2Industry Survey Reports

Volume 30, Number 3 Summer 2015

2 Industry Survey Reports IT Implementations Club Accounts Receivable Management Practices

PLUS USALI 11th Edition: Gross vs. Net | Employees vs. Contractors Tax Implications of Natural Disaster Insurance Settlements Guest/Member Engagement via Mobile | HFTP's Entrepreneur 20X Hall of Fame Inductees: Scot Campbell and Michael Schubach

THE JOURNAL OF HOSPITALITY FINANCIAL AND TECHNOLOGY PROFESSIONALS Take Six education themes, including new high-level Advantage technology sessions of: 60+ expert speakers representing a wide range of hospitality fields 500+ attendees gathered to discuss the industry's trends and best practices in a variety of networking environments 40+ exhibiting companies CONTENTS

The journal of hospitality FINANCIAL AND TECHNOLOGY PROFESSIONALS Volume 30, Number 3

S U M M E R • 2 0 1 5

HFTPSM and HITECSM are registered service marks of Hospitality Financial and Technology Professionals. Features Submissions and Inquiries 16 Natural Disaster, Tax Disaster? Individuals interested in submitting an article Tax implications of a destroyed property insurance settlement for both for publication should contact the editor. The Bottomline is a peer review journal. All ma- taxable and tax-exempt clubs By James J. Reilly, CPA, JD terials submitted for publication are reviewed by members of the editorial review board or recognized experts in the field. 22 How to Divvy Up the IT Budget Survey report illustrates where hospitality organizations are directing technology The Bottomline (ISSN 0279-1889), the journal of Hospitality Financial and Technology Profes- implementation efforts and budget By Tanya Venegas, MBA, MHM sionals, Inc., is published bimonthly with two special editions by HFTP®. Copyright © by Hos- pitality Financial and Technology Professionals. 29 A Close Look at the USALI 11th Revised Edition, Part III All rights are reserved. All opinions expressed Gross vs. Net Reporting herein represent the views of the authors. The By Raymond S. Schmidgall, Ph.D., CPA; Agnes DeFranco, Ed.D., CHE, CHAE; Bottomline and HFTP disclaim any responsi- and Robert Mandelbaum bility for views expressed or statements made in any articles published. HFTP disclaims any liability with respect to the use of or reliance on 34 Make the Experience a Joint Effort any such information. The information contained Engage guests and members by giving them charge of their visits at clubs and in this publication is in no way to be construed as a recommendation by HFTP or any industry hotels via mobile devices standard, or as a recommendation of any kind By Agnes DeFranco, Ed.D., CHAE and Cristian Morosan, Ph.D. to be adopted or binding upon any member of the hospitality industry. Written consent must be obtained from HFTP before reprinting articles. 38 Collecting What is Due To Your Club Subscription fee of $30 for HFTP members A study reviews clubs' accounts receivable management practices is included in the membership fee. HFTP is By Tanya Venegas, MBA, MHM headquartered at 11709 Boulder Lane, Suite 110, Austin, Texas 78726. Periodicals Postage Paid at Austin, Texas. POSTMASTER: Send address changes to The Bottomline, 11709 Boulder Lane, Suite 110, Austin, Texas 78726, (512) 249-5333. Departments 5 Between the Lines Coming Expansions — HFTP's goal to grow its network and education program is fast-becoming a reality 6 Q&A from the Research Center Employee vs. Contractor — Guidelines for classifying an individual's standing based on U.S. Department of Labor and IRS definitions 10 HFTP News & Notes Profiles: 2015 HFTP International Hospitality Technology Hall of Fame Inductees, Scot Campbell, CHTP and Michael Schubach, CHTP, CHAE (Page 10) Entrepreneur 20X: HFTP hosts first pitch competition, showcasing innovative technology (Page 12)

The Bottomline 3 HFTP

ProLinks THE BOTTOMLINE STAFF Frank Wolfe, CAE Executive Vice President/CEO Webinars [email protected] Eliza R. Selig Editor/Director of Communications [email protected] ProLinks Webinars offer participants a chance Jennifer Lee, CAE Advertising Sales / Director of Marketing to engage and connect virtually with innova- [email protected] tive thought leaders on the most relevant topics HFTP OFFICERS President to the hospitality industry. Enjoy presentations Daniel N. Conti Jr., CHAE, CAM Wyndham Grand Jupiter at Harbourside Place from the comfort of your own computer while Jupiter, Fla. interacting not only with the speaker, but other Vice President Arlene Ramirez, CHE, CHAE attendees from all over the globe. ADR Hospitality Consulting The Woodlands, Texas

Treasurer Lyle Worthington, CHTP Austin, Texas

Get Started Immediate Past President Jerry Trieber, CPA, CHAE, CFE, CFF, CGMA Crescent Hotels and Resorts Fairfax, Va. Visit the Membership/ProLinks section of the 2014–2015 EDITORIAL PEER REVIEW COUNCIL

HFTP web site at www.hftp.org to view the Scot Campbell, CHTP upcoming webinar schedule. Caesars Entertainment John D. Daum, CPA Condon O'Meara McGinty & Donnelly, LLP

Mehmet Erdem, Ph.D., CHTP Archived Sessions iHITA Chris Koepper, CPA Cliffs Club Partners

Arlene Ramirez, CHAE, CHE, MBA ProLinks Webinars are recorded and available ADR Hospitality Consulting to members for viewing on demand. Archived Thomas G. Smith, CHAE Justin Tallion topics include e-commerce, millennial learn- Texas A&M University ers, green IT, Wi-Fi and more. Lyle Worthington, CHTP George L. Zoglio, CPA Batchelor, Frechette, McCrory, Michael & Co.

11709 Boulder Lane, Suite 110 • Austin, TX 78726–1832 +1 (512) 249-5333 • (800) 646-4387 • Fax +1 (512) 249-1533 www.hftp.org • www.hitec.org

4 Summer 2015 Between the Lines A Letter from the HFTP Global President Coming Expansions HFTP's goal to grow its network and education program is fast-becoming a reality

winning product, developed by Whistle, being a service that aids in responding to guests’ online comments in multiple platforms. Based on the success of this year’s HITEC, the HFTP Global Board decided to take a big step towards global expansion with a plan to produce HITEC Europe and HITEC Asia in 2017. HFTP CEO, Frank Wolfe and staff are currently looking at location options with an announcement coming soon. In addition HFTP has partnered with HSMAI Europe to support two of their major events this year: the HSMAI Europe Leadership Day on Thursday Sep- tember 24, 2015 in Frankfurt and the 4th Annual Digital Marketing Confer- ence alongside the World Travel Mart on November 5, 2015 in London. nd we’re off… In my recent In addition to the success of HITEC, HFTP Global and its chapters re- communications to the HFTP cently put on multiple educational events. In Austin this June, HFTP Global Amembership, I had described nu- held the annual Club and Hotel Controllers with 150 plus attendees, as well merous plans and strategies for our as- as the Hotel Financial Executives Exchange. Coming up is the first Club sociation that it probably seemed more Financial Executives Exchange, which will be held right before the Annual like rhetoric than a plan of action. But Convention on October 20–21 in Bellevue, Wash. HFTP chapters also hosted as you read ahead, you will realize popular regional conferences: Midwest Regional in Detroit, Mich.; Seattle that the HFTP leadership is working Education Day; Mid-South Atlantic Regional and the Florida Regional Con- on a platform of action as it pushes to ference in Kissimmee, Fla. provide networking and resources to a global group of hospitality finance Industry Resources and technology professionals, and the In October is the one-year anniversary of the Global Hospitality Accounting industry at large. Common Practices (GHACP) database which allows users to compare how full service hotels around the world structure their management accounts. The Industry Events site continues to grow with more data added, including data for club account- We’ve just had one of the largest ing comparisons. If you still haven’t used it, be sure to reference it, as it is HITECs in the event’s history. The free to use for HFTP members. hospitality technology gathering, A new resource in development is HFTP’s Pineapplesearch.com, a search which took place on June 15 – 18 in site specific for the hospitality industry. The site places importance on news Austin, Texas USA, had 6,051 at- and informational content that is relevant to the hospitality industry, with tendees representing 55 countries. The vendor and sales information showing lower in the results. Look for its debut conference had over 115 speakers with this fall. 70 educational sessions and the exhibit When I took office as HFTP Global president, I made it a personal goal to floor was home to 823 exhibit booths. push forward HFTP endeavors, and as I head towards the last quarter of my Alongside HITEC, HFTP pre- term, I am proud to see how much progress we have made. And in October, I miered Entrepreneur 20X, a pitching have no doubt that I will be giving an even more extensive report at the An- competition and kiosk pavilion to nual Business meeting in Bellevue, Wash. at the Annual Covention & Trade spotlight developing technologies Show. Hope you can attend to hear all the exciting news that is sure to come. useful to the hospitality industry (read more on page 12). The pitch competition was standing-room only, with the

Daniel N. Conti, Jr., CHAE, CAM is director of finance for the Wyndham Grand Jupiter at Harbourside Place located in Jupiter, Fla. USA.

The Bottomline 5 Q&A HFTP Research Center EMPLOYEE VS. CONTRACTor Guidelines for classifying an individual's standing based on U.S. Department of Labor and IRS definitions By Tanya Venegas, MBA, MHM

With the recent developments Q. on legal rulings pertaining to Uber and independent contractors vs. employees in the United States, it has brought up questions about how we categorize employees at our club. Can you provide specific guidelines on how to determine if someone is an employee or an independent contractor?

Yes, there has been a lot of A. debate and conjecture about Uber drivers and whether they should be categorized as an employee or an independent contractor. Uber drivers in many states are making claims that they should be considered employees; thus, entitling them to reimbursements for various expenses like gas and tolls. In most U.S. states (Georgia, Pennsyl- vania, Colorado, Texas and Illinois), Uber drivers have been classified as independent contractors because they employer needs to withhold taxes from a worker’s paycheck and what docu- have control over many aspects of ments need to be filed with the IRS. Secondly, the U.S. Department of Labor their job such as using their own ve- (DOL): Wage and Hour Division enforces guidelines set forth in the Fair Labor hicles and setting their own hours. In Standards Act. This would cover standards such as minimum wage and overtime June 2015, a California Labor Com- provisions, employment of minors and recordkeeping standards. In Fact Sheet mission ruled that one Uber driver #13, the DOL provides the following categories of guidelines: was an employee. Uber has appealed 1. The extent to which the work performed is an integral part of the employer’s this decision, which will be heard by business. the Superior Court of California. 2. Whether the worker’s managerial skills affect his or her opportunity for profit It is important to determine if and loss. someone working for you is an em- 3. The relative investments in facilities and equipment by the worker and the ployee or an independent contractor employer. for multiple reasons. First of all, the 4. The worker’s skill and initiative. U.S. Internal Revenue Service (IRS) 5. The permanency of the worker’s relationship with the employer. has set forth specific guidelines. The 6. The nature and degree of control by the employer. categorization will impact whether an (http://www.dol.gov/whd/regs/compliance/whdfs13.pdf)

Tanya Venegas, MBA, MHM ([email protected]) is executive director and HFTP Fellow at the HFTP Americas Research Center. She is a regular con- tributor to The Bottomline and speaker at HFTP educational events.

6 Summer 2015 Q&A

The Internal Revenue Service (IRS) guidelines cover the classified as an independent contractor. Throughout the same principles, but are combined into three basic charac- questionnaire, the person in question is referred to as teristics to determine the correct relationship between an the “WORKER.” These are very basic questions, which employer and an employee. should be investigated further if there is any question if a • Behavioral Control: Does the employee have the right to worker should be classified as an employee or an inde- direct or control how the work is done through instruc- pendent contractor. Please contact the U.S. Department of tions, training or other means? Labor, U.S. Internal Revenue Service (IRS), or the HFTP • Financial Control: Does the business have the right to Americas Research Center if you need further assistance direct or control the financial and business aspects of the or clarification. ■ worker’s job? • Type of Relationship: How does the worker and the business perceive their relationship? Resources • Tabakman, Mark. (2015, June 26). A Bumpy Ride: Uber The IRS provides Form SS-8 Determination of Worker Driver Ruled Employee, Not Independent Contractor. Status for Purposes of Federal Employment Taxes and In- Retrieved June 28 from http://wagehourlaw.foxroths- come Tax Withholding to provide guidelines and questions child.com. to assist in this determination. Employers can complete and • United States Internal Revenue Service. (2015). Em- submit Form SS-8 to the IRS and request a determination ployee vs. Independent Contractor — Seven Tips for of the status of a worker. The form is broken down into five Business Owners. Retrieved June 29 from www.irs.gov. parts: General Information, Behavioral Control, Financial • U.S. Department of Labor: Wage and Hour Division. Control, Relationship of the Worker and Firm, and For (2014, May). Fact Sheet #13: Am I an Employee?: Em- Service Providers or Salespersons. ployment Relationship Under the Fair Labor Standards The questionnaire on page 8 provides basic guide- Act (FLSA). Retrieved July 10, 2015 from http://www. lines on determining whether an employee should be dol.gov/whd/regs/compliance/whdfs13.pdf.

See Independent Contractor vs. Employee Questionnaire on page 8 to help determine an employee's status.

The Bottomline 7 Q&A Independent Contractor vs. Employee Questionnaire Use the following to determine wether a worker should be classified as an independent contractor or employee.

