August 30, 2011
The subject for this month’s survey came up in several conversations with captains recently, most often with captains considering leaving their jobs. That decision came down to money -- not salary, but operating budgets and the availability (or lack thereof) of money to run the yacht to their standard.
So we were curious to find out how yachts are actually funded.
Every yacht, of course, is different, but we were surprised to learn that nearly 80 percent of captains in this month’s survey said they operate without a formal budget.
“The owner knows I am doing everything reasonable to save on expenses, so there is never any issue with running costs,” said the captain of a yacht of 81-100 feet.
We received responses from more than 130 captains and a handful of deck officers and interior managers, the vast majority on yachts more than 10 years. They work (or most recently worked) on all size of yachts, the largest group between 100-120 feet.
We started with the basic question Does your yacht have an operational budget you must adhere to?
More than three-quarters of respondents -- 78.7 percent -- said no, they do not have a formal budget.
“I have worked with all types of accounting except the strict budget set in advance with consultation with the relevant parties first,” said the captain of a yacht of 181-200 feet in the industry more than 25 years. “I would really like to experience this as I have never really had to sit down and plan a yearly budget.”
“The owner does not want to put a strict budget on the boat as he is afraid some needed repairs might get overlooked,” said the captain on a yacht of 81-100 feet.
Most in this group (about 80 percent) agreed that they are expected to be reasonable with expenses.
“No formal budget but cost measures in hand now,” said the captain of a strictly private yacht of 81-100 feet. “The open-checkbook policy went away a while ago. That said, safety and appearance are still a priority, but upgrades take a back seat unless essential.”
“Each fall after cruising season, I would submit a list of significant projects that I foresee for the winter maintenance period,” said the captain of a predominantly private yacht of 101-120 feet. “These are discussed and prioritized and I'm generally given the go ahead. This past year for the first time, I was asked to do only those things I considered mandatory.”
The remainder of the no-formal-budget group, perhaps unbelievably, said they don’t have a budget because they can spend what they want.
“Each department orders what they need,” said the bosun of a yacht larger than 220 feet onboard more than 10 years. “Myself, I try to keep everything topped up to a point where I will not run out of any product. When we are heading into a yard period, I make sure I have the enough to get through.”
That left about 20 percent of our respondents who must follow a budget, three-quarters of them follow an annual budget; the rest monthly.
“We operate on a great budget and I have full autonomy to make decisions within that budget,” said the captain on a strictly private yacht of 101-120 feet. “I do, however, treat all major maintenance with advance notice and on a fixed-price quote for as much as is possible. Shipyards and other major maintenance are treated separate from the operational budget.”
Only a few respondents chose “other” -- one captain with a three-year budget revised annually, one who is advised not to spend anything, and one who said he and the owner evaluate each project as needed.
“Budgets are only as good as the projections,” said the captain on a yacht of 101-120 feet who creates the monthly budget together with the owner. “If the owner decides to change cruising areas and go from predominantly anchoring out to mostly at the dock then the costs change accordingly.”
“Communication should be the start of any budget or expense system,” said the captain of a yacht 81-100 feet in the industry more than 10 years. “If the owner understands what is going to be required over a period of time, it is easier for all of us. If, as his captain, we understand what his limits (or not) are, then we know to what extent we are able to produce. Communication should be constant as things (priorities) always change.”
An interesting thing developed in this month’s survey. We asked what seemed like the same question (do you have a budget?) in a different way and got a hugely different response.
We were curious to know how boat expenses were tracked and if captains were responsible for tracking them, so we asked What kind of reporting is expected of you?
Nearly 60 percent provide a combination of advanced reporting (in true budget fashion) followed up with expense reports. And 16 percent are expected to provide just advance reporting.
Added together, we have nearly 80 percent of captains who provide the owner with, in essence, a budget. (Compared to 80 percent who said they operate with no formal budget.) Perhaps the word formal was confusing, but it certainly proves that question structure plays an important role in the outcome of a survey.
“Budgets are tough,” said the captain of a yacht 121-140 feet with the owner less than a year. “Boats are not predictable and when something breaks it needs to be fixed, even if it does not fit in the budget, and especially on a charter vessel.”
For this question about reporting, about 23 percent of respondents said they only are expected to file expense reports.
“A captain must be punctual in sending the owner accurate, detailed accounting reports,” said the captain of a yacht of 101-120 feet in the industry more than 25 years. “Quicken is the accounting program I have mostly used and the one most requested by owners. I also scan all receipts and send them in in chronological order and in established categories.”
