Hotel Management - Understand Financial Statements and Analyse to gain useful insights

Hospitality
Finance A-Z
Complete Understanding of financial
Reporting in hospitality Industry
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Channel and Facebook Page linked in description to support

Introduction
• Objectives
• General
• Hospitality Operations & Cost Center structure
• Hotel Operation Cycle and Interlinks
• How Hospitality Finance is similar and different from
other industries
• What is USALI and why its necessary
• Keys Unique Terms used in Hospitality
• Financial Reporting Structure of Hospitality
• Separate Sessions for
• Rooms Division
• F&B Division
• Other Operating Departments
• Support Functions
• Overall Grand Profit & Loss Results
• Ratios and Analysis vs Budget & Last Year
• Deep Dive & Dissect the information to convert into
actionable points

Hotel
Operation
Cycle and
Interlinks
Demand and pre-
arrivals
•Guest Demand generation
via Sales & Marketing
•Guest making Reservation
through various channels
(direct)
•Guest Relation
management
Guest At Property
•Front Desk for Arrival
experience
•Housekeeping Services
•Maintenance Services
•Other Departments
services (Spa, Health Club)
•Food & Beverage Services
After the visit
•Accounting & Billing
Services
•Human Resources
•Information Technology
Department
•Other Ancillary Services

Hospitality Operations and Cost Structure
General
Management
Rooms Division
Front Office
House Keeping
Concierge &
Other Services
Food &
Beverage
Department
All Day Dining
Speciality
Restaurants
Kitchens
Administrative
Depts
Other Operating
Departments
Spa
Laundry
Transportation
Gift Shops
Administration
Finance &
Procurement
Human
Resources
Information
Technology
Executive Office
Sales &
Marketing
Reservations
Marketing
Revenue
Management
Sales
Maintenance
Department
Preventive
Maintenance
Repairs

Another Sample

How Hospitality
Finance is
different
Revenue / Cost Center accounting & Controls & Reporting
• Accounting and control are segregated to each cost center.
• Performance measurements are assigned to ensure all cost centers
are synced to achieve overall objective.
Income audit Functions
• Due to high traffic and dynamic transactions, separate function is
built in to record and control revenue transactions. This functions is
also required to ensure
• there are no leakages in system
• All revenue generated in a day are accounted for
• Cash Collected is reported accurately.
• Conduct various spot checks.
Cost control functions
• High movement of food or beverage items and frequent changes in
prices requires dynamic control and adjustment in selling prices.
• This function is also responsible to record and monitors wastages
which can be a very significant part of costs

What is USALI
and why its
necessary
Uniform
System of
Accounting
for Lodging
industries
• Provides standards for accounting
and terms used in the industry
• Uniformity for the purpose of
comparison
• year on year
• within peers
• Lot of management companies use
USALI as a basis of accounting to
avoid disputes in different
accounting treatment of various
transactions & practices.

Hotel
Financial
Reports -
Components
GrandP&L
Rooms Division
Occupancy and Rate
Statistics
Revenue
Segmentation
F&B Division
Outlet wise Results
Cover Analysis
Food Cost Reports
Other Operating
departments
Departmental P&Ls
Departmental
Operating Statistics
Administration &
General
Sales & Marketing
Information
Technology
Maintenance &
Utilities

Rooms Division
• Key Areas we will discuss in next section are
• Revenue
• Occupancy
• Rates
• Rev Par
• Labour Cost
• Variable Room Cost
• Other Fixed Costs
• Dept Profitability
• Departmental Statistics & Marketing Info
• Revenue by Segment
• Nationalities of Guest
• Booking Sources

Rooms Division
Revenue –
Presentation
• Transient Rooms Revenue
• - FIT Room Revenue
• - Groups Room Rev
• Permanent Room Revenue
• Other Revenues
• Package Elements & Breakdown
• Barter Deals
• Loyalty Redemptions
• Cancellation / No Show Charges
•

Rooms Division
Revenue – Key Drivers
Total Number of Rooms
Not available for sale
Available / Saleable Rooms
Room vs Room Night
Occupied Room Night
Complimentary / House Use Room Nights
Permanent Rooms
Out of Order Rooms
Quantity
Rack / Retail Rates
Special Rates
Average Daily Rate
Average House Rate
Revenue Per Available Room (Rev Par)
Package Price
Gross and Net Rates
Value /
Price
No of Operating Days in Month 30 20
Rooms Room Nights Room Nights
Total Available Rooms 100 3000 2000
Under Renovation 4 120 80
Used for Internal Use 5 150 100
Rooms Not Available 9 270 180
Saleable Rooms / Available Room 91 2730 1820
Total Rooms nights Occupied 1200 1200
Complimentary Rooms 200 200
Rooms Sold 1000 1000
Occupancy % 36.6% 54.9%
Total Charged 110,000
Tax & Svc Charge 10,000
Total Revenue 100,000
Average Daily Rate 100Total Revenue / Room Sold
Rev PAR 37Total Revenue / Available Room