Question Contractor Employee GENERAL QUESTIONS Does the WORKER work for more than one company at a time? Yes No Is there an ongoing relationship between the WORKER and your company? No Yes Does the WORKER have a written agreement (contract) with your company? Yes No BEHAVIORAL CONTROL Do you train the WORKER for a particular job in a certain way? No Yes Does your company have the right to control when and where the WORKER does their work? No Yes Does your company hire, supervise and pay the WORKER’s assistants? No Yes Does your company set the WORKER’s hours? No Yes Must the WORKER give you reports accounting for his or her actions? No Yes Must the WORKER spend all of his or her time on your job? No Yes Does your company have the right to determine the order in which services are performed? No Yes Must the WORKER provide the services personally or can the tasks be delegated to No Yes someone else? If work is delegated to a helper or an assistant, is it delegated by the WORKER? Yes No If the WORKER hires a helper/assistant is approval required from your company? No Yes Does the WORKER pay the helper or assistant directly? Yes No Is the WORKER reimbursed from your company after paying the helper or assistant? No Yes Does your company provide the WORKER with equipment, tools or materials? No Yes FINANCIAL CONTROL Can the WORKER make a profit/suffer a loss as a result of the work other than the money Yes No earned on the project? Does the WORKER have an investment in the equipment and facilities used to do the work? Yes No Does your company pay the WORKER by the hour, week or month? No Yes Does the WORKER receive piece work or a lump sum payment for their work? Yes No Does your company reimburse the WORKER for various costs (business or travel costs)? No Yes Does your company pay the WORKER’s firm and then the firm pays the WORKER? Yes No Does the WORKER establish the level of payment for services provided? Yes No RELATIONSHIP OF THE WORKER AND FIRM Does the WORKER receive benefits such as paid vacations, pensions or insurance benefits? No Yes Can your company fire the WORKER? No Yes Are the WORKER’s services a necessary part your company’s operation? No Yes Can the WORKER quit at any time, without incurring liability? No Yes Does the WORKER offer services to the general public? Yes No Does the WORKER advertise their services? Yes No

8 Summer 2015

Hall of Fame Profile

2015 Inductee Scot Campbell, CHTP Recognized for leading the way in raising tech standards within hotel systems and operations

ot only is Scot Campbell, CHTP a member of the HFTP Global Board of NDirectors, but he is also one of the 2015 inductees to the HFTP Interna- tional Hospitality Technology Hall of Fame. Many peers and industry leaders wrote in to nominate Campbell and praise him for his exceptional leadership and status as an industry visionary. Today, Campbell is the vice president of IT connectivity and communications for Caesars Entertainment. Campbell “blames” his wife for his fascina- tion with technology and cites her gift of a Commodore Vic20 for sparking his passion. Campbell remembers it was then that he fell in love with technology should become more IT aware. When and “time started to drift away, days became nights, and I saw the sun come up this happens, experiences begin.” too many days.” Outside of the office, Campbell Campbell began his career in radio broadcasting and was soon led to Las readily offers that his passion is hos- Vegas. He gained entry into the industry when he was hired to work at Mirage pitality technology, but his purpose Resorts Inc. to centralize the IT function of the resort. It was at Mirage Resorts is “to teach young people that there Inc. that Campbell recalls a memory he will never forget: is hope in their lives.” Next year, “My first day at Mirage Resorts, I asked the question, ‘What does customer Campbell will become the chairman service mean to this company?’ The answer, I will never forget: ‘If you make of LifeTeen International’s board of a mistake in the back of house and it costs the company money, I will want to directors. LifeTeen International is a know that you won’t make the same mistake again, but if a customer asks you Catholic youth ministry used by over where the elevator is, and you don’t pick up their bags and take them there — 1,800 churches worldwide. you’re fired!’” Of all the things Campbell has As time went by, Campbell continued to learn and grow and was soon accomplished in his personal and faced with the behemoth task of helping to open MGM’s CityCenter in Las professional life, he wants everyone Vegas. CityCenter is an $8.5 billion dollar multi-brand resort boasting in-room to know that “being some small part automation deployment that is recognized as the most technologically advanced of inspiring another person to be great resort in the United States. When speaking to Campbell, it is clear why he was is what brings [him] the most satis- chosen for this project. faction” and that he owes all of his “Today it is becoming more important that the IT systems in hotels are part success to his wife and family and his of the brand perception. Wi-Fi, in-room technology, self check-in, Bluetooth love for God. ■ door locks, etc. are becoming brand differentiators. The resolution is that IT must become more development focused and the operations group probably By Danielle Earp

Hall of Fame Inductees Honored at HITEC 2015 in Austin, Texas USA

June 16, 2015 Austin Convention Center

10 Summer 2015 Hall of Fame Profile

2015 Inductee Michael Schubach, CHTP, CHAE Recognized for being a go-to industry expert, supported by experience in multiple tech disciplines

ou certainly would not be wrong if you called Michael Schubach a master Yof the hospitality industry. Schubach has established careers in both hospitality accounting and technology and now adds HFTP International Technol- ogy Hall of Fame inductee to his list of accolades. With over 30 years in the industry, Schubach has proven time and time again that drive and know-how lead to success. says Berkus “led by example, was Schubach is a cum laude graduate of the University of California at Santa meticulous and fair.” Schubach notes Barbara and a 2007 MBA graduate from Methodist University. Keen on shar- that Berkus “tried to do right by every- ing his knowledge with the industry, Schubach continues to lecture, teach, body,” which is something he greatly write and consult on systems worldwide. admired of his mentor. Schubach began his hospitality career when the college dorm he lived and Most recently, in 2008, Schubach worked at opened as a summer hotel for backpacking Europeans. During the joined the Trump Hotel Collection as summers he worked as the manager on duty while the venue hosted back-to- their CIO, where he is responsible for back week-long cheerleading camps. Of this time, Schubach says, “even after systems selection of the collection of all that, I still wanted to work in hospitality.” ultra-luxury hotels in SoHo New York, Through the years, Schubach has served as a night auditor, front office Waikiki and Panama. The Trump Ho- manager, regional front office trainer and director of accounting services. tel Collection continues to open new In 1983 while Schubach was with L’Ermitage Hotels of Beverly Hills, he destinations worldwide. founded the Educational Services Group (ESG). ESG went on to become the Aside from the hospitality industry, exclusive installation team for Computerized Lodging Systems, Inc. (CLS). Schubach enjoys experiencing culture During a decade with CLS, Schubach supervised more than 2,500 PMS instal- and the arts. He particularly finds great lations worldwide, participating in more than 200 of them personally. Schu- joy in writing and theater. bach also served for more than a decade as vice president of resort technology “What would surprise everyone is for ClubCorp, overseeing the IT efforts for five major destination resorts, as that I want to win a Tony for a hit play, well as the technology requirements for the 1999 and 2005 U.S. Open golf preferably a musical, maybe starring championships at Pinehurst Resort in Pinehurst, N.C. Nathan Lane, Matthew Broderick, Schubach’s time at CLS was particularly memorable because of his ability Glenn Close (who can sing) and David to work with an inspirational mentor, Dave Berkus, founder of CLS. Schubach Hyde Pierce (who gets close).” ■

The Bottomline 11 t HITEC 2015 in Austin, Texas USA, HFTP held E20X Participants: its first pitch competition and start-up kiosk pavil- Aion through the new Entrepreneur 20X (E20X), the Capton latest installment of HFTP's 20X series. E20X gathered A beverage tracking solution comprised of a set of wireless innovative start-ups to pitch cutting-edge, transformative pour spouts linked to powerful cloud-based software that hospitality technology to an expert panel of judges with analyzes liquor usage and provides meaningful business backgrounds in hospitality, technology and entrepreneur- intelligence. (www.captoninc.com) ship, and to a standing-room only crowd of HITEC attendees. In addition, participants joined the top companies from ClearBlade the March 2015 Travel & Technology Conference, hosted Provides backend platform for a business to power their by Hospitality Upgrade and managed by Somers Commu- apps. They give you all the messaging, data and code ser- nications, in the Entrepreneur 20X pavilion in the HITEC vices you need in once secure, scalable platform. exhibit hall. Each company was given a kiosk within the (www.clearblade.com) pavilion to showcase their innovative technologies. For those of you that are not familiar with Entrepreneur Groupize 20X, the concept is quite simple. A start-up with a prod- Simplifies the entire process of booking group hotel rooms uct or service geared towards the hospitality technology for organizers of weddings, vacations, team travel, social industry pitched their offering to the judging panel. These events and more. Features real time availability and room judges were then able to ask questions of the participants inventory, instant booking directly with the hotel, ability to and decide who would go home with the top prize and be request event and meeting space and allows users to invite recognized as the technology most disruptive and game guests to join the group. (www.groupize.com) changing to the industry. The judges crowned the California-based company, GuestCentric Whistle, as the winners of the first Entrepreneur 20X (more An all-in-one hotel digital marketing tool. Features web on page 14). The company that was recognized as the "Most site design, a hotel booking engine optimized for multiple Innovative Idea," won a cash prize and the opportunity to devices and automatic social presence. lead a Tech Talk in the HITEC exhibit hall. (www.guestcentric.com)

12 Summer 2015 HotelRSV Suiteness Provides a reservation engine for your hotel brand sites: Provides guests an opportunity to book high-end suites for web site, mobile site, TripAdvisor page and Facebook page less than what they would pay for a standard room. so guests can book directly from you. Automates sales and (www.suiteness.com) revenue management, distributes in all self-managed chan- nels, ability to add packages and sell extras like tour and TableGrabber transport. (www.hotelrsv.com) A comprehensive restaurant reservation web site that allows users to select a city and find a restaurant, make reserva- Kaptivating Hospitality tions, secure deals and browse local events. Reverses traditional search to pinpoint consumers with an (www.tablegrabber.com) intent to purchase and proactively drives bookings. The interface made for hoteliers cuts marketing costs, cre- TripChamp ates brand influences, retains customers profile data and A travel platform for growing companies of all sizes. Their strengthens customer loyalty. (www.kaptivating.com) proprietary AI and normalization technology enables users to search across multiple inventory sources to deliver per- Loop & Tie sonalized travel solutions, optimized for each traveler at the An easy to way to send a gift you know the recipient will very best prices. (www.tripchamp.com) love. Users select a price range and then selects to send “a gift of choice” or a specific inventory item. When sending Triptease “a gift of choice” the recipient will be able to select any of A range of travel booking digital tools to improve the rela- the inventory items in that price range as their gift. tionships between hotels and guests, driving direct book- (www.loopandtie.com) ings and reducing the power of middlemen. (www.triptease.com) Spokefly On-demand bike rentals from the touch of your phone. Use Venga the app to match with a nearby bike, unlock it and ride it Connects the dots between guests and their purchases un- anywhere. (www.spokefly.com) locking the data restaurants have never been able to put to use, while providing tools to increase guest satisfaction and frequency. (www.getvenga.com)

The Bottomline 13 Whistle Earns the Top Prize at Entrepreneur 20X Startup impresses judges with solution for engaging with guests and customers via popular mobile apps and SMS

n a standing-room only event on the first day of HITEC, nine start-ups pitched their innovative technologies they Ihoped would make the hospitality professionals in the room sit still and listen. The company which captivated the audience and six judges was Whistle, which connects customers and businesses via popular mobile messaging apps and SMS. The technology operates on a single web browser tab, aggregating customer communications into minimal- istic web and mobile admin panels. Hotel employees can then respond or triage incoming messages via a real-time chat interface to and from the guests’ preferred apps. Based out of Santa Monica, Calif., cofounders Jonathon Rojas (JR) and Chris Hovannessian (CH) discussed their experience at Entrepreneur 20X (E20X) and how it felt to earn “The Most Innovative Idea” prize.

How was your overall experience participating in E20X? CH: Participating in E20X was a fantastic, once-in-a- lifetime experience for me. I was familiar with HITEC and its importance within the industry, but I could have never imagined participating, let alone winning, in their first ever startup competition. JR: Being able to pitch our idea in front of a great panel of judges and an audience of hospitality professionals was surreal. E20X allowed us to gain tons of exposure and share our idea of revolutionizing the industry with our technology.

What inspired you to create Whistle? CH: Whistle stemmed from the frustration of not being able to text message businesses when it was needed or was most convenient to do so. JR: As Chris and I dove into researching the idea and potential industries, we found the same problem in the hospitality industry. As a millennial myself, I like things to be easy, efficient and tech savvy. Just about everyone has a cell phone and texts nowadays, so why shouldn’t businesses and hotels communicate in the same way?

14 Summer 2015 Left: Hovannessian (l) and Rojas (r) proudly hold up their award as the E20X Most Innovative Idea at HITEC 2015. Right: A screen shot from the Whistle interface.

CH: When approaching the creation within the actual conference. Com- ence. Never give up and pursue what of Whistle, our research concluded panies that otherwise would not have you set out to do in the first place. that the hospitality industry was most been able to afford booths were given JR: First off, I would recommend receptive to a solution which enhanced the opportunity to prove themselves. that they participate in E20X! Second customer service through improved Being a part of E20X also gave us I would recommend making the most communication and engagement, due the additional publicity; many people of HITEC by networking and speak- to a growing number of guests not were curious to see what the startups ing with as many hospitality profes- voicing themselves to staff directly. were all about. sionals as possible. Last but not least, just enjoy what you are doing and do Did you receive feedback from the Would you recommend E20X to not give up on your start-up, as any- judges or attendees that will alter other technology startups geared thing is possible with hard work and your sales pitch or product? toward the hospitality industry? perseverance. JR: We received tons of feedback CH: Absolutely, no doubt about it! and ideas that will definitely help It was a great environment and pitch- What does it mean to you to be the shape the future of our product. It was off competition, one that I imagine winner of the first annual Entre- great to hear hospitality professionals will be much bigger next year and preneur 20X? with 20 plus years in the industry say see consistent growth. Both HFTP CH: Being the winner of the first that we have an innovative and great and Capital Factory were extremely E20X competition is definitely a very idea/product. accommodating throughout the entire exciting accomplishment for us and it CH: There has been a tremendous process. There were no barriers to feels great! We can’t believe we are the amount of international demand enter the competition and you meet first. It’s an amazing feeling to find out among other aspects of our business hundreds of potential clients/part- directly from the industry experts that that are still under development. As ners/investors. I can’t see why you our hard work is recognized and pay- a result we will be reorganizing our wouldn’t enter the competition. ing off. There is a lot for us to prove in priorities in our product roadmap. We JR: It is a great opportunity to gain the near future with this title; we look were able to speed up our feedback tons of exposure and reassure that forward to attending HITEC next year loop after speaking to so many people your start-up is headed in the right and seeing how far we’ve come. in a short span of time. direction. JR: Being the first ever E20X winner is a great accomplishment for me. What was the most valuable What tips would you give other I believe that it shows that we have element of E20X for you and your startups in the industry? a very innovative idea that is help- company? CH: Find great events like HITEC ing revolutionize communication and CH: The most valuable element of that bring you face-to-face with those technology in the hospitality industry. E20X for Whistle has been the valida- who will be a big part of your busi- Also means we are on the right path tion and exposure to industry leaders ness. Talk to as many industry profes- and need to continue doing what we and professionals. The event was able sionals as possible to make sure you are doing to succeed. It also has mo- to successfully put all of the startups are constantly gauging their feedback tivated us to continue working harder on the map by allowing us to exhibit to create a better product and experi- than ever. ■ Club Accounting

