget shells have two to three years’ worth of actuals so that she can clearly see patterns and trends, making her budgets more accurate for the coming year.
Once your shell is created and you move on to the actual budget you should spread it out across 12 months but do not just divide each line item by twelve months evenly.
“Take the budget, but don’t make the mistake of just dividing it evenly by twelve because for most expenses that is not realistic since expenses such as water and electric all vary by month and occupancy levels,” said Baxter. “There are peaks and valleys to income and expenses. Take Florida for example, most maintenance fee payments come in between January and February, but the large expense of property taxes isn’t due until November, properly planning for that will be beneficial to the financial health of the resort.”
Another tip is to have General Managers contact vendors such as cable, electric and insurance early to see if they are anticipating any increases or offering anything such as installation of energy efficient light bulbs to save money. All these little details affect the overall budget and bottom line, so preparing for them well ahead of time is key to the budgeting process.
All timeshare resorts should have a reserve fund. If you don’t Baxter recommends you get started as soon as possible with one. The sooner you start regularly contributing to a reserve fund the better you will be at offsetting a drastic increase in maintenance fees or avoiding a special assessment. Resorts that properly plan and have healthy reserves can often do a complete refurbishment without any special assessments – which makes owners incredibly happy and more likely to pay their maintenance fees as it showcases their money and assets are being handled responsibly.
One of Baxter’s top tips for proper budgeting and forecasting has to do with the way timeshare resorts operate on a day-to-day basis. She stresses the importance of properly coding all invoices so that they are posted on the correct budget line item. Without doing this, you are just looking at bad data and that’s not helpful at all.
To code properly not only do people have to be careful, but there should never be only one set of eyes on any financial documents, invoices, etc., because mistakes can happen easily and be near impossible to catch by just one person. According to Baxter, at Defender Resorts all invoices and financial documents that come through have at least four sets of eyes examining it for accuracy.
So, let the budgeting and planning puzzle begin!