INTRODUCTION to maintaining this schedule. Other similar businesses have found themselves in disputes with owners and/or guests Sea Pines Villa (SPV) manages and rents 42 vacation villas on over the rental company taking carly possession of money, a barrier island near South Carolina. The island is a celebrated premature distribution to owners, and other inappropriate higher-end tourist destination, and business has thrived. From disbursements of escrowed rental monies. SPV has a April through October, SPV books rentals "boutique" style, reputation for both honesty and transparency, and company with guests renting from three nights to three weeks. From management believes their success is due, at least in part, to mid-November through March, the bulk of rental activity their diligent separation of funds and ensuring all parties are is for monthly occupancies. For the last five years, SPV has satisfied before disbursement. enjoyed almost no vacancies except for scheduled deep SPV earns revenues from villa rentals via several different cleanings, remodels, owner occupancies, and the like. streams. First, guests pay resort fees that cover gate passes to enter the resort, passes to health clubs and swimming pools, and VILLA RENTALS other desirable guest amenities like bicycles and outdoor grills. The amount of the resort fee depends on what amenities the Guests can book villa rentals by calling SPV directly, using guest wants included with his or her stay and how many cars he SPV's website, or by going through one of several travel or she would like to have while staying at the villa. Guests also reservation websites where SPV properties are listed. pay a reservation fee. The amount of the reservation fee varies Consistent with industry practice, SPV collects rental with the size of the villa (number of bedrooms and bathrooms). monies before the stay. While a small number of guests still Resort fees, reservation fees, and state and local occupancy prefer to write a check, most pay by credit card. Regardless taxes are collected with the rental monies and deposited into of the method of payment, all of the money collected is the escrow account. None of the money is received by SPV immediately deposited into an escrow account and cannot be until the monthly release following the guest's departure. released (by law) to either SPV or the villa owner until after SPV also earns finders fees equal to 20% of each rental the guest has departed. To ensure compliance with all the amount (before tax, resort fees, and reservation fees). The local and state regulations, SPV has had a longtime practice amount of the finders fees depends on the rental amount, of releasing money from escrow once a month. The rental which varies with the size and location of the villa, the money is held in escrow until the fifth of the month after duration of the stay, and the time of year of the stay. The the guest departs. For example, a rental for September 25 owners are responsible for paying the finders fees, and SPV through October 3 is not released until November 5. While receives this money out of the owners' distributions when such a lengthy lag is very conservative, SPV is committed the rental monies are released from escrow.SPV has several different costs associated with villa to their success in an otherwise uncertain industry SPV has rentals. Prior to each guest arrival, the villa is professionally developed a network of providers for services, including cleaned and restocked with fresh linens. The cleaning cleaning, landscaping, plumbing, HVAC repair, appliance company invoices on the date of service and is paid on the repair, and so on. These quality providers respond quickly to same day. Before each rental, the villa is also restocked with SPV because the providers will be paid at the time of service. various consumable items like facial tissues, paper toweling, Management believes the benefits of happy providers coffee filters, trash bags, and the like. Upon arrival, each and owners, with complete transparency, far outweigh any guest also finds a "welcome package" in the main living incremental revenue received from charging an additional area containing samples of local foods and beverages, pass fee. Indeed, SPV has a waiting list of owners wanting them information for pools, directions to the beach, rules about to manage their properties, and guests book up to 18 months interacting with wildlife, and information about the island, in advance to stay in one of its managed properties. resort, and the specific villa he or she is renting. The supplies Money in escrow cannot be used to make contractor for the villas and welcome packages are generally purchased payments or purchases on behalf of owners. Thus, SPV is needed throughout each month. SIV also provides a resort makes all these payments out of its checking account. When gate pass for each guest vehicle. The resort invoices for the rental monies are released, SPV is paid amounts due to SPV gate passes once a month for the gate passes ordered the with the remainder distributed to the owner. Occasionally. previous month. PV also pays one monthly flat fee for all its usually in the winter months, an owner may owe SPV after guests to have access to a health club and gym. monies are released. Historically, SPV has allowed owners Finally SPV pays various financial fees for credit card to defer payment until a later month when there are excess processing, internet payment processing, and payment rental monies. Allowing deferment has never been an issue, processing through the various travel websites. All of these because SPV has always had ample cash. fees are due once a month and