Natural disaster, tax disaster? Tax implications of a destroyed property insurance settlement for both taxable and tax-exempt clubs By James J. Reilly, CPA, JD

lthough the formation of hurricanes is possible throughout the Aentire year, the U.S. Atlantic hurricane season begins in June and ends in November. Few natural disasters contain the destructive force of a hurricane, which can have sustained winds in excess of 150 miles per hour. Tor- nadoes can also occur at any time in the United States, but tornado season in the Midwest and surrounding areas generally occurs from April through July. Violent tornadoes can have winds in excess of 200 miles per hour. Although winds from strong tornadoes may exceed the winds from strong hurricanes, hurricanes generally cause much more damage because the destructive core in hurricanes can be many miles wide. In addition, hurricanes are long in duration and cause damage from powerful winds, storm surges and flooding due to rainfall. Tornadoes, in contrast, are generally a few hundred yards in diameter, short in duration and typically cause damage from heavy rain, large hail and powerful winds. Hurricanes and tornadoes take a terrible toll on the af- • Hibiscus Golf Club: Hurricane Andrew resulted in more than 500 fallen trees, fected communities, and as evidenced damage to irrigation control boxes and 10,000 feet of water lines (1992); by news reports, it is not uncommon • Mountain Lake Golf Club: In excess of 2,000 trees were “uprooted, de- for a hurricane or a tornado to destroy stroyed or damaged beyond recovery” during Hurricane Charley (2004); club property: • Lakewood Golf & Country Club: Heavy damage to the golf course and clubhouse due to Hurricane Katrina (2005); • Pensacola Country Club: First • Hamilton Farm Golf Club: Lost power and 150 trees were downed or dam- clubhouse was destroyed in the aged in Hurricane Sandy (2012); and Hurricane of 1906, which had • Lake Panorama National: Fifty mature trees were uprooted or sustained winds of 105 mph; significant damage in tornado (2014).

James J. Reilly, CPA, JD ([email protected]) is a partner with Condon O’Meara McGinty & Donnelly LLP based in New York, N.Y.

16 Summer 2015 2015/2016 EVENTS

MARK YOUR CALENDAR FOR THE HT EXECUTIVE EVENT LINEUP.

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HOTEL TECH FORUM 2016 ALL EVENTS PRODUCED BY APRIL 20-22, 2016 RITZ CARLTON, LAGUNA NIGUEL, CA

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Fortunate Clubs With respect to insurance proceeds, ment period specified, purchases other Fortunate clubs, those clubs whose the goal of a club’s management, as property similar or related in service officers and directors had the fore- a general matter, is to avoid having or use to the property so converted, at sight and financial ability to insure the the club taxed on insurance proceeds the election of the taxpayer, the gain club’s property, may receive insur- used to restore the club’s property to shall be recognized only to the extent ance proceeds in connection with the pre-natural disaster condition. Yet, in that the amount realized from such destruction of club property. Are such attempting to accomplish such goal, conversion exceeds the cost of the proceeds taxable? club management has to wrestle with replacement property. It is not unusual for an officer or the inherent limitations contained in director of a club to contact the club’s IRC § 1033 with respect to replace- Replacement Period tax advisor regarding the receipt of ment property and reinvestment pe- Club management should be mind- insurance proceeds in connection with riod. If certain criteria is met, the club ful that the replacement period with hurricane or tornado damage to the may be relieved from recognition of respect to reliance on IRC § 1033 is clubhouse or golf course. A club’s taxation with respect to such gain. limited. IRC § 1033(a)(2)(B) provides, management is often comprised, in in part, that the replacement period part, by volunteer officers and direc- IRC § 1033(a)(2)(A) provides that shall be the period beginning with the tors who are experienced tax accoun- if the taxpayer, during the period spec- date of the disposition of the converted tants and attorneys or who have access ified, for the purpose of replacing the property and ending: to such persons at their respective property so converted, purchases other • Two years after the close of the accounting or law firms. When such property similar or related in service first taxable year in which any part persons approach the club’s tax advi- or use to the property so converted, at of the gain upon the conversion is sor, it is not uncommon for them to the election of the taxpayer, the gain realized, or have already considered the issue of shall be recognized only to the extent • Subject to such terms and condi- the taxability of insurance proceeds that the amount realized upon such tions as may be specified by the under Internal Revenue Code (“IRC”) conversion exceeds the cost of such Secretary. § 1033, which is not an unusual statu- other property. Such election shall be tory provision to contemplate, espe- made at such time and in such manner Similar or Related Use cially with respect to taxable clubs, but as the Secretary may by regulations In the case where property is convert- not necessarily for tax-exempt clubs. prescribe. Emphasis added. ed into money (insurance proceeds), a club may elect not to recognize gain Taxable Clubs The non-recognition of gain by a timely replacement of the con- The receipt of insurance proceeds by provisions inherent in IRC § 1033 are verted property with, as a general mat- a club is, as a general matter, a tax- long-standing. In Revenue Ruling 55- ter, property that is similar or related able event. In the case of insurance 517, a corporation suffered extensive in service or use. proceeds received in connection with damage to its property as a result of The similar or related use statu- the destruction of property, the taxable the Hurricane of 1954, and the amount tory requirement with respect to income is not the amount of the insur- of insurance payments it collected for the involuntary conversion of prop- ance proceeds, but the taxable amount damages exceeded the basis of the erty (property that is completely or is the excess of the insurance proceeds property damaged. The corporation partially destroyed, for example, by over the tax basis of the property de- elected to use the insurance proceeds natural disaster, including hurricanes stroyed. Simply stated, a taxable gain to replace the damaged property. Pur- and tornadoes) may be a challenge to may result when an insurance settle- suant to such election, the corporation comply with because neither the IRC ment is greater than the destroyed acquired a parcel of land and entered or the treasury regulations promul- property’s cost basis. into a contract with a contractor to gated thereunder define “similar or build a structure similar in service and related in service or use,” but case law IRC § 1033(a)(2) provides, in use to the property destroyed. The cost and IRS rulings provide club manage- part, that if property (as a result of of the new construction exceeded the ment with some guidance. Generally its destruction in whole or in part) is insurance proceeds received from the speaking, similar or related in service compulsorily or involuntarily con- involuntary conversion. or use requires: verted into money or into property not The ruling acknowledged that the • The reinvestment must be made similar or related in service or use to non-recognition of gain provisions of in substantially similar business the converted property, gain (if any) IRC § 1033, as they relate to involun- property; shall be recognized, except as pro- tary conversions of property, provide, • The reinvestment must be a reason- vided. Emphasis added. in effect, that where property is com- ably similar continuation of the pulsorily or involuntarily converted prior commitment of capital and and the taxpayer, during the replace- not a departure from it;

18 Summer 2015 Club Accounting

• The replacement property need not exactly duplicate the converted Applying IRC § 1033 property but the character of the investment is not permitted to be Example A changed; and A clubhouse having an adjusted basis of $3,000,000 was destroyed • The transaction permits a club, by a hurricane. The insurance proceeds were $3,700,000. The taxable whose enjoyment of its property is club purchased a new clubhouse for $4,000,000 within the time period interrupted without its consent, to provided by IRC § 1033. No gain should be recognized, and the basis of arrange to have that interruption ig- the new clubhouse should be computed as follows: nored for tax purposes by returning Insurance proceeds...... $3,700,000 as closely as possible to the club’s Adjusted basis of destroyed clubhouse...... 3,000,000 original position. Actual gain...... $ 700,000 The following IRS rulings and/or Recognized gain...... 0 cases should be considered in contem- Gain not recognized...... $ 700,000 plating “similar in use” property: Cost of new clubhouse...... 4,000,000 • Improved property immediately Less: Gain not recognized...... 700,000 converted into a parking lot replacing a parking lot. The purchased Basis of new clubhouse...... $ 3,300,000 property is suitable for the use for which the converted property was Example B A clubhouse having an adjusted basis of $3,000,000 was destroyed by a employed. (Rev. Rul. 58-245). hurricane. The insurance proceeds were $3,700,000. The taxable club • Improved property where the im- purchased unimproved land (not subject to a construction contract) for provements had no value replacing $4,000,000 to be used to extend its golf course within the time period unimproved land. In this case, it provided by IRC § 1033. In Bratton v. Rountree, the court faced what it was noted that the improvements, categorized as a unique situation in that the converted property was a consisting of shoddy structures, building and the replacement property was unimproved realty. In Bratton, had a negative value because they it was noted that the fact that these are different kinds of properties reduced the value of the land. would seem to be a clear indication that IRC § 1033(a)(2)(A) does not (William A. Scheuber TC Memo apply. Assuming that Bratton would be applicable in this case, the 1966-107, rev’d on another issue, $700,000 gain would likely be recognized: 371 F.2d 996 (1967)) • Two buildings used for a particular Insurance proceeds...... $ 3,700,000 purpose replaced with one building Adjusted basis of destroyed clubhouse...... 3,000,000 used for the same purpose. (Cotton Gain recognized...... $ 700,000 Concentration Co. v. Commission- Basis of new land...... $4,000,000 er, 4 B.T.A. 121 (1926)) • Land requiring clearing before use as a building site replacing a cleared building site. (Gaynor News • Unimproved real estate replaced • Replacing a land based fish pro- Co., Inc. v. Commissioner, 22 T.C. with improved real estate does not cessing plant and general store 1172 (1954)) qualify under the similar or related with a fish processing vessel and a • Replacing the equipment of a land use rule. (Treas. Reg. § 1.1033(a)- general store did not qualify under based fish processing plant with 2(c)(9)(i)) the similar or related-use rule. (Rev. the equipment on a fish processing • Replacing a bowling alley, includ- Rul. 77-192) vessel qualified under the similar ing a lounge area and a bar, with a or related use rule because the billiard center, including a lounge Federally Declared Disasters of physical characteristics and end area and a bar, did not qualify un- Property use of the equipment purchased are der the similar or related-use rule. As a general matter, if a club re- identical to those of the equipment (Rev. Rul. 76-319) placed property that was involuntarily destroyed. (Rev. Rul. 77-192) • Replacing a destroyed building converted with property that was not with unimproved real estate (with similar or related in service, the club The following IRS rulings, treasury no verifiable intent to construct a would recognized gain. If a hurricane regulations and/or cases should be building) did not qualify under the or tornado overwhelmed a community considered in contemplating “not simi- similar or related use rule. (Bratton and the U.S. President declared such lar in use” property: v. Rountree, 37 AFTR 2d 76-762) community a disaster area, the tan-

The Bottomline 19 Club Accounting

similar or related in service or use to Tax-exempt Clubs the converted property so converted. Emphasis added. Example C A tax-exempt club had a clubhouse with an adjusted basis of $3,000,000 The legislative history of IRC § that was destroyed by a hurricane. The insurance proceeds were 1033(h)(2) advises that this provision $3,700,000. The club purchased a new clubhouse for $4,000,000. No gain provides relief to businesses by allow- should be recognized, and the basis of the new clubhouse should be ing them to reinvest their funds in any computed as follows: tangible business property without Insurance proceeds...... $ 3,700,000 being forced to recognized gain. The Adjusted basis of destroyed clubhouse...... 3,000,000 treatment afforded by IRC § 1033(h) (2) is beneficial because it relaxes Actual gain...... $ 700,000 the similar or related in service or Recognized gain...... 0 use standard and broadens the scope Gain not recognized...... $ 700,000 of replacement property available to Cost of new clubhouse...... 4,000,000 be acquired to replace the destroyed property. If a club receives insurance Less: Gain not recognized...... 700,000 proceeds because of the destruction Basis of new clubhouse...... $ 3,300,000 caused by a hurricane, tornado or oth- In this case, the result under IRC § 1033 (see Example A) with respect to er disaster, club management should a taxable club is similar to the result under IRC § 512(a)(3)(D) for a tax- investigate, along with the club’s tax exempt club. adviser, to determine if the club is in an area covered by a presidential Example D declaration of federal disaster. A tax-exempt club had a clubhouse with an adjusted basis of $3,000,000 that was destroyed by a hurricane. The insurance proceeds were Tax-exempt Clubs $3,700,000. The tax-exempt club purchased unimproved land to be used As previously noted, it is not unusual to extend its golf course for member use for $4,000,000. In GCM 39397, it for an officer or director of a club was noted that in connection with the non-recognition of gain rules set to contact its tax advisor regarding forth in IRC § 512(a)(3)(D), the replacement property need not be similar the receipt of insurance proceeds in in nature, or in use, to the old property. The only requirement in the connection with hurricane or tor- statute is that the property purchased by the club must be used directly nado damage to the clubhouse or in the performance of the club’s exempt function. golf course to discuss an IRC § 1033 analysis. Is that the preferable ap- Insurance proceeds...... $ 3,700,000 proach for a tax-exempt club? Adjusted basis of destroyed clubhouse...... 3,000,000 Tax-exempt clubs are, as a general Actual gain...... $ 700,000 matter, not subject to the payment of Recognized gain...... 0 income taxes because IRC § 501(c) Gain not recognized...... $ 700,000 (7) provides for the exemption from federal income tax of clubs organized Cost of golf course improvements...... 4,000,000 and operated exclusively for pleasure, Less: Gain not recognized...... 700,000 recreation, and other non-profitable Basis of new land...... $ 3,300,000 purposes. The tax exemption for social The result under IRC § 1033 (see Example B) with respect to a taxable clubs was designed to allow individuals club is very different to the result, in this case, under IRC § 512(a)(3)(D) to join together to provide themselves for a tax-exempt club. with social or recreational activities and facilities without tax consequences, and social clubs are exempted from tax not as a means of conferring tax gible replacement property acquired, trade or business or for investment advantages, but as a means of ensur- and held for productive use in a busi- located in a disaster area and is coming that the members are not subject to ness by the club, would be treated as pulsorily or involuntarily converted tax disadvantages as a consequence of similar or related in service or use. as a result of a federally declared their decision to pool their resources for disaster, then tangible property held the purchase of social or recreational IRC § 1033(h)(2) provides that if for productive use in a trade or services (Portland Golf Club v. Com- property held for productive use in a business shall be treated as property missioner, 110 S. Ct. 2780 (1990)).

