Why Every Hotel Needs an FF&E Reserve
What is an FF&E Reserve?
A hotel’s FF&E Reserve is its Furniture, Fittings, and Equipment Reserve. It’s the money the hotel has set aside to replace these components as they wear out.
When Do You Determine What the FF&E Reserve Should Be?
It’s important to decide what the size of the FF&E Reserve is going to be early in the hotel development stage. Knowing what funds are available to replace furniture, fittings, or equipment when necessary is an essential component of a sound business plan.
How Do You Determine What the FF&E Reserve Should Be?
The process begins with evaluating the condition of the hotel buildings and their contents. This can be handled internally, or a third party may be hired to do it. The evaluation yields an estimate of the life expectancy of the various contents and what it will cost to replace them. (Among other benefits, this keeps hotels from overpaying for replacement furniture, fittings, or equipment.)
Once the hotel has this report, the FF&E Reserve is set as a percentage of revenue.
The FF&E Reserve: The Great Temptation
Hotel operators like to have the FF&E Reserve set at a robust level. It’s easy to see why. They want to rest easy knowing that there’s plenty of money available to deal with the problem of defective furniture, fittings, or equipment.
Hotel owners, however, tend to have a different perspective. They see the FF&E Reserve as taking a bite out of revenue, and they would like revenue to be as high as possible. So they may want the FF&E Reserve set at a low percentage.
It’s rather like a temptation many of us have felt at once time or another, the temptation to skimp on spending money for something we may or may not need. Buying adequate insurance is a good example of this.
But if the FF&E Reserve is inadequate, the hotel and its contents can easily deteriorate through lack of maintenance. This can alienate customers and oblige hotel owners to reinvest. It can end up costing them more money than if the FF&E Reserve had been higher.
The ideal is for the FF&E Reserve to be large enough for the hotel to maintain its standards but not so large that it accounts for an unreasonable and unnecessary diversion of revenue.