are based on the amount of payments processed. Generally, guests pay a deposit when OTHER REVENUES they make the initial reservation and then pay the remainder of the rental sometime during the month preceding their 51V receives small amounts of revenue from a few other stay. Hence, financial fees payments are highly correlated sources as well. It carns a small amount of interest each month with the following month's total rental receipts (rental on the funds in its checking account, though it is prohibited amounts plus resort fees and reservation foes). from receiving interest income on the funds in escrow. SPY PROPERTY MANAGEMENT also retains a small fee when a guest cancels (unless the cancellation occurs within a few business days). The state provides a small discount when guests use an online payment Each villa's owner pays SPV a small flat fee each month for *key portal and pay all of the occupancy tax due for the proceding keeping" services. Key keeping includes meeting contractors month by the 15th of the month following departure. and local service providers at the villa, addressing guest complaints and issues, putting out the owner's personal items OVERHEAD AND ADMINISTRATION before they arrive and locking them up after the owner leaves, preparing the property for storms, and other miscellaneous SPV also has several administrative costs that are essentially services. The key keeping fee is paid out of owner fixed with respect to rentals and number of units (unless disbursements when rental monies are released from escrow. the company was to expand considerably). These monthly SPV contracts with independent contractors and local payments include salaries and employment taxes for four businesses for deep cleaning, maintenance, and repairs. employees, auto expenses, computing and internet service, The company also shops for and purchases replacement office supplies, business licenses, telephone, postage, and furniture, linens, appliances, and decorator items on behalf insurance. The accompanying Table summarizes SPV's of the owners. SPV provides a copy of each invoice to the receipts and payments. owner and is reimbursed when rental monies are released from escrow on the fifth of the next month. SPV does not charge the owners or the contractors for this service. SPV management believes that this arrangement has been a keyWHAT IF? units if they receive some money up front to cover the cost of contractor supplies and labor. After consultation with three of SPV management has become increasingly concemed over its most used contractors, S'V estimates that having US$3,000 how they would handle a major disaster. Their location is per unit (US$1 26,000 total) in cash would be sufficient to begin susceptible to hurricanes, and they want to be prepared. immediate repairs. In addition, SPV believes that US$50,000 Their policy states that guests can receive a refund or apply would be ample to provide for payroll and other continuing their rental to a future date if the island closes for any reason. costs and sustain the business. Furthermore, they are not only concerned about losing the fees from lost rentals during a closure, but also about their ability to pay for repairs on behalf of the owners to make villas rentable. ABOUT IMA" (INSTITUTE OF MANAGEMENT ACCOUNTANTS) A recent survey of villa owners indicated that 13 of the IMAS, the association of accountants and financial professionals 42 villas do not carry insurance that would cover hurricane in business, is one of the largest and most respected associations focused exclusively on advancing the management accounting damage. In addition, state and federal agencies do not profession. Globally IMA supports the profession through provide relief for these properties because they are not research, the CMA" (Certified Management Accountant) primary residences. Thus, it would fall to SPV to pay program, continuing education, networking and advocacy the bills up front and collect from the owners and/or be of the highest ethical business practices. IMA has a global network of more than 100,000 members in 140 countries and reimbursed out of future rentals. Of course, not all units 300 professional and student chapters. Headquartered in would sustain major damage. Montvale, N.J., USA, IMA provides localized services through SPV also has a high-limit business credit card that can be used its four global regions The Americas, Asia Pacific, Europe. and Middle East India. For more information about IMA, to pay for the vast majority of upfront costs. Local contractors, please visit www.imanet.org however, are more likely to prioritize work on damaged SPY Table 1. Summary of Receipts and Payments for Sea Pines Villa Receipts (all receipts occur on the 5th of the month) Resort Has Amounts vary with amenities provided Reservation Foros Amounts vary based on the size of the villa rented Finders Hors 20% of the nonial amounts [ nacluding resort fors, reservation foos, and taxis) Hoimbursement from Purchases and Contractor Payments on Behalf of Owners Amounts vary barand on payments made to contractors during the proceding month Amounts wary but average about :150 par month Payments Vila Chaning Sonico Averages $40 par rental Supplies and Walcoma l'adages Averages $10 per rental Resort Gate 2650 Averages $:30 par rental, paid the month following the rental Health Club and Gym Paissues $500 per month Financial Processing Forms Averages 2 26% of the following month's total rantal roccipts jrental amount + record fors + novation fors Purchases and Contractors on Behalf of Owners Varives with the month and the desires of the owners "FV Administration and Overhead $21,8010 par month