20 Summer 2015 Club Accounting

Consistent therewith, tax-exempt IRC §512(a)(3)(D) states that if of which were used for the pleasure social clubs are not taxed on their property used directly in the per- and recreation of club members. member income. Member income, formance of the exempt function of which is also known as exempt func- tax-exempt club is sold, and within a • In Tamarisk Country Club v. Com- tion income, includes dues, fees, period beginning one year before the missioner, 84 T.C. 756 (1985), the charges or similar amounts paid by date of such sale, and ending three Tax Court held that IRC § 512(a)(3) members of the social club as con- years after such date, other property (D) does not require the purchase sideration for providing members is purchased and used by such club of property that is similar in kind or and their dependents and guests with directly in the performance of its use to the property sold. goods, facilities or services in further- exempt function, gain (if any) from ance of the exempt purpose of the such sale shall be recognized only to Furthermore, in the event that there social club. the extent that such club’s sales price are no final or temporary regulations The unrelated business taxable of the old property exceeds the club’s in place to address a particular issue, it income (UBTI) provision for tax- cost of purchasing the other property. is not unusual for the Internal Revenue exempt clubs is more broadly drafted For purposes of this provision, the Service’s Office of General Counsel to than the UBTI provisions applicable destruction in whole, or in part, of look to proposed regulations in deter- to many other exempt organizations. property shall be treated as the sale of mining its position on an issue. In Gen- With limited exceptions, non-member such property. Emphasis Added. eral Counsel Memorandum (“GCM”) revenues received by tax-exempt clubs 39397, August 13, 1985, the Internal are subject to the UBTI. A simple example of the IRC Revenue Service (“IRS”) Exempt Or- § 512(a)(3)(D) non-recognition of ganizations Technical Division referred IRC § 512(a)(3) — with respect to gain provision is set forth in Internal to Proposed Treasury Regulations tax-exempt clubs, the term “unrelated Revenue Manual 7.27.7.4.: A social § 1.512(a)-3(e) (withdrawn) which business taxable income” means the club sells its clubhouse. The gain on advised that “[t]he other property gross income (excluding any ex- the sale will not be taxed if the entire need not be similar in nature or in use empt function income), less allowed proceeds are reinvested in a new to the old property.” In GCM 39397, deductions which are directly con- clubhouse within three years. (S. Rep. it was noted that the statute is broad nected with the production of the gross No. 91–552, 91st Cong., 1st Sess. 72 and requires only that other property income (excluding exempt function (1969), 1969–3 C.B. 470.) be purchased and used directly in the income), computed with permitted IRC § 512(a)(3)(D) does not performance of the exempt function. modifications. specify the type of other property that Tax-exempt clubs are generally must be purchased in order for a club more fortunate than taxable clubs What if a tax-exempt club receives to avoid paying taxes when it receives because of the availability of a longer insurance proceeds because of damage insurance proceeds because of the de- reinvestment period (four years) and to the club from an insurance com- struction of its property. Furthermore, greater latitude with respect to the pany? A complicating factor for a tax- the treasury regulations do not address scope of reinvestment property. exempt club that receives insurance the matter. Yet, it seems reasonable, proceeds because of the destruction of based on the plain language of IRC § Further Consultation the club’s property is that insurance 512(a)(3)(D), to conclude that the only The consequences to taxable clubs of payments are sourced to nonmembers. statutory requirement is that some oth- using insurance proceeds to acquire Based on the preceding discussion, it er property must be purchased by the property that is not similar or related seems clear that insurance proceeds club and used directly in the perfor- in service to the destroyed property are not exempt function income. Are mance of the club’s exempt function, may result in significant income tax the insurance proceeds taxable to the but it is always comforting if there is liabilities for such clubs. Similarly, the tax-exempt club? precedential guidance available. Fortu- consequences of improper reliance on The first impression with respect nately, there is such guidance: the non-recognition of gain provision to a tax-exempt club that receives • In Atlanta Athletic Club v. Com- available to tax-exempt clubs may also revenues from a nonmember, an insur- missioner, 980 F.2d 1409 (11th result in significant income tax liabili- ance company, in connection with the Cir. 1993), the club realized a gain ties. You would be well served to con- destruction of its exempt use property from the sale of land that was used sider the information contained herein, is that such revenues would be subject by its members for pleasure and but also because of the complexities of to the UBTI. That being said, it seems recreation: running, jogging and the tax rules associated with the receipt that Congress anticipated this type of other club activities. The proceeds of insurance proceeds in connection occurrence and provided a mechanism from the sale of land were used for with natural or other disasters, it is to defer UBTI in such case. the construction of a tennis center imperative that clubs consult with their and renovation of a clubhouse, both tax professionals in a timely manner. ■

The Bottomline 21 Study: IT Implementation

how to divvy up the IT budget Survey report illustrates where hospitality organizations are directing technology implementation efforts and budget By Tanya Venegas, MBA, MHM

n an effort to best assess the current technology standards in the lodging Iindustry, the HFTP Asia Research Center and HFTP Americas Research Center developed an online survey which focused on important issues such as: IT budgets, technology installation decisions, current technology projects, in-room technology installation successes and failures, and mobile technology usage. Indubitably, today’s information technology (IT) has a more strategic role than ever (Nyheim & Connolly, 2012), offering hotels unprecedented benefits such as global positioning, increased value for consumers and especially better control of the personalized consumer experiences (Law, Buhalis, & Cobanoglu, 2014). Such strategic benefits are making an increasing number of industry decision-makers consider and deploy advanced IT (Beldona & Cobanoglu, 2007), especially systems redefining the role of in-room technology. This study aims to offer an insti- tutional perspective on IT adoption. In addition, this study will provide a unique perspective on the pre- adoption decisions, which have not been studied extensively. Overall, this study presents a unique opportunity to investigate IT managers’ processes of pre-adoption of in-room IT, and could lead to the development of firm-consumer interfaces aimed at increasing the overall value exchanged in hotels.

22 Summer 2015 IT Implementation

In-room IT are important elements of the guest experience, having the potential to enhance the value of the Respondent Demographics overall stay (Intelity, 2013). However, in the context of the fragmented global hotel market, and despite today’s Property Information sophisticated assessment tools, evaluating the potential IT Staff success of particular in-room IT systems remains inherently challenging (Law et al., 2014). To date, adoption of in-room Average number of full-time IT staff 4.2 technologies has been investigated only from a consumer Average number of part-time IT staff 1.5 perspective (Zhu & Morosan, 2014). Yet, having an accurate understanding of the processes leading to the successful in- Property Size room IT adoption and deployment by hotels could facilitate the development of a body of knowledge and industry best Square feet of conference space 21,314 practices, which could be instrumental in guiding global Number of hotel rooms 357 organizational IT adoption. In this context, this study investigated how hotel managers are making decisions in the Management Structure pre-adoption stage of in-room IT systems in hotels on three Managed property 25.0% continents (i.e., Asia, Europe and North America). Franchised property 16.7% Survey Distribution Independently owned 41.7% Founded on the thesis that in market economies hotel organizations are engaging in norms of behavior, this Member-owned club 8.3% study examines the factors and processes that hotel manag- Multiple management types 8.3% ers consider when deciding which in-room IT systems to adopt. To this end, a survey instrument was developed and Chain scale managed by the HFTP Asia Research Center and the HFTP Americas Research Center to examine the processes that Luxury 80.0% comprise the basis of in-room IT adoption in hotels. The Upper upscale/upscale 46.7% survey focused on the nature of current and future installations, relevance of various in-room IT to the guest experi- Upper midscale/midscale 53.3% ence, important factors influencing in-room IT investments, Economy 6.7% and IT budgeting and decision-making information. In addition, the survey was based on a combination of multiple Independent 6.7% choice and open-ended items, to offer the richest perspective on the decision-making processes. The study uses a sample of hotel managers from Hong In addition to those responding to the formal online Kong, Europe and North America. The Hong Kong and survey, a group of attendees from the IHTF also answered North American groups are contacts associated with HFTP. select questions via e-mail correspondence. These individu- These participants received an invitation e-mail directly als are classified as top technology representatives from from HFTP. The European participants consisted of individ- lodging companies throughout Europe. The questions asked uals attending the 2015 International Hospitality Technol- of this group included the following: ogy Forum (IHTF). The data was collected from March to • What are the top three technologies lodging properties April 2015, using the Survey Monkey environment. should be investing in during 2015? • What are the most important factors considered when Respondent Demographics deciding on technology investments? The survey was sent out to HFTP members and released via • What in-room technologies are the most important to the social media to garner input from all facets of the indus- guest experience? Please list the top three. try. In total, 51 responses were collected for this survey • Do you currently utilize mobile technologies at your primarily from those holding property or regional level IT property? If so, then how are you using them? If you do positions such as: IT manager, director of IT and property not currently utilize mobile technologies, do you plan on systems technology manager. In addition, most responses adding them in the near future? If so, than what would came from respondents working at lodging properties you use it for? or hotel management companies (88.8 percent). Nearly 96 percent of responses came from those involved in the The above questions coincided with questions in the management or implementation of IT at their property/ online survey and the results from these e-mails will be company. presented throughout the report.

The Bottomline 23 IT Implementation

Many of the responses came from individuals at the upper upscale/upscale (46.7 percent), and upper midscale/ regional (17.6 percent) or corporate (52.9 percent) level midscale categories (53.3 percent), it is easier to justify a where they supervised more than one property. For these larger IT staff. individuals, on average, they supervised 27.4 properties. The remaining 29.4 percent worked at the property level Technology Projects and supervised individual properties or a cluster of prop- Respondents to the 2015 HFTP Lodging Technology Survey erties in their area. The property types consisted of lodg- were asked to provide information on the top IT projects ing properties (hotel, resort, etc.), conference/convention for their organization. A number of technologies were listed centers, hotel management companies, casinos/horse tracks and those responding to the survey were asked to rate them and private clubs. on a scale of importance from 1 being “Not Important” to It is interesting to note the background of individuals 5 being “Very Important.” Overwhelmingly, the top item working in the IT department to determine their career track listed was data security/storage. Other items of importance since many have taken a nontraditional route to technology included payment technology upgrades, upgrading existing management. The majority of responses to this survey came technologies and bandwidth enhancement. from individuals with a bachelor’s degree (43.8 percent), di- Both survey respondents and those responding to the ploma/higher diploma (31.3 percent), master’s degree (12.5 e-mail survey in Europe were asked to list the top technolo- percent) or a doctoral degree (12.5 percent). For respondents gies companies/properties should be investing in during with degrees from higher education, those with degrees in 2015. This is in contrast to the previous question because it management, business administration or accounting made focused on the importance of projects to their company, not up the largest group accounting for 41.2 percent of respons- necessarily the ones that are most important to the industry. es. Other areas of study included computer science/informa- Overall, mobile solutions, bandwidth/HSIA and connectiv- tion systems (35.3 percent), engineering (11.8 percent) and ity topped the list. other (5.9 percent). The table on page 23 outlines property-level data for Technology Decisions, Goals and ROI those responding to this survey. On average, respondents When considering technology investments, there are indicated they had at least four full-time staff members and multiple factors that need to be considered before mak- 1.5 part-time IT staff members. This number may seem ing a final investment decision. Respondents were asked high to those in the industry, but looking into the respon- to provide a list of important factors they consider when dent property profiles provides an explanation. Given the investing in technologies in addition to ranking the factors fact that many of the properties were larger properties, on a scale of 1 to 5 with 1 being “Not at all Important” to 5 averaging 357 rooms, and fell into the luxury (80 percent), being “Very Important.” Overall, the following were the top

Top Technology Projects for 2015

Current Projects: In-room entertainment 3.05

Electronic distribution strategy 3.5

Cloud technology 3.56

Guest-facing mobile solutions 3.77

Bandwidth enhancement 3.9

Upgrading existing technologies 4

Payment technology upgrade 4

Data security/storage 4.41 012345 Using a scale from 1 to 5, with 5 most important and 1 least important.

