Resort Timeshare Budgeting Tips in the “New Normal”

As resorts are approaching the budget season in a year that has seen the industry impacted harshly by the COVID-19 pandemic, management and boards will have to address new issues that many have not had to previously deal with. Collection of maintenance assessments could be problematic and show an increase in delinquencies. Housekeeping maintenance efforts needed to cope with the pandemic could increase costs substantially. Rental income could decline due to a decrease in travel and lower occupancy rates.

The following presents some tips that boards can adopt during the budget preparation process to help better their position for dealing with the uncertainties of the coming fiscal year(s).

Be Honest about Bad Debt

Bad debt has historically been an area of overly optimistic budgeting. Since the Great Recession, collections have seen some stabilization, but in general did not climb back up to pre-recession levels. The pandemic and current world travel situation is likely to exacerbate this situation for most resorts. Fortunately for many, the pandemic came at a time where the majority of collections had already taken place for the year. However, looking forward to 2021 and beyond, there is likely to be a rise in delinquencies as resorts prepare to assess for the upcoming year. Management and boards should take a hard, pragmatic look at the expected bad debt for the coming year as this will be key to formulating the rest of the resort’s budget. Basing bad debt expense on historical data is a good start, but the budget preparation should take into account that historical data will not be as relevant in the upcoming year(s). Resorts should consider adding a realistic additional amount for bad debts for the coming year(s) as owners cope with their own family budgets and the impacts the pandemic has had on their disposable income. Until the economy and the travel and leisure industries recover, more owners are likely to shift their finances to essential expenses which could, in turn, have a direct negative impact on maintenance fee collections.

Factor in Additional Costs Needed to Make the Resort Experience Safe

“The new normal”: a phrase that has come to the forefront during the pandemic but is still yet undefined. What was done before the pandemic may not be acceptable post-pandemic? Surveys conducted in recent months by leading research firms have revealed that leisure travelers want measures taken to increase their health and safety at the resorts they travel to. And number one on that list is intense room cleanings. Also high on the list are other protective initiatives, such as hand sanitizing stations, personal protective equipment for resort staff, and air purifiers, to name a few. Adding these safety measures, as well as the additional time to clean rooms and turn them around for the next guest, will most certainly increase a resort’s housekeeping budget. Further, permanent structures installed to promote social distancing at the front desk, restaurants, gyms and other public gathering places within the resort will increase the maintenance budget for both the installation and upkeep. One potential option is to use accumulated replacement reserve funds rather than operating funds to pay for the improvements, when those improvements are to the common property and in compliance with regulations.

The key is to start planning for those changes now. Research what vendors can supply your resort and negotiate with each of them for the best possible price. Any savings that can be made in this area will help the overall budget and help stabilize the effects of cost-cutting measures in other departments.

Cost Savings in Other Areas

For resorts in the budgeting process, there are other considerations about potential cost savings and measures to take that could provide additional relief as bad debt, maintenance and housekeeping costs are likely to rise. Additional ideas for research and consideration are:

• Cross-train employees to fully utilize all staff and eliminate duplicate efforts.
• Look for energy-saving opportunities, such as more efficient systems, bulbs, automatic switches, etc.
• Leverage technology to automate processes, where possible.
• Streamline food and beverage operations to reduce waste.
• Review property taxes and insurance for a potential decline in value and other cost savings opportunities.
• Outsource some functions, if it is cost-effective.
• Review employee headcount and inventory levels for potential savings.

The bottom line is that cost discipline is not optional, and the budget should accurately reflect the efforts made. The key is to find cost savings measures and initiatives that do not jeopardize the resort’s long-term sustainability. It is extremely critical to provide high
guest satisfaction for a resort’s long-term financial viability.

Don’t Overestimate Rental and Other Income

The goal of any board is to provide its owners with a financially healthy resort while also keeping maintenance fees as low as possible to fund operating expenses and future capital replacements and repairs properly. To meet that goal, one option that a resort can consider is to increase the rental and other non-membership types of income to help defray the costs of operating the resort. The higher the amount of other income, the less the amount of maintenance fees is required from owners. Given the uncertainty the pandemic will play in the coming year(s), management and boards should be conservative in the amount of rental and other income they include in their budgets.

In reality, the budgeting process for the foreseeable future will be fluid and may require on-going change as more facts about what the “new normal” means and looks like is determined. Although management and the board are tasked with proposing a budget to determine assessments, it could be prudent to have plans for modifications as further facts and circumstances are made known. The vast majority of vacation ownership resorts have to deal with the fact that the upcoming budget process will be anything but normal. If management and boards are proactive in planning for what steps are necessary to take on these challenges, the budgeting process will involve less uncertainty and a favorable outcome for both the resort and its owners is more likely.

---

Withum is a forward-thinking, technology-driven advisory and accounting firm, committed to helping clients in the hospitality industry be more profitable, efficient and productive in the modern business landscape. For further information about Withum and their hospitality services team, contact Lena Combs (LCombs@Withum.com) at (407) 849-1569, or visit www.withum.com.