For those captains with budgets, we asked who established it? More than a quarter were established by the captains themselves, but an equal amount were created by the captain and owner working together.
“It's important to be able to accurately forecast expenditures and work to budgets, both monthly and annually,” said the captain of a yacht of 201-220 feet who established the operational budget on his yacht. “A well-written and adhered-to budget gives the owner confidence in the vessel's management by the captain.”
The next largest group of budgets, almost 18 percent, were established by the owner alone.
With or without a budget, often a captain has some requirements on what is spent, so we asked Do you have a limit over which you cannot spend without permission?
These groups were more evenly matched with about 45 percent admitting they had a spending limit, 55 percent without one.
Of those without a spending limit, about 13.5 percent indicated that was because they needed approval for every expense.
And once again, more than 40 percent said they can spend whatever they want.
“I have no pre-set spending limit, but I instinctively know my boundaries and will ask about large, single-item expenses before going ahead,” said the captain of a yacht of 101-120 feet.
“Whereas no specific limit on spending has ever been established, I still use personal discretion on what to tell the owner I'm spending money on,” said the captain of a yacht 121-140 feet who has been with the owner more than 10 years.
“I always ask him about non-essential major spending, such as paint jobs, audio/video refits, interior makeovers, etc.," this captain said. "I don't ask permission to spend money on essential items, but do tell him about big upcoming necessary expenses. For the most part, 14 years of employment has given me considerable leeway in the way I spend his money. Before I spend a dime, I ask myself, is it something that benefits his enjoyment of the boat.”
The most common spending limit was between $2,500 and $5,000, with about 20 percent of respondents in this group. The next two most common limits straddled the first: between $5,000 and $10,000, followed by between $1,000-$2,500.
One of the main things we wanted to know in this month’s survey was how the boat’s operations were funded, but when we tested that question, captains we spoke to didn’t know what we meant. (Again, it’s all in the wording.)
So we asked instead, How do you have access to money for the boat’s operations?
Respondents could choose among five ways all that applied to their vessels, and we discovered that more than half of yachts give their captains a credit card with a limit.
The next most common way for a captain to have access to funds was through a checking account with a monthly deposit from the boss. Nearly as popular as those two options was the “other” category, but we didn’t ask respondents to elaborate because we thought we had covered all the bases.
One “other” captain said it’s a combination of yacht accounts and the owner’s accounts paid directly by the owner, “particularly if he happens to be onboard at the time the expense is incurred.”
A few captains did offer some observations that it’s not about how the yacht is funded, but how much (or, rather, how little).
“The way that bills are paid is not nearly as important as having the owner understand the true costs of running and maintaining his yacht,” said the captain of a yacht 81-100 feet in the industry more than 10 years. “I am happy to try to get the best prices for the boss; that’s part of our jobs as captains. The worst case in this business is an owner trying to save money owning a yacht. That’s not how it’s supposed to be at all. Nobody wants to be taken for a ride, but this is not a middle-class hobby.”
“There’s nothing worse than an owner who doesn’t have the money to maintain a boat properly, or who doesn’t want to part with his money,” said the captain of a yacht of 121-140 feet. “They expect the boat to look great and function well, but don’t understand -- or are reluctant to believe -- that for that to happen, they need to provide adequate funding, and regularly.”
We were curious to learn if access to money for operations changed throughout a captain’s career, so we asked In your career, have you re-negotiated these terms?
The largest group -- 35 percent -- said they haven’t had to because the terms were suitable to begin with.
“The owner told me five years ago when he hired me that he wanted his toy perfect, but that I should spend his money as if it was mine,” said the captain of a yacht of 121-140 feet with the owner 4-6 years. This captain operates with no formal budget, files expense reports, and has a spending limit of $50,000-$75,000. “That is exactly what I do. I’m careful and spend what I need to be proud of our yacht without excessive spending. It works.”
More than a quarter of respondents said that sometimes, depending on the owner, they were able to get more leeway with accounts.
About 21 percent felt strongly that the longer they were with the boss, the more trust they earn and therefore the more leeway they are granted with accounts.
Just 6 percent said they tried to re-negotiate but didn’t have much luck.
The next two questions were designed to see what actually happens out there in terms of operational accounts and what captains consider the ideal. Initially, we asked How are the yacht's bills paid?
The largest group, more than 40 percent of respondents, pay the yacht’s running costs through the yacht’s accounts managed by the captain.
The next largest group, a tad more than 30 percent, are paid through the owner’s accounts managed by his people.