Rooms Division
Revenue – Presentation
• Transient Rooms Revenue
• FIT Room Revenue
• Discount – Packages /Advance Purchase or with
other sort of discount based on rules.
• Qualified – Special rates depending on meeting
some criteria such as government employee
• Wholesale an be offline or online
• Groups Room Rev (Min 10 Rooms)
• SMERF – Social, Military, education, religion, fraternity
• Contract Room Revenue / Permanent Room
Revenue - (More than 30 days in one contract)
• Other Revenues
• No Show
• Day Use
• Early / Late Departure
• Extra Bed

• Package Elements & Breakdown
Rooms Division
Packages
Breakfast
F&B / Spa /
Other
Elements
Valuation
and
Allocations
Loss /
Profit From
Package
Use

• Barter Deals
• Loyalty Redemptions
Rooms Division
Barter
Deals
Free Services (Usually
rooms) in exchange of
other services
(Advertisements)
Fair Value of services
as revenue & expense
Loyalty
Point Earning Costs
Redemption Credit

Revenue Analysis
Measures
Type of Analysis
• Horizontal Analysis / Variance Analyses
• Vertical Analysis
• Ratio Analysis
Aids in Revenue Analysis
• Market Segmentation
• Booking Sources
• Guest Nationality
• Booking Lead Period
• Booking pace
• Competitors (Rev Par) (Market Benchmark Report)
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Follow our YouTube Channel and Facebook Page linked in description to support

Horizontal Analysis
• Compares two periods
• Need comparative P&L
• Simplest approach
• Shows the absolute change in dollars
between two periods
• Shows percentage change

Vertical
Analysis
• Often referred to as common size
analysis
• Calculating the % of individual revenue
to total Revenue
• When completed the total Revenue
would equal 100%
• Expenses are also analyzed with
reference to total Revenue

Ratio Analysis
Assist in measuring the
effectiveness of how the
business is being operated
Examples for Room
Division
•Mix of Sales
•Average Room Rate
•Revenue Per Available
Room
For other
departments
•Average Food Service
Check
•Food Cost Percentage
•Beverage Cost Percentage
•Labor Cost Percentage
•Revenue Per Seat Available

Ratio Analysis –
Things to Remember
Limitations
• Do Not Resolve Problems
• Only Indicate That There May Be a
Problem
• Uses Historical Data - May Not Tell
the Whole Story
• There are no “rules of thumb” that
apply to interpretation of ratios
Things to remeber
• Comparisons Must Be From Related
Numbers
• Most Useful When Compared to a
Standard
• When Comparing to Other
Businesses - Must Be Comparable

Operating and Marketing Reports
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Revenue by
Business Source /
Distribution
Channels
Nationality
Breakdown.. Why
its important
Booking Lead
Period
Booking pace
Competitors (Rev
Par) (Market
Benchmark Report)
Upselling &
Upgrades

Revenue by Business Source /
Distribution Channels
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linked in description to support
• Direct Bookings & Enquiries
• Online Travel Agents
• Offline Travel Agents
• Contracted Companies
• Own Website Bookings
• Regional Sales Offices or Representation
companies
What
are
business
sources

Guest Nationality
Know your guests
guests to customise
offerings based on
individual
preference
01
Cultural differences
& spending habits
based on nationality
and working profile
02
Understand reasons
for increase /
decrease in business
and where to
promote based on
economic and
political
circumstances
03
is this geographical
profile of hotel
fixed?
04
To understand if
you are dependent
on one market and
make contingency
plans
05

Booking Lead Period and Pace
Lead period means how advance the
booking is generally made
• Usually important to understand
when to promote certain
businesses and when guests make
decisions of purchase
• Each segment, geography has
different lead periods due to
nature & purpose of business
Booking pace means how much
business is being booked for this
month of next months
• Useful only when compared with
other periods to ascertain if
booking pace has slowed down or
improved to yield / maximize
business

Competitor
Bench
Marketing
Report

Upselling /
Upgrading
• Guest pay for one room type but stay in another room
type
• Upselling is paid
• Upgrade is free due to many possible reasons
• Upselling is revenue maximization opportunity
• Upgrade is considered as value add service, usually
offered to convert potential sales into business.
• Upgrades should be controlled though paid and stay
statistics

Rooms
Division
Expenses –
Labor Cost
• Management & Non-Management Salary
• Breakdown by Department
• Service Charge treatment
• Contract & Casual Labour
• Bonus & Inventive
• Payroll Taxes
• Supplemental Pay
• Employee Benefits