24 Summer 2015 IT Implementation

three factors which had the greatest influence on invest- of in-room technologies at their property/company. Nearly ment decisions: productivity/employee needs (23 percent), 75 percent of respondents (73.2 percent) stated that in-room guest needs/expectations/experience (23 percent) and ROI/ technologies are part of their responsibilities. revenue/benefits (21 percent). Guest needs and expectations When it comes to in-room technologies, it is important were listed as top factors in both lists, but when asked to to know when it is time to replace aging technologies or rank the items by importance, both security and compli- implement new technologies. Respondents were asked ance with industry standards rose to the top in importance to provide information on existing in-room technologies, rankings. which ones they plan to replace/upgrade in the next 18 In addition to the factors listed above that are involved months and new installations during the next 18 months. It in the technology investment decision-making process, will not be a surprise to anyone to know that the in-room there also has to be a business justification. How will these technologies receiving the most attention are televisions, technology projects assist the company in reaching its television content, wired Internet access and wireless overall operational goals? Those responding to this survey Internet access. These currently have the greatest usage, indicated that, in general, technology investments typically plans for new installs or plans for upgrades. Other in-room provide easier management/maintenance, lower costs, and technologies hotels are spending money on in the next increase revenues. In addition to reaching specified goals, 18 months include: guest sensors, room control devices, these IT professionals were also asked to list evaluation energy management solutions, tablets and door locks. techniques to determine the success of IT investments. The The respondents to the online survey and e-mail distri- items were ranked on a scale of 1 to 5, with 1 being “Not bution group from Europe were both asked to list the top Important at All” and 5 being “Very Important.” The top in-room technologies they thought were worth investing in item listed was re-positioning the property’s brand image, during 2015 and the in-room technologies they felt were followed by better integration with other systems, easier most important to their guests’ experience. Again, high maintenance, increase in property’s market share and in- speed Internet access and televisions were listed as top crease in employee satisfaction. These items could be used priorities in both categories. In addition, respondents to the in a business case for technology projects to justify technol- survey were asked to list technologies they wished they ogy investments. had not invested in/installed during the past five years. The items on this list included: video on demand, wired guest In-room Technologies rooms, VoIP with screens, iPads in the guest rooms and In order to narrow the survey group to those with influence iPod/iPhone docking stations. on in-room technology decisions, respondents were asked As with any projects, there can be challenges to the if they were involved in the management or implementation implementation of offering new in-room technologies. Respondents were asked to rate a list of challenges on a scale of 1 to 5, with 1 being “Not at all Challenging” and 5 being “Very Challenging.” The item listed as the most challenging was IT budgets followed by pace of technology development, hotel staff training, guest expectations, Technologies Properties Should Invest In: and return on technology investment round out the top five challenges. 1. Mobile solutions (web site and apps) Hotel staff training was listed as one of the top five challenges. When asked who is in charge of in-room tech- 2. Bandwidth/HSIA (wireless and wired ) nologies at the property level, the majority of respondents indicated that IT staff (82.4 percent) and engineering staff 3. Connectivity (smart TV with guests’ devices) (82.4 percent) share this responsibility. This responsibility 4. CRM solutions (feedback and integration) also overlaps with rooms department staff (41.2 percent), housekeeping staff (52.9 percent) and third party managed 5. Business intelligence (RM, e-marketing, etc.) call centers (47.1 percent). Therefore, all of these individuals need to have proper training to assist in the operation 6. Central reservation system and maintenance of in-room technologies. 7. Network security (hotel and guest) Mobile Technologies 8. Big data analysis Mobile technologies are important technologies to the hospitality industry and the development of new technologies 9. Green energy management in this arena are starting to pick up the pace. When asked

10. Digital transformation (going paperless) Article continued on page 28.

The Bottomline 25 Factors Considered When Making Investments

Factors Considered: Importance of Factors:

1. Productivity/employee needs 23.3% Guest needs/expectations 4.59 2. Guest needs/expectations/experience 23.3% Security 4.19 3. ROI/revenue/benefits 20.9% Compliance with industry standards 4.11 Expectations of return on investment 3.89 4. Competition 9.3% Current state of your technologies 3.85 5. Security/risk control 4.7% Employee needs/efficiency/productivity 3.78 6. Company life cycle/suitability 4.7% Safety 3.58 7. Functionality/user interface 4.7% Competition 3.44 8. Total cost/price 4.7% Current market trends 3.44 9. Compliance/regulations 2.3% Attractive newer technologies 3.3 Above are the top factors, with the figure demonstrating what Good offers from vendors 3.07 percentage of respondents listed the specific factors.

Contribution to Company Goals

How the IT Investments Contributed to Company Goals Improving guest satisfaction 4.19

Increasing market share 3.23

Increasing service quality 4.23

Market strengthening/re-positioning 3.35

Increasing revenue 3.54

Lowering costs 3.58

Easier management/maintenance 3.85 012345 IT Investment Success Increase in guest satisfaction 4.32 Increase in revenue 3.68 Increase in profitability/cost savings 3.88 Increase employee efficiency 3.80 Increase employee satisfaction 3.48 Increase property’s market share 3.16 Easier maintenance 3.84 Better integration with other systems 4.00 Re-position property’s brand image 3.20 012345 Using a scale from 1 to 5, with 5 most important and 1 least important.

26 Spring 2015 In-room Technologies

Current Use, Upgrades and Installations: 80 70 Plan New Installation Upgrade or Replace Existing 60 Currently use 50 40 30 20 10 0 HDTV Hardware Wired HSIA Door locks Energy mgmt. solutions Guest sensors HDTV Content Wireless HSIA Tablets Room control device Top Technologies

Top in-room technologies worth Most important in-room technologies to the investing in during 2015 guest experience 1. Guest Wi-Fi/Wi-Fi/HSIA 1. HSIA (wireless and free) 2. HDTV/TV/IPTV 2. Television and content 3. Room control/environmental control 3. Connectivity (own devices) 4. Wiring/infrastructure/bandwidth 4. Integrated room control (ambiance, facilities, etc.) Integrated entertainment solutions/ 5. 5. Guest request solution (orders and information) in-room entertainment 6. Door locks/RFID 6 Door room locks 7. VoIP phone 7. Energy management solutions 8. Mobile 8. Phone (VoIP)

Importance to creating a personalized guest experience

Location based services 3.36

BYOD/BYOC systems 3.42

E-mails 3.48

Mobile applications 3.80

Web site 4.04 Using a scale from 1 to 5, with 5 most important and 1 least important. 012345

The Bottomline 27 IT Implementation

which technologies are the most important to creating a personalized guest experience, web site was ranked number Mobile Technology one followed closely by mobile applications. Respondents were asked if they currently used mobile technologies at their property/company and whether they Current mobile technology deployments at the would be adding mobile technology deployments in the property level near future. Currently, many properties are offering the Booking/promotion following mobile capabilities: booking, promotions, guest service/online concierge, internal communication and Guest service/online concierge maintenance, check-in/check-out, loyalty programs and Internal usage (communication and maintenance) guest surveys. Productivity (express check-in and check-out, process IT Budgeting optimization, etc.) As mentioned in an earlier question, IT budgeting is one of Loyalty program the biggest challenges facing IT managers. In order to de- Guest survey termine if your property is on track, it is easier if you have a figure to benchmark against. In this survey, respondents Future mobile deployments were asked to provide information on their 2014 and 2015 budgets as a percentage of total revenue. The figures pro- Guest experience/service vided indicate a decrease from 5.1 percent of total revenues Guest tracking: dedicated to IT in 2014 decreasing to 4.4 percent in 2015. In order to get a picture of where the money was being  Virtual concierge spent, respondents provided a breakdown of the IT budget  Guest request follow-up for their property. The vast majority of IT budgets for this  Order taking group are spent on bandwidth, networking and connectivity (56.3 percent). In a distant second, property management  Check-in & check-out systems garnered only 13.2 percent of IT budgets followed Booking by guest relationship management (11.2 percent). ■ Loyalty program References • Beldona, S., & Cobanoglu, C. (2007). “Importance- Performance Analysis of Guest Technologies in the Lodging Industry.” Cornell Hotel & Restaurant Adminis- Budgeting tration Quarterly, 48, 299. • Davis, F. D. (1986). Technology Acceptance Model for Allocation of IT Budget Empirically Testing New End-user Information Systems: Theory and Results, Doctoral Dissertation, Massachu- Human resource setts Institute of Technology. management system, 1 % Revenue management • Law, R., Buhalis, D., & Cobanoglu, C. (2014). Progress system, 4% on Information and Communication Technologies in Payment security/ PCI Hospitality and Tourism. International Journal of Con- compliance, 7% temporary Hospitality Management, 26(5). • Morosan, C. (2012). Theoretical and Empirical Consid- In-room technology, 7% erations of Guests’ Perceptions of Biometric Systems in Hotels: Extending the Technology Acceptance Model. Bandwidth/ networking/ Journal of Hospitality & Tourism Research, 36(1), 52-84. connectivity, 56% • Nyheim, P. D., & Conolly, D. J. (2012). Technology Point of sale system, 8% Strategies for the Hospitality Industry (2nd Ed.). Pren- tice Hall. • Zhu, W., & Morosan, C. (2014). An Empirical Examina- tion of Guests’ Adoption of Interactive Mobile Tech- Guest relationship management, 11% nologies on Hotels: Revisiting Cognitive Absorption, Playfulness, and Security. Journal of Hospitality and Tourism Technology, 5(1), 78-94. Property management system, 13%

28 Summer 2015 Financial Reporting

A Close Look at the USALI 11th Revised Edition Part III: Gross vs. Net Reporting

By Raymond Schmidgall, Ph.D., CPA; Agnes DeFranco, Ed.D., CHE, CHAE; and Robert Mandelbaum

he Uniform System of Ac- counts for the Lodging Industry T(USALI), 11th Revised Edition is the resource's most current edition, which was effective as of January 1, 2015. In conjunction with its release, The Bottomline has published a three- part series that offered details into the changes to this latest edition. In the first two articles printed consecutively in the previous issues, the articles covered: an overview of the changes and financial ratios and operating metrics. This article, the final article in the series, focuses on gross versus net reporting. The newest section of the USALI 11th Revised Edition has generated a number of spirited and insightful discussions. It is not just because it is new, but it has to do with how revenues should be reported as gross or net. Included in this section are also guidelines as to how surcharges, net operating income of a hotel. Either the hotel earned $1,000 in net income, or service charges and gratuities need to it achieved $1,500 in revenue and spent $500 in direct costs. Either way, $1,000 be recorded. This section is an effort dollars drops to the bottom line. to further align the USALI with GAAP, There are several expenses, however, that a hotel pays that are usually charged and also eventually the IFRS. as a percent of some form of revenue. Examples of such expenses include base management fees, franchise fees, employee bonuses and credit card commis- Implications on Profits sions. Frequently the contracts that dictate how the fee, bonus or commission On the surface, the recording of is calculated refer to the USALI to define the applicable revenue. This further revenue on a net or gross basis may underscores the need to have a thorough understanding of the USALI and how it not appear to have an impact on the defines revenue.

Raymond Schmidgall, Ph.D., CPA ([email protected]) is the Hilton Hotels Professor at The School of Hospitality Business, Michigan State Uni- versity and a recipient of the HFTP Paragon Award. Agnes DeFranco, Ed.D., CHAE ([email protected]) is a distinguished chair and professor at the Conrad N. Hilton College of Hotel & Restaurant Management, University of Houston. She is also an HFTP Global Past President, chair of the HFTP Global Hospitality Accounting Common Practices Advisory Council and a recipient of the HFTP Paragon Award. Robert Mandelbaum is director of research information services for PKF Hospitality Research, a CBRE company.

The Bottomline 29 Financial Reporting

each of the indicators in totality that determines the outcome. As such, the Net vs. Gross USALI stresses that these indicators Indicators from the USALI that define revenue as gross or net should not be considered “presump- tive” or “determinative.” Therefore, Net — Three Indicators this article will first address the • The supplier is the primary obligor indicators or criteria of gross versus • The hotel earns a fixed amount on the transaction regardless of the actual net reporting. Then examples of gross amount billed to the customer versus net reporting will be shared. • The supplier, not the hotel, carries the credit and collection risk Finally, a discussion of whether funds should be recorded as surcharges, service charges or gratuities will be Gross — Eight Indicators presented, with scenarios included for • The hotel is the primary obligor illustration. • The hotel, carries the credit and collection risk • The hotel has a list of suppliers and decides on the supplier to fulfill that What is Net? product or service The USALI offers three indicators to test if the revenue earned is considered • The hotel has control in determining the nature, type characteristics or NET. First, the supplier is the primary specifications of that product obligor. In other words, the hotel is • The hotel has reasonable latitude to establish the price for the service or NOT. The hotel is not the responsible product party for the fulfillment of the service • The hotel adds meaningful value to the product or provides a significant or product, and normally in the mar- portion of the service keting materials and/or sales contract, • The hotel has to carry an inventory and the customer has a right to return this responsibility is clearly indicated. Second, the hotel earns a fixed amount • The hotel has to absorb the risk of a physical inventory loss on the transaction regardless of the actual amount billed to the customer. The agreement may be a fixed dollar Management fees is an obvious While the decision to record rev- amount or a fixed percentage — but example of how the gross versus net enue on a net or gross basis may not the key is that the amount is fixed. recording of a revenue can impact have a direct impact on net operating Third, the supplier, not the hotel, car- how much profit will end up in the income, the potential effect on reve- ries the credit and collection risk. It pocket of an owner or the management nue-related expenses does mean that is also important to note that even if a company. As presented later in this the net versus gross decision indirectly hotel acts as an agent for the customer article, a controller may have to decide impacts profits. and the supplier (as a go-between, whether to record parking revenue on Even more interesting is not what more for the convenience of all par- a gross or net basis. If a hotel earns is net versus gross, but how rev- ties) in the collection process, it does $500,000 in parking revenue on a enues are to be considered as net or not mean the hotel bears the credit or gross basis, and pays their manage- gross. In theory, it can be as simple collection risks. All these indicators ment company a base management fee as whether the said property is act- demonstrate the fact that the hotel equal to four percent of total operating in the role of the principal or an is an agent, not the principal, and ing revenue, then the full $500,000 agent. If the hotel is the principal thus revenues earned in products and in parking revenue rolls up into the in the transaction, then the revenue services under these circumstances hotel’s total operating revenue and should be recorded as gross, under a should be recorded as net, under Mis- results in $20,000 in management fee separate Other Operated Department. cellaneous Income. expense. On the other hand, if facts Conversely, if the hotel is simply and circumstances dictate that the acting as an agent, then the revenue What is Gross? hotel needs to only record $300,000 should be recorded as net, as a source For revenues to be considered as of parking revenue on a net basis, then of Miscellaneous Income. There GROSS, the USALI offers eight differ- only $300,000 goes towards total op- are indicators to assist individuals ent litmus tests. The first indicator is erating revenue, and the management to make the decision. However, the simple: the hotel is the primary obli- fee expense is reduced by $8,000. That presence of the indicators alone also gor. The hotel is responsible to provide means $8,000 more in proceeds for the does not point directly to a yes or no; the products and services. However, owner, but $8,000 less for the operator. rather, it is the relative strength of the simplicity stops here. What if the

