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    Financially Prepare Your Business for 2019

    Right now, many vacation rental managers (VRMs) are gearing up for peak winter season. Whether you’re going into relaxation or ramp-up mode, all VRMs should be thinking about financially preparing your business for 2019. Proactively managing your operation will help increase profit and efficiency in your business.

    I suggest starting with creating a gross rental revenue (GRR) budget for the business. In a vacation rental operation, everything should correlate to GRR, which is solely rent, prior to calculating owner or management commissions. That is why the revenue budget is so important and the starting point for the budgeting process. We’ll want to start by assimilating historical revenue and property count data for the trailing 12-month period. In every facet of a vacation rental operation, it’s important to look at the lowest drivers behind revenue or expenses. In this case, we want to review GRR, occupied nights and property count. By assimilating this data, we can determine the average daily rate (ADR), occupancy rate and project or budgeted gross rental revenue for 2019.

    Average daily rate is determined by taking the GRR divided by occupied nights. Please note to only include paying guest nights and exclude non-paying owner or owner guest reservations. For example, the calculation should look like this: $1,871,642 (GRR)/6,778 (occupied nights) = $276.13 in ADR.

    To develop a GRR budget for 2019, I would start with property count — more specifically, available nights. If a sample business manages 50 properties, then the business theoretically has 18,250 available nights (50 x 365) to sell annually. However, assumptions should be made for owner-use nights or maintenance blocks. Let’s say that owner-use/maintenance budgeted nights were 2,250. Please note that this assumption for owner-use/maintenance nights should always be grounded in historical data. Owner-use/maintenance nights for the trailing 12 months should be run from the reservation management system and divided by the number of properties on the program. In our example, owner-use/maintenance nights averaged out at 45 (2,250/50) nights per property. If the business increased or decreased property count, then so would the owner-use/maintenance nights. In order to get Net Available Nights, we would simply subtract the owner-use/maintenance nights of 2,250 from 18,250 total available nights to get the net available nights of 16,000.

    Once net available nights are determined by month, a VRM can make occupied night assumptions based upon historical occupancy and future projections. Once occupied nights are identified by property, projected GRR can be determined. If during June 2018, a home produced $5,000 GRR on 15 occupied nights, then the ADR would be $333.33 ($5,000/15). The same math can be applied to June of 2019, by making the same or tweaking the assumptions.

    Once the GRR is determined by property, detail it by month and then consolidate it on an annual basis. Once complete, the expense structure is much more straightforward and less complicated. That said, creating a revenue budget is the first, big step in generating an overall budget. Start 2019 off the right way and create a budget that accurately depicts your operation, strictly adhere to it and drive meaningful profit in 2019.

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