Rooms Division
Expenses – Labor Cost
Management & Non Management
Management
Directors
Asst Directors
Managers
Non- Management
Supervisors
Associates
Why do we
segregate
like this?
What are the
factors to
remember

Rooms Division
Expenses – Labor Cost
Segregation by Department on Non Management
Non- Management
Front Office
Guest Services
Housekeeping Managers
Non- Management
Laundry
Reservations
Transportation
Complimentary F&B
Why do we
segregate
like this?
What are the
factors to
remember

Rooms
Division
Expenses –
Labor Cost
Service
Charge
Distribution -
Treatment
What is service charge?
What are different
accounting treatments for
collection and distribution
of service charge
100% distribution vs
partial distribution
Compulsion vs voluntary
payment

Contract &
Casual Labour
Bonus &
Incentives
Upselling
incentive
Reservation
incentive
Annual bonus
provisions
Payroll Related
Expenses
Payroll Tax
Employee
Benefits
Meal Allowance
Accommodation
Travelling /
Ferry
Social Security
Benefits
Rooms Division
Expenses – Labor Cost Other Components

Labour Cost Analysis
What is labour cost ? Fixed, Variable, Semi Variable
Productivity Reports
• Customer Served per staff
• Arrival (Checkin/Checkout)
• Rooms Cleaned
• Occupied rooms handled by concierge
Zero Base Manning

Rooms
Division
Expenses –
Other
Departmental
Costs
• Category of Line Items of Expenses
• Nature – Variable & Fixed
• Internal Charge / External Spending
• Most Common Expenses definitions

Category of other Room Division expenses
Consumed by Guests
•Complimentary Food and
Beverage
•Complimentary In-
Room/Media
Entertainment
•Complimentary Services
and Gifts
•Guest Relocation
•Guest Supplies
•Guest Transportation
Used in Direct Service of
Guests
•Cleaning Supplies
•Public Area
•Guest Rooms
•Contract Services
•Decorations.
•Laundry and Dry Cleaning
•Linen
•Operating Supplies
•Travel—Meals and
Entertainment
•Travel—Other
•Uniform Costs
•Uniform Laundry
Administrative &
Marketing
•Commissions
•Commissions and Fees—
Group
•Dues and Subscriptions
•Entertainment—In-House
•Equipment Rental
•Licenses and Permits
•Reservations
•Royalty Fees
•Training
•Postage and Overnight
Delivery Charges
•Printing and Stationery
•Miscellaneous
Corporate
•Cluster Services
•Corporate Office
Reimbursables

Room Department Expenses - Guest
Consumed by Guests Nature Factor
Complimentary Food and Beverage Variable Guest Count
Complimentary In-Room/Media Entertainment Fixed
Complimentary Services and Gifts Variable Guest Count
Guest Relocation Variable Guest Count
Guest Supplies Variable Guest Count
Guest Transportation Variable Guest Count
Corporate Nature Factor
Cluster Services Fixed
Corporate Office Reimbursables Fixed

Room
Department
Expenses –
Used Directly
to provide
departmental
services
Used in Direct Service of Guests Nature Factor
Cleaning Supplies
Semi
Variable Guest Count
- Public Area Fixed
- Guest Rooms Variable Occupied RN
Contract Services Fixed
Decorations Fixed
Laundry and Dry Cleaning Variable Occupied RN
Linen Fixed
Operating Supplies Fixed
Travel—Meals and Entertainment Fixed
Travel—Other Fixed
Uniform Costs Fixed
Uniform Laundry Fixed

Room
Department
Expenses –
Used Directly
to provide
departmental
services
Administrative & Marketing Nature Factor
Commissions Variable Revenue
Commissions and Fees—Group Variable Revenue
Dues and Subscriptions Fixed
Entertainment—In-House None
Equipment Rental None
Licenses and Permits Fixed
Reservations Variable Revenue
Royalty Fees Variable Revenue
Training None
Postage and Overnight Delivery
Charges None
Printing and Stationery Variable RNs
Miscellaneous None

Room Expenses – Cross Departmental
expenses
Expenses Based usually are cross
charged from other departments in
hotel
• Complimentary Food and
Beverage
• Complimentary Services and Gifts
• Decorations
• Laundry and Dry Cleaning
• Uniform Laundry
What is the concern?
• Allocation method and share in
overall expenses due to
fluctuations in business

Expenses Control Reports
• List of items used in
operations with Qty and
Price
• Compare with previous
period quantity
• Compare ratio of
consumption in relation with
occupied room nights
Inventory
Management
Reports
• Control Linens and other
operating equipments
• Timely replace damaged
items to ensure it does not
impact P&L in one month
Operating
Equipment
Reports

Thank you so Much
• Questions please post to Q&A sessions
• Did I missed any topic? Please post in Q&A
Session
• Please Review the course.

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