05/05/2024, 18:13 How do you allocate and manage your hotel's capital expenditures and depreciation?

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How do you allocate and manage your

hotel's capital expenditures and
depreciation?
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1 Set your CapEx budget and goals

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2 Prioritize your CapEx projects
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3 Monitor and control your CapEx spending
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4 Calculate and record your depreciation
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5 Analyze and optimize your CapEx and depreciation
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6 Here’s what else to consider
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Peter Ricci
Hospitality & Tourism Management Director @ Florida Atlantic University |Hospitality
Industry Veteran
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Waldin Duran, CHIA
Sales & Marketing Director | Hotel Manager | Expertise in Sales Strategies and
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Jim Burr, CHA

Hotel Asset Manager and Consultant
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1 Set your CapEx budget and goals

The first step is to determine how much you can afford to spend on CapEx and what you want
to achieve with it. You should base your CapEx budget on your hotel's cash flow, profitability,
and debt service. You should also align your CapEx goals with your hotel's strategic vision,
brand standards, guest expectations, and competitive position. For example, you may want to
renovate your rooms, upgrade your amenities, or implement new technology to enhance your
service quality, operational efficiency, or revenue generation.
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In a perfect world, a percentage of revenue should ALWAYS and CONSISTENTLY go into fund
for CapEx. You should have a great relationship with your affiliate group/brand/soft brand so
that you know what is coming down the pipeline. Also, I find that having the absolute BEST
chief engineer/director of engineering who is savvy and aware of physical plant issues are
coming ahead. Further, since technology is so rapidly moving - be careful NOT to budget
…see just…
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· 16

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Allocating and managing your hotel's capital expenditures (CapEx) requires strategic planning
aligned with your financial capabilities and long-term goals. First, set a CapEx budget based on
your hotel's cash flow, profitability, and debt service. Align this budget with your strategic
vision, focusing on investments that enhance competitive positioning. This might include
renovating rooms, upgrading amenities, or integrating new technology to improve service …see more
…
· 1

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2 Prioritize your CapEx projects

The next step is to prioritize your CapEx projects according to their urgency, impact, and return
on investment (ROI). You should evaluate each project based on how it will affect your hotel's
performance, guest satisfaction, and market share. You should also consider the costs, risks,
and benefits of each project, as well as the availability of funds, resources, and contractors.
You can use various tools and methods to prioritize your CapEx projects, such as scoring
models, decision matrices, or ranking systems.
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3 Monitor and control your CapEx spending

The third step is to monitor and control your CapEx spending throughout the execution phase.
You should track your actual expenses against your budget and forecast, and identify any
variances or issues that may arise. You should also review your progress and results regularly,
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05/05/2024, 18:13 How do you allocate and manage your hotel's capital expenditures and depreciation?

and make any necessary adjustments or corrections. You should communicate clearly and
frequently with your
Homestakeholders,
My Network such
Jobsas owners,
Messaginginvestors, lenders,Mestaff, and guests, and
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keep them informed of your CapEx status and outcomes.
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4 Calculate and record your depreciation

The fourth step is to calculate and record your depreciation for your CapEx assets.
Depreciation is an accounting method that allows you to spread the cost of your assets over
their useful life, and reduce your taxable income. You should use the appropriate depreciation
method and rate for your assets, depending on their type, value, and lifespan. You should also
update your depreciation schedule and journal entries periodically, and report them accurately
in your financial statements.
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5 Analyze and optimize your CapEx and depreciation

The final step is to analyze and optimize your CapEx and depreciation performance. You
should measure and compare your actual CapEx and depreciation results with your budgeted
and expected ones, and evaluate their impact on your hotel's profitability, cash flow, and asset
value. You should also identify and implement any opportunities for improvement or savings,
such as renegotiating contracts, refinancing loans, or disposing of obsolete or
underperforming assets. You should also benchmark your CapEx and depreciation
performance against your industry standards and best practices.
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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous
sections. What else would you like to add?
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Jim Burr, CHA Follow
Hotel Asset Manager and Consultant
The important piece that is missing here is maintenance and project maintenance. I have been
involved with hotels where the GM directs a superior job in this area and much of the FF&E
looks in good shape and remains serviceable for an extended period. This frees up CapEx for
more pressing needs and ROI projects. Where good maintenance is not carried out, areas like
restaurants, lobby furniture and guest room furniture will cry out for early renovation…see
because…
more
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