30 Summer 2015 Financial Reporting

hotel supplies the products and ser- by the hotel, some are with a contracted • Hotel Beta has credit/collection risk vices, but if something is wrong and service, some are with a concession- (indicator 2 for gross reporting) needed to be rectified, it falls under aire, and contracts can be written with • Hotel Beta has control over the the responsibility of the supplier? In varied clauses. The four scenarios are nature and type of services (indi- this case, this indicator is in the gray all about one service: parking. And cator 4 of gross reporting) area as the hotel’s risk as the primary yet, the revenue reporting can be very • Hotel Beta has control over the obligor is partially diminished. Thus, different. establishment of the price (indica- as mentioned before, all indicators tor 5 of gross reporting) need to be evaluated in totality to Scenario One • Hotel Beta provides a signifi- come to the proper conclusion. Hotel Alpha owns the parking lot, hires cant portion of the service, they The second indicator is identical to and trains all the parking attendants, actually hire and train all parking the third indicator as discussed for net sets the prices for various lengths of employees (indicator 6 of gross reporting. In other words, if the hotel parking, performs all the services for reporting) assumes the credit/collection risk, the the guests, collects the revenues and • Paramount Parking receives a revenues are to be recorded as gross. absorbs all costs pertaining to the fixed percentage (indicator 2 of And, also similar to the facts discussed operation of this valet service. In this net reporting — in the case for earlier, the credit/collection risk of scenario: Paramount) the hotel is said to be negated under • Hotel Alpha is the primary obligor certain circumstances such as when a (indicator 1 for gross reporting) FINDING: Still Gross Revenue hotel only returns or refunds the net • Hotel Alpha has credit/collection Reporting. The fact that Paramount amount earned in the transaction if the risk (indicator 2 for gross reporting) is the contractor does not negate transaction is cancelled. Third, if the • Hotel Alpha has control over the the fact that Hotel Beta still has the hotel has a list of suppliers to fulfill nature and type of services (indica- majority control. that product or service, and the hotel tor 4 of gross reporting) holds the decision at the time of the • Hotel Alpha has control over the Scenario Three transaction to select the supplier, then establishment of the price (indicator Hotel Charlie is a downtown hotel the hotel is primarily responsible for 5 of gross reporting) and it also owns a multi-story parking the fulfillment and thus the revenue • Hotel Alpha provides a significant garage next door. However, instead of again should be recorded as gross. portion of the service, they actually operating its own valet and parking The next three indicators have to do hire and train all parking employees service, Hotel Charlie has a list of sup- with the amount of control the hotel (indicator 6 of gross reporting) plier options, selects Profit Parking as has. If a hotel has control in determin- its contractor, and leases the garage to ing the nature, type, characteristics or Incidentally, Hotel Alpha absorbs all Profit Parking. Profit Parking sets the specifications of the service or prod- the costs associated with the operations price levels and hires the employees. uct, or the hotel has reasonable latitude To have a seamless appearance, Profit to establish the price for the service or FINDING: Categorically Gross Rev- Parking outfits its employees with product, or the hotel adds meaning- enue Reporting. Hotel Alpha has total similar uniforms as those worn by ful value to the product or provides a control and absorbs any risks and loss. employees of Hotel Charlie. As it is a significant portion of the service, then lease, Hotel Charlie is not responsible the indicator would dictate the revenue Scenario Two for any vehicle losses or damages, to be recorded as gross. Hotel Beta uses an outside contractor, nor is it responsible for any unpaid The last two indicators for gross Paramount Parking, to provide valet parking fees. Guests, however, can revenue reporting have to do with the parking services to its guests. Para- pay Profit Parking as they exit or they inventory of the product or service. If mount Parking operates under the rules can also charge the parking fees to a hotel has to carry an inventory and set forth by Hotel Beta as the employ- their rooms, though they are not told the customer has a right to return, then ees are hired and trained by Hotel explicitly that Profit Parking and Hotel the indicator is positive. Similarly, if Beta. In return, Paramount Parking Charlie are different entities. If guests the hotel has to absorb the risk of a charges Hotel Beta a fixed percentage do choose to charge their parking fees, physical inventory loss, the indicator of revenue as its monthly fee. Hotel Hotel Charlie will remit the collected is also positive. Beta does all the credit and collection amount back to Profit Parking on a So, now with three indicators of net as their property management system periodic basis. In this scenario: revenue reporting and eight indicators feeds all the data directly to the guests’ • Hotel Charlie has a list of sup- of gross revenue reporting, let us look folios. In this scenario: plier options and selects Profit at four scenarios. Many hotels offer • Hotel Beta is the primary obligor Parking (indicator 3 of gross valet parking. However, some are run (indicator 1 for gross reporting) reporting)

The Bottomline 31 Financial Reporting

For Further Review More details on the 11th revised edition revenues for a hotel? The litmus test to these questions is the mandatory- HFTP Guide to the USALI 11th Revised Edition discretionary dyad. In other words, do HFTP has put together an online guide to the 11th Revised Edition, including guests have a choice? the articles that have been published in The Bottomline, a survey report on us- Surcharges and service charges age (preview on page 34), and additional articles. Find it in the Education and are quite different from gratuities. Resources section of the HFTP web site at www.hftp.org. They are normally mandatory where guests do not have a choice, and are Access the 11th Edition charged directly to a guest’s folio. The USALI 11th edition is available for purchase at www.ahlei.org. To get the Other indicators are that the hotel is HFTP member discount, enter promo code HFTPC. the primary obligor, sets the price, holds the credit/collection risks and In addition, as an HFTP member, you have the access to the Global Hospitality also determines the specifications of Accounting Common Practices (GHACP) database where you can access the the product or service. Examples of USALI 11th revised edition and compare it to the 10th revised edition and other surcharges include resort fees, banquet common practices in other regions of the world (access at www.ghacp.org). service charge, room service deliv- ery charge, pool towel charge or a • Guests may believe Hotel Charlie a mark-up on the price set by Perfect corkage fee. The difference between is the service provider because of Parking. Perfect Parking owns the surcharges and service charges is that the similar uniforms of the parking garage, sets the price, hires and trains all mandatory fees that are told to the attendants and hotel employees. the employees. In this scenario: guests as a service charge like that of • The supplier, Perfect Parking, is the room service are classified as service However: primary obligor (indicator 1 for net charges. Any other mandatory fees not • Profit Parking is the primary obligor reporting) stated as a service charge are consid- (indicator 1 of net reporting) • The amount Hotel Delta earns is ered a surcharge. Thus, resort fees will • The amount of money Hotel Charlie fixed (indicator 2 for net reporting) be a surcharge. All surcharges and earns is fixed (indicator 2 of net • The credit/collection risk is with service charges are to be recorded in reporting) Perfect Parking (indicator 3 for net the proper department as revenue or as • Credit/collection risk is that of reporting). Although Hotel Delta miscellaneous income. Profit Parking (indicator 3 of net is responsible for the collection, Gratuities, however, are at the reporting) this does not mitigate the risk for discretion of the guests. A hotel may Perfect Parking. In fact, Hotel Delta suggest guests to provide a certain FINDING: Preponderance for Net has neither risk nor rewards of percent of the bill as gratuity. So long Revenue Reporting for Hotel Charlie. operating the garage. as it is a suggestion and not automati- Profit Parking assumes more risk, cally added to the bill where the guests including damages and losses to the FINDING: Absolutely Net Revenue have no choice, such are considered vehicles. Thus, the income from the Reporting for Hotel Delta and the rev- as tips and should not be considered lease is to be recorded as net revenue enue should be recognized as Miscel- as revenues. As it has always been, under Miscellaneous Income laneous Income. gratuities, or TIPS, are there “to insure prompt service.” Gratuities therefore Scenario Four The 11th Edition of the USALI pro- are never mandatory and are to be Hotel Delta is a downtown property vides several other areas where gross retained by the employees. They are and is located next to a multi-story versus net must be carefully consid- not income of the hotel, even if the parking garage owned by Perfect ered. These areas include: laundry and hotel collects them (audit/debit cards Parking. With the shortage of space dry cleaning, in-room entertainment, for example) and redistributes back to to build a garage of its own and with audio visual, retail outlets and recre- the employees at a later date. an option right next door, Hotel Delta ational activities. contracts with Perfect Parking to Conclusion provide parking service for its guests. The Mandatory/Discretionary Dyad As time changes, accounting rules Hotel Delta does not set the rate. It Revenue or not revenue? That is the are updated, guidelines become more simply collects the parking revenue million dollar question. What are con- precise and accounting processes are and remits to Perfect Parking net of sidered surcharges? Are they the same more transparent. Change is good. We its set commission as agreed in the or different from service charges? may need to adjust. But at the end, it is contract. Hotel Delta also does not add And should gratuities be recorded as worth it. ■

32 Summer 2015 Visit the RESOURCES section on the HFTP web site to find the full guide Content includes new and previously published articles, as well as a brand new survey report.

USALI 11th Edition Survey Report Preview: In April 2015, the Financial Management Committee of the American Hotel & Lodging Association (AH&LA) in conjunction with the HFTP Americas Research Center developed a survey on the changes between the 10th and 11th editions of the Uniform System of Accounts for the Lodging Industry (USALI). The survey asked whether the changes provide better detail and alignment with the industry. Read the full report on the HFTP web site.

The following changes in USALI 11 provide better detail and alignment with the industry. Room Segmentation Surcharge and Service Charges Sales and Marketing Labor Room Rebates Resort Fees Package Allocation Non-operating Income Mixed Ownership Rental Pool Information and Telecommunications Systems ■ Agree Gross vs. Net ■ Neutral I 11 th R ev is e d Edi t ion ■ Disagree Foreign Exchange Customers Addition of Mgmt and Non-mgmt 020406080 100 How would you rate the difficulty for your property to implement the changes from an operations or accounting perspective? Room Segmentation Surcharge and Service Charges Sales and Marketing Labor o the USA L Room Rebates Resort Fees Package Allocation Non-operating Income Mixed Ownership Rental Pool

uid e t Information and Telecommunications Systems ■ Easy Gross vs. Net ■ Neither Easy/Difficult ■ Disagree Foreign Exchange Customers Addition of Mgmt and Non-mgmt 01020304050607080 The 11th Edition was effective on January 2015. Was your property

: HFT P G ready to report any required changes in January 2015 for the following: Room Segmentation Surcharge and Service Charges Sales and Marketing Labor

a ble Room Rebates Resort Fees Package Allocation ai l Non-operating Income Mixed Ownership Rental Pool ■ Information and Telecommunications Systems Yes ■ Partially Gross vs. Net ■ Not Compliant, Planning to Be w Av Foreign Exchange ■ Not Planning Compliance Customers Addition of Mgmt and Non-mgmt N o 01020304050607080

The Bottomline 33 Mobile Devices

Make the experience a Joint effort Engage guests and members by giving them charge of their visits at clubs and hotels via mobile devices By Agnes DeFranco, Ed.D., CHAE and Cristian Morosan, Ph.D.

he norm of 2015: laptop, tablets, smart phones, phablets and wear- Tables — technology is not just assisting the consumer, but is part of, and is becoming, more and more, the essence of the consumer.

Pre-2000 Gone are the days of the simple four Ps of marketing: product, place, price 1. and promotion, where businesses provide customers a product, say a hotel room, at the right price, at the right place and promote the product to make sure customers know the product exists. In today’s world, the four Ps still exist, but they underwent radi- cal changes. The same product, say a hotel “room,” is not just a room. The product now is the entire hotel “stay” which can and should be customized to the extent that the guest wants it to be. The room rate, once “sacred,” became more fluid. The notion of place- ment has a global flavor, as market- also is not just a round of golf, a nice meal in the dining room, or a card game places and guests are proudly global. with other members in the card room. Some clubs also extend their products out- And all these are connected through side the physical locale through associate or affiliate memberships where a club the Internet with promotions that can partners with other clubs so their members can enjoy services and products of be done days, months, and sometimes, other clubs and vice versa. With technology, many of these promotions cross not years out before the hotel stay, during only physical boundaries, but also industry borders. Frequently guest programs the stay and even after. of hotels that are tied to frequent flyer programs of airlines is one from a long list By the way, this does not apply of cross-industry examples. only to the hotel industry, but all facets of the hospitality industry, including Let’s Co-create airlines, clubs, restaurants and many So, what are we to do as hoteliers and club managers? How can we continue to other segments. For clubs, the product bring more profits to the bottom line when the industry is always changing, espe-

Agnes DeFranco, Ed.D., CHAE ([email protected]) is a distinguished chair and professor at the Conrad N. Hilton College of Hotel & Restau- rant Management, University of Houston. She is also an HFTP Global Past President, chair of the HFTP Global Hospitality Accounting Common Practices Advisory Council and a recipient of the HFTP Paragon Award. Cristian Morosan, Ph.D. ([email protected]) is an assistant professor at the Conrad N. Hilton College of Hotel & Restaurant Management, University of Houston and vice chair of the CHTP Advisory Council. This article is partially supported by HFTP.

