Capital Expenditure in the Hospitality Industry
Capital Expenditures in the Hospitality Industry
Abstract
Hotels of any size are costly investments to begin with. The costs involved in maintaining the property to the necessary levels to keep attracting customers can at times be very high. Capital expenditures projects in the hospitality industry are primarily focused on the achievement of customer safety and comfort in a clean, friendly, and healthy environment. This paper will describe what capital expenditures are, what is involved in setting up a capital expenditure plan, how it is funded, and who the stakeholders in the process are.
Keywords: capital expenditure, return on investment, funding
Capital Expenditures in the Hospitality Industry General accounting principles define capital expenditure or CAPEX, as an amount of money spent to acquire or upgrade productive assets, such as buildings, machinery and equipment, to increase the capacity or efficiency of a company for more than one accounting period, (Businessdictionary.com, 2010). In the hospitality industry, capital expenditures include furniture, fixtures, and equipment as well as major improvements to the buildings, landscape and systems. The creation of new business units within a hotel or resort may be capitalized. From the above definition it can be deduced that capital items are generally big ticket items, expected to support the quality of an operation for many years. These items also will have a substantial impact on the property owner’s cash flow and net profit, as well as on the performance of management to deliver customer and associate satisfaction, associate productivity, and superior financial results. In many instances it is difficult (and too often open for interpretation) what is a CAPEX item and what is a regular maintenance or repair item. An example of this is the choice between replacing a whole roof versus continuously fixing leaks, which demand substantial man hours from operations. A thorough understanding of a property’s
Abstract
Hotels of any size are costly investments to begin with. The costs involved in maintaining the property to the necessary levels to keep attracting customers can at times be very high. Capital expenditures projects in the hospitality industry are primarily focused on the achievement of customer safety and comfort in a clean, friendly, and healthy environment. This paper will describe what capital expenditures are, what is involved in setting up a capital expenditure plan, how it is funded, and who the stakeholders in the process are.
Keywords: capital expenditure, return on investment, funding
Capital Expenditures in the Hospitality Industry General accounting principles define capital expenditure or CAPEX, as an amount of money spent to acquire or upgrade productive assets, such as buildings, machinery and equipment, to increase the capacity or efficiency of a company for more than one accounting period, (Businessdictionary.com, 2010). In the hospitality industry, capital expenditures include furniture, fixtures, and equipment as well as major improvements to the buildings, landscape and systems. The creation of new business units within a hotel or resort may be capitalized. From the above definition it can be deduced that capital items are generally big ticket items, expected to support the quality of an operation for many years. These items also will have a substantial impact on the property owner’s cash flow and net profit, as well as on the performance of management to deliver customer and associate satisfaction, associate productivity, and superior financial results. In many instances it is difficult (and too often open for interpretation) what is a CAPEX item and what is a regular maintenance or repair item. An example of this is the choice between replacing a whole roof versus continuously fixing leaks, which demand substantial man hours from operations. A thorough understanding of a property’s