About 14 percent are paid through the yacht’s accounts that the owner manages.
And 10 percent are paid through the yacht’s accounts that the management company manages.
“I see nothing wrong with a reasonable system of checks and balances,” said the captain of a yacht of 121-140 feet in the industry more than 30 years. “The management personnel (who do not work on the yacht) are much more concerned with expenditure ‘perception’ with the owner than with what is necessary funding for a properly run yacht.”
About 4 percent of respondents said they pay the yacht’s bills through their own accounts, for which they are reimbursed. It seems many captains have learned the hard way not to do this, as it was the most often recited piece of advice in the final, open-ended question in the survey.
“No more of my personal funds to cover operations,” said the captain of a yacht of 121-140 feet in the industry more than 20 years. “I am not short-term financing for the boat’s operation. I have been screwed too many times.”
“If I have to dig in my pocket I get ready to leave and find a new job,” said the captain of a yacht of 81-100 feet in the industry more than 20 years.
To read more lessons learned the hard way, click here.
When we asked If you had your way, how would the yacht’s operations be funded and paid?, less than half of our respondents answered, but 26 percent of those who did identified the ideal scenario as being through yacht accounts that the captain managed.
“I would have complete control over unlimited funds with no monthly budget projections required, and I would not have to submit monthly accounting for the expenses,” said the captain of a 140-160-foot yacht in the industry more than 20 years. “Well, you asked.”
“I like the set-up we have,” said the purser of a yacht of 141-160 feet who answered “yacht accounts that I manage” for the previous question. “I have the checkbook and am able to get money from the family attorney as needed. Vendors, shipyards and docks know we handle the bills directly and I believe this gets us great service as they all know they won’t be in a fight with the owner or a management company to be paid promptly.”
Actually, about 42.5 percent of the captains who answered this question said they like the funding set up that was in place on their yachts. The largest group of those were captains who manage the yacht’s accounts.
The next largest group of happy captains said they liked that the yacht was funded through the owner’s account managed by his people.
Several captains pointed out that management companies can block the direct communication with the owner that many captains crave.
“Management companies are a hindrance to effective yacht operations,” said the captain of a yacht of 141-160 feet in the industry more than 25 years. “They give the owner unrealistic expectations, which hurts the industry.”
Still, about 7.5 percent of respondents said they were happy with their system of the management company managing the yacht’s accounts.
“Our operating budgets are not capped but carefully reviewed throughout the year,” said the captain of a yacht of 121-140 feet whose accounts are managed by a management company. “The safety and sea-worthiness of the vessel is never questioned and, with the appropriate documentation to support a funds request for such items, approval is always granted. Owner comforts and entertainment is given similar priority.”
(For more ideas on the ideal way to fund a yacht, at least from a captain’s perspective, read the comments here.)
And finally, we were curious to know Do you consider how the yacht is funded/bills paid when considering taking a job?
More than 78 percent of respondents said yes.
“I always ask what the budget is at the interview and go into some details with managers on how it is structured,” said the captain of a yacht of 141-160 feet in the industry 10 years.
“I have red-flagged potential owners who operated without a budget,” said a captain in the industry more than 10 years. “If the owner says he just pays, run away.”
“An owner's willingness to provide sufficient funds to maintain his boat is a huge priority to me in choosing a job,” said a captain in the industry more than 15 years. “I don't expect carte blanche in the beginning, but after creating a track record I expect a certain amount of latitude with regard to spending on the normal, ongoing maintenance budget. Paint jobs, new electronics, new tenders are things that are always discussed first. Repairs, systems maintenance, replacements in kind are at my discretion.”
Several respondents offered some advice on handling operational budgets:
“Be sure when you interview for the position to interview the owner. Make a list of all things that concern you, including accounts and money available to you. Write down the answers so things cannot change from what they says at the interview. Ask first.”
“Never bring in trusted service people if the owners are slow to pay. This will dis-ingratiate you to all of the people you have depended on.”
“Experience has taught me to keep budgetary conversations with the owner to an absolute minimum. Work out an annual budget with the management company and let them present it to the owner. In short, attempt to keep the captain separated from the budget.”
“Crew do not spend money; the owner does. Crew are just middlemen, though they are often blamed for the cost of yachting. The most important concept regarding yacht operations: spend money like it was your own, always."
The Triton conducts its monthly surveys online. All captains and crew members are welcome to participate. If you haven’t been invited to take our surveys and would like to be, register for our e-mails online at www.the-triton.com.
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