- September 12, 2016
- Posted by: Ben Edwards
- Category: Blog, Resources
As a Vacation Rental Manager (VRM), you day is filled with a myriad of responsibilities, most, if not all of which are operational in nature. Most VRM’s are not spending the day reviewing income statements, performing financial analyses or calculating metrics. VRM’s are inherently great at the relational components and marketing aspects of the business. Frankly, if we all operated like Accountants, we would have any properties to manage! While managing the financial results of your business may not be the most favorite function in the business, however, its imperative to understand critical numbers or in the financials process to ensure your business remains successful and profitable.
Without tracking and managing certain critical financial components of the business, one cannot make informed decisions about revenues, expenses or profit. There is always opportunity to increase profit in the Vacation Rental business, which is the case in every business we review.
To help ensure your business is operating progressively and generating a meaningful profit, take time to review and manage these results:
- So many VRM’s do not have a handle on the company’s trust account or overall cash in the business. I liken it to flying blind, while you’re probably not going to hit anything, its generally not good business to do. More often that not, VRM’s are struggling to maintain accurate and reconciled Trust accounts. Certain states to not regulate short-term trusts accounts, which make maintained the account less of a priority. Having a handle on cash in the business allows VRM’s to have the comfort that he/she can meet the company’s obligations at any point in time. Cash flow forecasts and monthly reconciliations of the company’s trust account are a cornerstone of Vacation Rental best practices. Performing these functions consistency and accurately is a sign that your business is in the black and grounded in solid financial management.
- Net Operating Income. NOI is also a good indicator that your business is healthy. Closely tied to cash, a vacation rental business can be profitable Net Operating Income (NOI) and still go out for business due to lack of cash. Both NOI and cash work in tandem and should be review regularly to ensure the business has a sound financial footing.
- Income Statement. This is also referred to as the Profit & Loss statement or P&L. Most Vacation Rental company P&L’s could use some work or do not clearly present actionable data and results in the business. Understanding your company’s revenue and expenses is paramount to operating sustainable and successful business. The largest is with P&L’s in the vacation rental industry is the timeliness or consistency in which the P&L in prepared. Secondly, the data is often time inconsistent and cluttered amongst a number of unnecessary or unorganized financial accounts.
- Gross Rental Revenue. Most VRM’s track commission income, as opposed to gross rental revenue (GRR). I understand the genesis of that format was provided by the real estate industry, as commission income is paramount in the real estate revenue process. The lack of visibility into the GRR and the relationship between GRR and certain direct operating expenses is wrought with inconsistency throughout the financial management process. This often times prevents a VRM discerning certain drivers of key expense accounts or generating further efficiency in the business. Reviewing management commissions as a percentage of gross is an excellent way to maintain the integrity of your commission, as the management commissions as a percentage of gross tend to diminish over time, if not properly managed.
Each one of these accounts individually will present opportunities to create efficiency in the business. However, managing each of these items in conjunction with one another, will greatly propel the business. If your business is lacking in one or more of these areas, its important to act quickly in an effort to minimize the exposure to adverse financial results. In the event, your business is lacking the resources to properly manages this process, please know that Weatherby Accounting Services handles Accounting and Financial Management for more than 25 companies. By outsourcing certain components or all of the financial accounting process, VRM’s can get back to the areas of the business that are more desirable and focus on generating needed revenue for the company.
If you company would like to engage in a no-cost accounting discussion to provide more professional financial insight into your VRM operation, please contact Ben Edwards via email at Ben@WeatherbyConsulting.com or toll free at (888) 304-1405.