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Hotel financial control: improved hotel profit and loss structure based on new revenue and costs

The Hotel Financial Control function generally analyzes Hotel activity through a standard P&L reclassification that identifies four main departments that represent the main business area of ​​the Hotel: Room Revenue, Food and Beverage, Telephone and Other Revenue. Rooms and food and beverages are the main drivers of value, while other income can help the total contribution. For each of the four departments, the Hotel Financial Control calculates the profit of the department and then the accumulated Profit of the Hotel Department.

We then subtract the Undistributed Expenses (including Adm. & General, Marketing, Repairs and Maintenance, Energy Costs, etc.) to get the Hotel Gross Operating Profit and subtract the Fixed Charges (including equipment and other rentals / leases, real estate and other taxes, construction insurance and others, etc.) to obtain the Net Operating Income.

The main measures of size and performance in the hotel industry are identified as Occupancy rate, multiple occupancy factor, annual sleepers, GUR (number of sleepers per available bed) ARR (Average room rate), PAR Income (per available room) , Income PER (Per occupied room). The main profitability measures of a hotel are based on Gross Operating Income (GOI-Par and GOI-Por) and on Net Operating Income (NOI-Par and NOI-Por). Hotel valuation multiples are often tied to RevPar, GopPar, and NoiPar.

Ok, but it’s time to make some changes. Although the hotel industry is less subject to sudden changes, there are two drivers that would suggest to the Hotel Financial Control to make some development in the previous reclassification: Internet-based reservations and the new real estate financial structures. Let’s see how these drivers can lead to some updates to the way we look at hotel bills.

Hotel reservations include direct hotel reservations (by phone or Internet), “chain” tag-driven reservations, and Internet media reservations (through major Internet reservation media). Each of these channels requires a different organizational structure, different contracts, and different costs. It is not a simple sales and marketing choice with associated costs of sales and marketing – the decision to emphasize Internet channel changes instead of traditional channels dramatically changes hotel operations and hotel profit and loss. We work as a consultant together with a hotel manager in a famous place in Italy. We decided that booking based on “chain” tags was too expensive and could be replaced by internet media bookings. The result was an increase in the hotel’s overall occupancy rate with no decrease in the average room rate. The installation of the new system required a total investment of three months, peanut compared to what the hotel was paying to have a famous tag on the door. But in order to really monitor every penny of cost, we needed to test the Hotel Financial Control system.

The question is: Is it correct that the Hotel Financial Control considers the costs of sales as undistributed expenses, since these costs do not insist in a uniform way on the different income streams? In other words: what we notice is that the sales channel generates different costs of sales in the room department and in the food and beverage department. If this is the case, we might decide to include the different impact of the channel spend on the department. P&L with more precision.

A different issue in the hotel’s financial control structure depends on the new real estate. Hotel Real Estate is increasingly owned by financial investors who care very little about the characteristics of the hotel business and are very demanding: they require a stable financial flow, possibly a higher reward based on the performance of the Hotel and look at long-term revaluation of capital. The structure of the lease / rental contract and its cost, therefore, is not simply one of the fixed costs of the Hotel, but is “the” cost. Hotel Financial Control cannot simply include this in a row down the P&L, but a more in-depth analysis is needed. We may wish to include the contingency portion of the lease / rental in operating expenses for our department. the profit really reflects the profit of the company. In addition, we may wish to define the relevant rental / lease expenses in an appropriate profit and loss figure.

Finally, a few words about other topics: telephone income and SPA income.

Everyone who attends a hotel owns at least one mobile phone and claims to have full internet coverage: therefore, the hotel’s phone revenue is limited. Instead, the wellness area, including the spa and fitness revenues, are increasing: the hotel’s financial control often replaces the department’s phone line with the spa department. line.

As an Advisor in this industry, we are faced, therefore, with the need of clients to make further improvements in the Hotel Financial Control so that it really supports the management in their decisions.

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