34 Summer 2015 Mobile Devices cially with all these new technologies 4 Steps that Encourage Co-creation available to our guests and members? Well, let’s harness technology and let 1. Build & Test our guests and members take charge! This may sound incredulous at first, Infrastructure but hear us out. This is the crux of the theory of co-creation, which at its core, is founded simply on “guest involvement.” The theory of co-creation is not new. Even during the days of Plato and Aristotle, new knowledge 4. Assess & Guest 2. Encourage was always co-created between the Evaluate Involvement learners and their teachers. How did Involvement one learn from these great thinkers and philosophers to become better thinkers and philosophers? People flocked to listen to the great ones and to learn from them. But, the successful ones were those who took the time to be involved and carried that knowledge 3. Increase to the next level. They co-created. Involvement Thus, assuming the right conditions are in place, higher engagement means higher co-creation, leading to better and see how guest- and member- First, “build and test the infra- value. This is also very similar to the involvement can lead to more satisfied structure.” Be sure your club can theory of empowerment in manage- experiences and thus our next millions have as many services, products and ment — when one has a stake in the in profits. information accessible on mobile de- decision-making process, one is more vices, and that the system works. Test committed to seeing to the success of Clubs and Members and retest to make sure it is easy for that decision. As mentioned before, technology is your members to maneuver the app to Translating this to the hospitality part of people’s life. In a recent study, actually make their reservations or to world, this means if our guests and 86.4 percent of the 700 club members pay a bill. Always have an automati- club members are actively involved in surveyed agreed that mobile de- cally generated confirmation for the creating their experiences, they will vices were easy to use (DeFranco and records of the members so they know have a higher level of satisfaction, and Morosan, 2014). In that same study, they have the tee time all set. Noth- we will have a higher probability with while almost 81 percent of the clubs ing is more annoying than a system more repeat customers and satisfied these respondents belonged to offered that does not work or a member who club members who will frequent our personalized deals and provided the goes through most or all of the steps to establishments more often. Our hotels types of offers members would like to secure a Sunday brunch reservation or will become the hotels of choice rather see, only 60.1 percent of these clubs tee time and is being “kicked out” of than the hotel of convenience. This is encouraged the use of mobile devices. the system because of some error. the positive business cycle hotels and Even without strong encouragement Second, now that a great foun- clubs would like to see. Research has from the clubs, members are using dation is set, “encourage usage.” also been conducted, either conceptu- their mobile devices for making reser- Remind and educate your members ally (Chathoth, Altinay, Harrington, vations for meals and sports functions, to access the services and products Okumus, & Chan, 2013) or empirical- paying bills, connecting with other you have to offer. This is the promo- ly (Grissemann & Stokburger-Sauer, members, and accessing the club’s tion of 2015. Remind members that 2010), to show that the degree of co- web site. Since the technology infra- they have choices and invite them to creation or guest involvement influ- structure exists already in the club and exercise their choices by using their ences positively the level of consumer members do use their mobile devices, mobile devices. A simple tap is all it satisfaction, loyalty and the amount it seems that this is the right time for takes to make a brunch reservation, of spending with a firm. Therefore, clubs to reap in the profits. There are not clicking through 10 steps. A swipe let’s examine the two major industries four steps in this guest/member in- on a smart phone is all it takes to make of the HFTP membership: clubs and volvement process of co-creation (see an appointment for a massage at the hotels. We will dissect some examples, the figure above). health club, a workout session with a

The Bottomline 35 Mobile Devices

trainer, or go and try the latest clubs p.m. to talk to a live person to make events, complimentary room upgrades, at the pro shop. Thus, the promotion an appointment. Also, by clicking and activity arrangements prior to arrival in 2015 should be simple and easy, making an appointment, this creates and exclusive opportunities with other such as your next round of golf is only commitment on the member’s part. If Virgin companies, to name a few (Bil- literally “a tap away” on one’s tablet these workouts are right before meal lock, 2014). In a way, Virgin is asking or smart watch. When members have time, suggest a special meal for them its guests to design their own experi- tried and trust how easy it is to take after their work out. For the really ence by sharing information about care of their businesses with the clubs, health conscious members, suggest a themselves so as to help create the they will come back for more. The freshly squeezed juice with supple- “personalized” package of services. easier that you make the process for ments to replenish the electrolytes and If you think Virgin is still the your members, the more they will pur- vitamins in their body after a good future, think now. Starwood, with its chase services and products with you. work out — it is all in the packaging. spgapp.starwoodhotels.com has its Third, “increase involvement.” Fourth, “assess and evaluate.” If own apps for both iPhone and Android Just like what Virgin Hotels is doing, you don’t try out something, you will users where one can turn his or her start building profiles for each of your never know if you miss the next big smart phone into a room key all the members. Look at the “dos.” See what opportunity. Whatever, you offer via way to managing one’s SPG account your members are doing already. Does your mobile apps, collect the data of and track the Starpoints accumulated a particular member always book a usage and satisfaction, assess it. Then, (Starwood Hotels, 2015). These apps Saturday 7:30 a.m. tee time? If so, make the proper adjustments for your can be downloaded easily from the send that member an e-mail to suggest members. They will appreciate your Apple App Store or Google Play. All making a tee time for them. Does thoughtfulness. of Starwood’s brands are conveniently another member normally come and listed, even with the information of an eat at the club once a week? Then, Hotels and Guests upcoming stay. Hilton also has its own suggest to them to come out a second In hotels, more and more guests are mobile app where its guests can check night and make sure to let them know bringing not just one mobile device, in and out on their mobile devices you have their favorite entrées or but two and even three devices during in all its 4,000 plus properties. Very their most loved bottle of Bordeaux their stay (DeFranco & Morosan, much like what the airline industry waiting for them. If your chef has a 2015). With technology, hotels can has been doing for a while, now, when new creation, invite your members to create promotions and place them checking in, guests can also select a come and do a new menu tasting with literally in the hands of their guests room from an interactive floor plan. the chef where he will explain all the 24x7 and have guests as partners to So if one prefers accessibility and cooking steps and fresh ingredients be involved and thus co-create stays convenience, one can create his or her to this group of “specially invited which will give them the best value stay and choose a room closer to the members.” and experience. Technology and exits or the elevators and vice versa. On the other hand, also look at the guest-involvement are the next keys to When all is done, upon arrival, all “don’ts.” If you notice your members open up the treasure chest for hotels. the guest needs to do is to initial their are not dining with your club but once What are hotels doing now? Virgin name and sign on the arrival card and a month or less, find out why. Even if Hotels will open its first property their room keys are waiting for them. these members come to visit just one in Chicago in 2015. To serve their Of course, they can begin to order any more time per month, this doubles guests, Virgin came up with a prefer- amenities on the spot. your food and beverage business. ence program called “The Know” and Hyatt and Marriott are also offering If you notice a member only plays invites future hotel guests to enroll many services via mobile apps and tennis, but does not use any other online (Billlock, 2014). These invita- the traditional e-commerce route to services, start suggesting a massage tions are sent via e-mail and social engage their guests. Hyatt, Starwood, after a tennis game, or show them media. More importantly, these future Marriott and Hilton all offer keyless the benefits of cross-training. If they potential guests are asked to share their entries (Kooser, 2014; Trejos, 2014). do not have time for a massage for likes and dislikes about a hotel room, Once registered, guests will receive an hour-and-a-half, as tempting and their pet peeves, music and minibar automatic notifications if their upcom- relaxing as it may be, create choices preferences, all the way to how they ing stay is eligible for the keyless of 10-minute or 20-minute short dura- prefer to spend their spare time — all entry. From there, once the room is tion massages. Give your members the this information is collected, way ready, a guest will receive another choice to personalize what they like to before the guest's actual arrival. Virgin notification to view the room number do. Create an app for making appoint- will then tailor its promotional efforts and the guest can access the room. For ments so they do not need to wait till and send information and invitations Starwood, SPG members can register the normal work hours of 8 a.m. to 5 to these enrollees about exclusive up to three mobile devices (spg.com/

36 Summer 2015 Mobile Devices

keyless). Hyatt, under its Hyatt mobile Hotels cannot be complacent about pointers from data-mining wisely; app program and Hyatt mobile web the second step: “encourage usage.” and involve employees of all levels to site are also offering keyless entry Constant and gentle reminders, made help make the next decisions. Involve options. In addition, Hyatt Mobile is not just through the company’s propri- your guests to co-create, involve your now linked to Uber for a taxi ride and etary app, but also through social me- associates to co-strategize. At the end, the app will also add a guest’s reserva- dia, are a must. Again, hotel guests who everyone has a stake, and everyone tion and Hyatt Gold Passport details are tech savvy will more and more use wins. into the Passbook app (hyatt.com/mo- their mobile devices for their business bile). This provides guests with all the transactions. Thus, the more your hotel All Can Benefit! necessary information to book a hotel app appears on their devices, the more You may think co-creation and tech- stay, including arranging for rides, connected you are to your guests. Let nology are only for the big companies entering the room and ordering food to them know your holiday specials and who can afford the infrastructure. be delivered to the room at a preselect- weekend getaways — use suggestive Wouldn’t something of this scale of ed time, which can coincide with the selling and promotion through technol- investment can only be afforded by the estimated arrival time. The guest is the ogy to “assist” your guest to create their branded hotels where they can share boss. He or she determines the level of own ideal vacation or business trip. a system for their thousands of hotels personalization desired. The guest, in Doing so will lead to step three: in all the different chain scales, and essence, creates his or her stay. “increase involvement.” One good the single hotel properties with limited So, do the four steps of guest- point about mobile- and e-commerce funds will be left in the wayside? involvement or co-creation for clubs is the rich data that is available. Fear not. There are companies and apply similarly to hotels? Absolutely! Every click made by guests can be entrepreneurs who are working with It appears that most hotel companies stored. Some retail companies will independent or smaller chains (alice- are well on their way in the first step even e-mail to prompt their potential app.com, MobileSuites) to have hotel to “build and test the infrastructure.” customers that they have shopped and reservations, dinner reservations, spa Indeed, many companies have been put something in the shopping cart, services, room services, etc., all liter- building and tweaking their infrastruc- but have not checked out. Good data- ally at the guests’ finger tips (Null, ture and updating their technology. mining and astute decision making 2014). The next vacation for everyone This step, while step one, re-initiates therefore are crucial. is simply a touch or a swipe away. the four-step cycle after the cycle is Finally, step four, “assessing So, don’t wait any longer. Be at the completed and evaluation is done. and evaluating.” Use the results and forefront. ■

References • Billock, J. (December, 17, 2014). • DeFranco, A., & Morosan, C. • Null, C. (2014). Hotels Get Appy. Virgin Hotels Introduces ‘The (2015). Laptops, Tablets and Fortune Executive Travel Briefing: Know’ & Invites Guests to Person- Phones! Oh My! The Bottomline 2015 Hotel Trends. Page 5. Insert in alize Their Stay. Retrieved from: 30(2), 45–50. Fortune, 170(9). http://www.flyertalk.com/story/ • Grissemann, U.S., & Stokburger- • Trejos, N. (July 1, 2013). Marriott virgin-hotels-introduces-the-know- Sauer, N.E. (2012). Customer Hotels Expand Mobile Check- invites-guests-to-personalize-their- Co-creation of Travel Services: in. Retrieved from: http://www. stay.html. The Role of Company Support and usatoday.com/story/dispatch- • Chathoth, P., Altinay, L., Har- Customer Satisfaction With the es/2013/07/01/marriott-mobile- rington, R.J., Okumus, F., & Chan. Co-Creation Performance. Tourism check-in/2479875/. E.S.W. (2013). Co-production Ver- Management, 33(6), 1483–1492. • www.hyatt.com/mobile. sus Co-creation: A Process Based • Kooser, A. (July 28, 2014). Hilton • www.starwoodhotels.com/pre- Continuum in the Hotel Service to Replace Hotel Room Keys With ferredguest/index.html. Context. International Journal of Smartphones. Retreived from: Hospitality Management, 32(1), http://www.cnet.com/news/hilton- 11–20. to-replace-hotel-room-keys-with- • DeFranco, A., & Morosan, C. smartphones/. (2014). Clubs and Mobile Apps in the Year 2014: Part 1: Today’s Technologies. The Bottomline 29(2), 30–34.

The Bottomline 37 Club Accounting

Collecting What is Due to Your Club A study reviews clubs' accounts receivable management practices

By Tanya Venegas, MBA, MHM

“The second vice is lying, the first is running in debt.” — Benjamin Franklin

ith being in debt as the first vice, no wonder bad debts Wis an integral part of any given business. Therefore, it is up to us to manage and minimize the level of uncollectible accounts in our clubs through sound accounts receivable practices. It used to be, in the ideal world, when individuals achieved a certain level in the corporate circle, they would have a country club membership as part of their compensation package where their corporation paid for everything. For others who had achieved a certain level of personal income or fortune, they would join a club to provide more entertainment options for their family and to be in an elite circle of new friends. And, of Even though clubs remain an enticing option to many individuals, the club course, their club bills would always business is not a guaranteed profitable business. According to the data of Sage- be paid on time. works, the net profit margins for privately owned golf courses and country clubs In real life, a 2015 economy, the in the U.S. has been in the red the past few years (Biery, 2014). In addition, aging baby boomers, the millenni- McGladrey’s 2013 publication of private club trends in Florida reported that the als and the plethora of entertainment percentage of clubs with an operating surplus increased from 72 to 77 percent venues has changed the club industry. between the years of 2010 to 2012. This still means that 23 to 28 percent of the While some clubs continue to prosper clubs in Florida during that time period were operating with a deficit. by simply offering elite membership Club members make charges to their account and are billed at the end of the status, many clubs have expanded billing cycle. But accounts receivables or AR do not pay the bills, cash does. In their offerings to provide regular that same study, McGladrey divided Florida into seven geographic regions and social and athletic options for their noted that on the average, 60 percent of AR are over 30 days old. And, for the members as well. category of AR that are 91+ days old, the seven regions reported a range of 6 to

38 Summer 2015 Club Accounting

24 percent; and we all know the difficulty of recovering bad debts that are over 90 days old (McGladrey, 2013). While RESPONDENT PROFILE there are plenty of technologies that can assist club executives to manage accounts receivables and their collections, Figure 1. Club Classification these technologies also offer many other functionalities (Lipsitt, 2006) and whether they are used to their fullest in Golf Course or Golf Club, 7.8% clubs is somewhat questionable. Tennis/Racquet Club, 1.1% Therefore, in April 2015, the HFTP Americas Research Center surveyed club members of HFTP on their AR Yacht Club, 8.9% practices. The survey was distributed via e-mail to all club members of HFTP who had previously agreed to receive Country Club e-mail correspondence from HFTP. In total 3,896 survey (full service), Other, invites were distributed, resulting in 180 responses. Overall, 58.7% 12.3% this provided a 5 percent response rate.

