As CEO of a hotel management company that has generated over €190 million in the last year, I can tell you how important it is to control every detail of your business’s finances, both on the revenue and cost side.
Hotel Management isn’t merely about strategy. There are many layers, each of which require your undivided attention. Human resources, operations, budgeting, and income and cost control are but a few areas which necessitate focus, as well as the requisite knowledge and skill. But how can you efficiently assess the business areas that generate maximized profits?
To accomplish this step and provide the best platform from which your hotel will succeed, the key is to prepare and execute a carefully structured profit and loss statement. In this article as we review a Hotel P&L sample based o the Uniform System of Accounts for the Lodging Industry (USAL), a rich resource that provides numerous key insights for hotel managers.
A hotel P&L (profit and loss) statement provides you with an analysis of your hotel’s revenue, cost and profit performance. It helps you understand how much bottom line margin the property is making. Therefore, it is essential for any hotel manager to fully understand each line item of their profit and loss statement letter, and where pertinent, how to interpret the data to inform business decisions.
Note: You may also see a simple P and L statement referred to as your hotel income statement, profit and loss report, statement of financial results, income and expenses statement, or statement of profit and loss.
They are typically carried out on a monthly, quarterly and annual basis. Although the frequency is entirely at your discretion and what you think is best for your hotel, I would recommend to review such a report at least with a monthly frequency to avoid the business moving off beyond control. Larger hotels even provide such reporting on a weekly or even daily basis to really micromanage their financial success
The importance of profit and loss statements for independent hotels
- HIGHLIGHTING CAPITAL FLOWS
Periodic (for example quarterly ) Profit Loss statement reports are essential for the success of your hotel, as they highlight where your profits are coming from and where your expenses are going. For this reason it is a key tool you want to make data-driven decisions on expenses and revenue at an operational level.
- UNDERSTANDING PRECISELY HOW EACH DEPARTMENT IS PERFORMING
Your P&L statement provides a close scrutiny of departmental performance across your hotel. It also allows you as the hotel manager to analyse this performance compared with your overall and departmental budgets per week, month, quarter or year.
The key benefit is that it provides you with insights to identify financial performance weaknesses and strengths. You can then act accordingly to make improvements, such as through cutting hotel costs, enhancing underperforming areas, or investing in new revenue growth streams.
The P&L is of course strongly linked to your other two essential financial statements:
1. Balance Sheet and Liabilities (A&L) Statement
2. Cash Flow Statement
The P&L feeds both these statements. Therefore, its correct and accurate structure, execution and understanding is critical to help small and independent hotels keep a tighter rein on cost control.
The simple 5-step plan for an effective hotel profit and loss statement template
Implementing the following four steps will provide a strong foundation from which to develop an effective P&L report:
1. Sound management of all revenue operations, producing accurate and timely numerical information for your hotel accounts department (sales figures, expenses and so forth)
- Periodic accounts department preparation of accurate and insightful P&L reports to deliver to management
3. Management analysis of the P&L with the purpose of identifying where the hotel is meeting or exceeding established goals / budgets and where improvements can be made. Management must determine the correct course of action to take in order to maximize outcomes, based on the information provided by correct and accurate P&L statements
4. Hotel management oversees and implements the previously decided course of action regarding improvements and the resolution of problem areas
5. Periodic reviews of the entire P&L workflow process, from drawing up your P&L reports to interpretation and implementation of decisions based on their insights. Rigid commitment to a review process helps you to identify where further improvements can be made and what is and isn’t contributing to the provision of value-added data and information
A final word
To understand your P&L as well as possible, what it boils down to, simply, is this: total sales minus total costs equals hotel profits. While it doesn’t need to become complicated, the more detailed your P&L, the better for your understanding and insight regarding overall hotel operability and performance.
Any hotel management business that wishes to achieve healthy financial results, should invest a good amount of time to build a well structured profit and loss statement, and review it monthly with the members of the hotel executive and management team. It is a key step to your success!
Xotels is a leader among hotel management companies. We help independent hotels outperform their competition with our hotel revenue management services and HotelScienz revenue management system.
Hotel Management Company - Xotels Ltd. 