CIRA/Community The Club Profile Association, 5.0% The respondents are mainly from full-service country clubs City/Athletic Club, 6.1% (58.7 percent). Yacht clubs (8.9 percent) and golf only clubs (7.8 percent) are the next two highest responding groups, closely followed by city/athletic clubs (6.1 percent) and community association or CIRA clubs (5 percent). Figure 1 (right) summarizes the various classifications. The vast Figure 2. Location: U.S. Regions majority are privately held clubs (91.6 percent), with the rest being semi-private (5.1 percent), public, daily fee, mu- New England, 8% nicipal or others (3.3 percent). In addition, 78.4 percent are Middle not-for-profit (51.7 percent tax exempt, and 26.7 percent Atlantic, Mountain, 2% taxable) versus 21.6 percent for profit. 15% HFTP is indeed a global organization. Of the respondents, 93.2 percent are from the United States, and the Pacific, other 6.8 percent are from Canada (2.8 percent), Barba- 20% dos, China, India, Macao, Nigeria, Seychelles and Turkey. South Atlantic, The location of all the U.S. clubs can be seen in Figure 2 39% (right) with the South Atlantic, Pacific and Mid-Atlantic East South Central, 2% regions constituting 74 percent of all U.S. responses. East North Central, 7% On average, respondents to this survey worked at clubs West South Central, 3% with 942 members. This number is impacted by respon- West North Central, 4% dents at larger clubs which skews the average upward. In order to better understand the distribution, respondents were grouped into categories at intervals of 500 members with the distribution noted in Table 1 (below). The 501 to 1,000 member grouping accounted for 45.2 percent

Table 1. The Membership Table 2. About the Staff Size of Clubs by Highest Ranking Accounting Age of Members Titles Membership Personnel Members Age Controller 61.5% Controller 69.3% <500 32.2% Under 40 2.7% Asst Controller 10.6% Dir of Finance 14.2% 501 – 1,000 45.2% 41 – 50 16.3% Dir of Finance 9.5% CFO 10.8% 1,001 – 1,500 14.4% 51 – 60 45.6% Accounting Mgr 7.3% Accounting Mgr 2.8% Over 1,500 8.2% 61 – 70 24.5% CFO 5.0% Asst Controller 0.6% Over 70 10.9% Others 6.1% Others 2.3%

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of responses and is the most common size, followed by less than 500 members (32.3 percent). The members Figure 3. Written Procedures themselves are mature (Table 1, page 39), with an average age of 58.7 years, and the majority in the 51 to 60 age Written Procedures in place: ■ Yes • ■ No 100 group (45.6 percent). The second largest age group ranged from 61 to 70 years (24.5 percent), followed by 41 to 50 years (16.3 percent) and over 70 years (10.9 percent). As 80 expected, those under 40 years of age accounted for the smallest percentage at 2.7 percent. The key to the future of 60 clubs will be to attract this younger age group and convert them into members. 40 The Accounting/Finance Staff As seen in Table 2 (page 39), the majority of respondents 20 of this survey hold the title of controller (61.5 percent), and that is also the most common highest-ranking title in the accounting/finance department of the clubs (69.3 0 percent) surveyed. The titles of those listed in the Other category for the highest ranking position included: ac- Payroll Budgeting Receiving countant, financial manager, consulting controller and Purchasing accounting associate. The average number of full-time Member billing Accounts payable Cash management accounting staff is 5.2, the average number of employees Accounts receivable Capital expenditures under the supervision of the respondent is 2.3, and the average number of years employees have been employed in the accounting department is 9.9 years.

Follow the Money Trail To assess the AR topic in detail, the questions asked in the survey are divided into five major areas: management of AR, technology associated with AR, payment methods, Figure 4. Collection Methods credit card policies and reciprocal charges. 80 1) HOW IS AR MANAGED? To start, the clubs are asked 75% about the management of their AR, beginning with whether 70 72% written polices are in place for a number of accounting and finance procedures. Figure 3 (right) shows that written pro- 60 cedures are most commonly found for AR (which is great 50 news for this study); and yet, it is only reporting in at 78.6 50% percent, leaving 21.4 percent of the respondents not having 40 any written procedures to follow. The area of Receiving is 30 32% the worst offender with less than half of clubs having a set 26% 27% of written procedures. Perhaps this is an opportunity for im- 20 17% provement for clubs. Having set and clearly communicated 10 policies will always help. When asked about members’ accounts, while it is good 0 news that 95.1 percent of the members’ accounts are in Other good standing, the bad news is that 4.9 percent are not. This Board call Posted for number, nearly 5 percent, may be a total loss if not man- Courtesy call Board notified aged properly. In fact, a surprising 20.4 percent or one-fifth Account suspended of the clubs said they did encounter challenges collecting Put up for collection membership to see from their members. While the clear majority of the clubs (95.5 percent) try to perform this difficult task and conduct all AR functions in house, 4.5 percent of the clubs out- sourced some portion of the AR functions. What happens when the members do not pay? Figure 4 (right) shows the various methods clubs employ to col-

40 Summer 2015 Club Accounting

lect their AR. From making courtesy calls to suspending Figure 5. Calculating AR Stats the members’ accounts, from sending past due letters and e-mails, reminders and notifications from the general ■ Yes, monthly • ■ Yes, Quarterly • ■ Yes, other • ■ No manager to engaging an attorney, clubs are using multiple 100 means to work with their members. These techniques used by the clubs should not be a surprise to the members as 80 45.8 percent of the clubs stated that the above collection attempt methods are listed in the membership agreements. Another 33.1 percent stated that some, but not all, methods 60 used are stated in the membership agreements as well. It seems if one has a problem in collection, one may 40 want to further manage the issue. So, when asked what accounts receivables statistics are calculated for the club and 20 how often they are calculated, most clubs only use aging consistently and still, over 20 percent of the clubs do not even do an aging table for their AR (Figure 5, left). 0 Therefore, we asked the clubs for certain raw data such Accounts receivable turnover | Average collection period as year-end accounts receivables, charge or credit sales, Aging of accounts | Average bill per month bad debt expense and total club revenues (Table 3, left). Overall, 79 clubs provided data on club revenues which av- Table 3. Accounting Data eraged to $7,614,720. In addition, 38 of these respondents also provided data on total credit sales which averaged Measurement Average $3,093,748 or 54.6 percent of their overall revenues. 2013 Year End Accounts Receivable $666,634 Using the information provided, we can calculate AR 2014 Year End Accounts Receivable $632,597 statistics in order to gauge if AR and its collection are 2014 Charge or Credit Sales $3,093,748 serious issues for clubs. On average, the clubs responding to this survey indicated that they have an average AR 2014 Bade Debt Expense $22,165 turnover of 17.4 times per year. According to the Uniform 2014 Total Club Revenues $7,614,720 System of Financial Reporting for Clubs (USFRC) the AR Ratios turnover is calculated by dividing total revenue by average accounts receivable. In addition to AR turnover, the Accounts Receivable Turnover 17.4 USFRC also defines the average collection period. This Average Collection Period 74.5 days calculation is made by dividing the days in the year by Bad Debt to Accounts Receivables 8.1% the accounts receivable turnover. For this group of clubs, Bad Debt to Credit Sales 13.2% the average collection period is 74.5 days, indicating that it takes nearly 75 days to collect the average accounts receivable.

Figure 6. Members and Technology Use 2) CAN TECHNOLOGY HELP? Indeed, in today’s world, everything is connected to technology somehow. So, perhaps, clubs can also use technology to help with the AR Social Media opportunity. Again, every dollar the club can collect, the better. Although, it may be unanticipated that 60.8 percent of the clubs admitted they did not feel they were fully using their accounting systems and all the capabilities that come Web Site with the systems. This large number also points to untapped opportunities on which clubs may want to capitalize. Technology and Billing. Indeed, club members are using technology more (Figure 6, left). The dark teal sections in Mobile Applications Figure 6 correspond to clubs that believe over 76 percent or over three-quarters of their members are using that specific technology. On the other hand, the purple sections at 020406080 100 120the beginning of the bars indicate the percentage of clubs ■ 25% or less • ■ 26–50% • ■ 51–75% • ■ 76–100% where the respondents believe less than 25 percent of their members are using that specific technology. For example,

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the members of the clubs in this survey used web sites the most, as only 6.8 percent of the responding clubs reported Figure 7. Frequency of Transaction Updates at the 25 percent or less usage category. Social media edged on Web Site out mobile applications only by a small margin of 3.95 Yes, update transactions weekly, 3% percent (32.2 to 28.3 percent). Sending Monthly Statements: Time and Process. With Yes, update transactions this technology usage pattern, clubs are covering all bases Yes, update transactions daily, monthly, 6% in that when sending out monthly statements, 95.3 per- 75% cent of the clubs said they sent out an electronic bill via e-mail, while another 68.6 percent sent out hard copies. No, we do not post This totaled to more than 100 percent because some clubs member statements on sent both versions. On the average, it takes our respondents the web site, 14% 1.71 days to prepare and send members’ statements. This Other, 2% processing time includes running reports, printing them, stuffing envelopes or organizing the bill in e-format for e-mails. The range stretches from a minimum of 0.25 or a quarter of a day to the highest number reported of seven days. In addition, 70.5 percent of the clubs stated they ran only one single batch for membership statements while the Figure 8. Accounting Software Used balance of 29.5 percent ran two or multiple batches. A few did explain they had to run two batches as one is for regular IBS, 2% ClubTec, 3% mail and the second one is for e-mail. Using the Web Site. A good number of clubs are also posting the statements and the transactions on the club’s Clubsystems Group, 17% web site. Figure 7 (right) details the frequency of transac- Jonas, tion updates. 43% With regard to the actual software used for accounting, 132 of the 179 respondents provided information on which brand of accounting software they use. Figure 8 (right) ClubSoft, 12% shows that Jonas has the market cornered at 43.2 percent with a distant second place occupied by Clubsystems Northstar, Group at 17.4 percent, and a close third and fourth from 13% Other, 6% NorthStar (12.9 percent) and ClubSoft (12.1 percent). TAI, 1% PCS, 1% ResortSuite, 2% 3) IS OUR COLLECTION METHOD OPTIMAL? We know that our members use the clubs’ web sites and we also post and update account details on the web site. When it comes to payment, only 57.6 percent of the clubs in this survey ever, as different clubs have members who prefer different accept payment online. If 95.3 percent of the respondents methods of payment, while the percentages of each club to- send out e-bills, why is it that only 57.6 percent will ac- tal to 100 percent, the average of all the respondents would cept payment online? Again, this is one area that clubs not. Therefore, in order of members’ preference, paying by may want to consider. Consumers in general are making check is the top choice with over 70.7 percent, followed purchases and payments online. Mobile payments made via by auto draft via bank at 24.7 percent. Auto draft via credit an app on a smart watch, smart phone or a tablet is gaining card and payment through credit card came in next at 12.9 momentum. The easier it is for our members to click and percent and 12.1 percent respectively. Some members also pay, the quicker we can collect the AR. Better yet, have use debit cards to settle their monthly charges (2.3 percent). members opt into a direct payment or auto draft program where the monthly bill will be collected directly from their 4) CREDIT CARDS: FRIENDS OR FOE? Credit card is an bank accounts or credit cards. integral part of our daily lives as we use credit cards for Indeed, auto draft via bank accounts or credit cards are most of our transactions. However, only a mere 25 percent what businesses prefer, as money is collected directly. But of respondents settle their AR using credit cards via auto what is the preference of our members? Our clubs were draft or direct payment. Why? Well, first, it appears that not asked to indicate the approximate percentage of how pay- all clubs allow all services to be charged on a credit card. ments are made via the various methods, and each club Figure 9 (above right) summarizes the items/services that responded with all methods totaling to 100 percent. How- clubs will allow members to use credit cards for. A growing

42 Summer 2015 Club Accounting

for reciprocal agreements with each other. This allows Figure 9. Credit Card Payment their members to use the facility and services of different 50 clubs when they travel, or even if they just want to play on another golf course in town. Reciprocal agreements are quite common and are of 44% 40 value to members. However, this adds another layer to the 39% billing process. While reports can still be run at the end of the accounting period in batches and be sent out, how 30 such reciprocal charges are billed and how such charges 29% are incorporated into the accounting and AR system are of interest. More streamlined processes can assist in managing 20 22% the AR properly. 16% The majority of the clubs offering reciprocal arrange- 10 ments (78.9 percent) hard keyed reciprocal charges into their current accounting system. Another 21.1 percent complete this procedure electronically either via their 0 point of sales systems or through their current accounting Initiation Fees Food & Beverage Other software. Over half (62.0 percent) of the clubs provide Dues Golf detail charges while others (34.7 percent) only report a lump sum. The remainder (3.3 percent) simply send one statement to the other clubs that shows each individual charge by members, or the other clubs will summarize the charges, or reciprocal members use credit card to settle charges so no billing is needed. number of clubs allow members to use credit card payment Moving Forward on food & beverage items (44.4 percent), golf (39.1 per- Accounts receivable management is not a simple task. Any- cent) and club dues (29.3 percent). Initiation fees fall slight- time money is involved, the matter tends to be complicated. ly further behind at only 21.8 percent of clubs allowing A good practice perhaps is to start with a set of written and members to use credit cards for this sort of payment. Items practical policies, clearly and succinctly communicated to listed as other primarily consisted of retail (4.5 percent), as all parties, with reasonable expectations, and also members’ well as fuel purchases, tennis shop and spa services. preferred methods for payment, while minimizing extra Second, all credit cards come with a fee that ranges any- charges, fees or liability to the club. At the end, our mem- where from 3 to 6 percent; which someone, either the club bers are our bosses. Help them manage the expectations or the member, has to pay. This charge is no small amount; and take care of them the best we can. ■ and the treatment of this fee by the clubs is also not uniform. The slight majority of the clubs in this study expense the fee (58.6 percent), while 18.4 percent pass the fee directly to the members. Another 23 percent have a combination of ways to handle this fee. Some pass it on to members but if it is a guest, the clubs will expense the fee. Some References clubs use a third party and the third party charges the fee • Biery, M. E. (June, 29, 2014). Think Playing Golf is to the members. Some are charging a flat convenience fee Tough? Try Operating a Course. Forbes. Retrieved from per month or per transaction, thus splitting the fee between http://www.forbes.com/sites/sageworks/2014/06/29/ the members and the club. For clubs that do not accept golf-courses-operating-with-weak-sales-negative-profit- credit cards as a form of payment, 74.4 percent cited fees as margins/ the major reason. Another 8.5 percent mentioned security • McGladrey. (2013). 2013 Florida Trends in Private concerns, and others quoted not the amount of fee, but the Clubs. Retrieved from http://mcgladrey.com/content/ equitable distribution of fees as the reason. PCI compliance dam/mcgladrey/pdf/2013_florida_trends_private_clubs_ requirements and the club’s policy also contributed to why report.pdf credit cards are not accepted. • Lipsitt, M. (October, 25, 2006). Enterprise Club Man- agement Software: Reactive Commodity vs. Proactive 5) BEYOND ONE CLUB: RECIPROCAL CHARGES. Finally, Management Tool. Hospitality Upgrade, 158. Retrieved as clubs try to stay competitive and provide more value from http://www.hospitalityupgrade.com/_magazine/ and services to their members, many clubs have arranged magazine_Detail.asp?ID=41

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