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Hotel Profit and Loss Statement 101

It is a trademark of hotels that most new employees will be thrown into the mix and expected to perform with little or no training. Hotels never close, the wheel never stops turning and no one can afford to slow down to help you catch up.

As a new manager, you are expected to hit the ground running

There are so many different aspects of hotel management, but the bottom line is the bottom line. When it’s all said and done, if your hotel is not profitable and you are not able to speak to the ups and downs of your P&L statement, you will be looking for another job very quickly.

Whether you are provided a 3-page or a 30-page statement, the following tips will help you successfully

Read, Decipher, Report and React.

READ IT:

As a hotel manager, the primary page you are looking for is the current month’s overview. The columns will be divided up as: (This format stays the same throughout the entire Profit and Loss Statement and each number is represented by a Dollar Amount and a Percentage.)

YOU SHOULD HIGHLIGHT ANY DIFFERENCE OF +/- 10%.
(Your company may require a different guideline, but this is a good starting place if you are given no guidelines.)

DECIPHER IT: Money In/Money Out

Money IN:

ROOM Revenue is your primary source of income. This revenue is made up of a combination of Occupancy and Average Daily Rate. If either of these numbers have fallen short of the budget or short of last year’s numbers, you will need to justify this, especially if your overall Room Revenue fell short of budget. If one of these numbers is short and the other is up and you achieved your top line Room Revenue goal, you can easily defend this with the help of the STR Report.

OTHER Revenue could include Food and Beverage, Meetings, and Miscellaneous Income (Telephone, Fax, Suite Shop of Pantry, etc.) You should know exactly where your company is coding all revenue that is coming into your hotel so that you can better budget and defend every dollar.

Money OUT:

The rest of the P&L will be concentrated on your expenses-all of the money you spent to run your property. The bulk of this will always be in payroll and this being said, if you are aware that your hotel is not going to make the top-line budget, you can save the most money by cutting hours and still achieve your bottom line goal.

Fixed Expenses: These are expenses that you may or may not have control over before the budget is set, but once the amount is agreed upon, these expenses will be a constant every month, regardless of your hotel’s occupancy or top-line numbers. These may include mortgage payments, property insurance, subscriptions, loan payments, management salaries, etc. Your owners and managers will be looking at these, but there is little for you to say if the budget is off on these items. When planning your budget for the year or for each month, you should always know the cost of your fixed expenses and start with that money already gone from your top line.

Variable Expenses: These are expenses that will fluctuate with your hotel’s occupancy or top-line revenue. If your hotel exceeded occupancy expectations by a significant amount, then, of course, these expenses will be higher, but the percentage of the income/expense should be constant, so for these numbers, you will concentrate more on the percentage than on the dollar amount. For any of these that show a +/- 10% difference to budget, you must be able to justify to your management company and to your owners. Always keep in mind that your payroll is your biggest expense and your hourly employees’ pay is considered a variable expense. You should not assume that a hotel running at 30% occupancy should have the same hourly expense as a hotel that is running 80%.

Controllable: These are expenses that you are directly responsible for, like linen costs, guest supplies, food, tools, marketing material, office supplies, pest control, etc. These expenses may or may not fluctuate due to the occupancy of the hotel. If they are considered variable costs, then make sure they line up with the fluctuation of the occupancy. If they are not affected by the occupancy, then you must be able to justify spending the money. A good example of a fixed controllable expense variation would be Pest Control. You would have chosen your pest control company and agreed on the monthly amount for your hotel before the budget was set, but if you had an infestation of bed bugs, this line could show a huge increase that has nothing to do with the occupancy of the hotel.

Non-Controllable: These are expenses that are not necessarily “Fixed,” as they may fluctuate month to month, but you have little to no control over the cost of these. An example of a Variable, non-Controllable expense is your Franchise Fees.

REPORT IT: Self-Confidence

The entire “Report-Out” to your boss, your management company or your ownership comes down to the BOTTOM LINE. In all that you have taken note of up to this point, the focus is completely on how these individual items translated to your Gross Operating Profit.

Income:

You will begin by reporting on your INCOME, stating either how you achieved it or exceeded it OR why you did not achieve it:

Expenses:

Then you will look at EXPENSES and be able to speak to any line item that is +/- 10% to Budget.

Profit:

Translation to the BOTTOM LINE:

This Month Actual/Budget Percentage: FLOW or FLEX?

This is where the game is won or lost.

Above all else, you, as a Hotel Manager are required to bring a certain percent of your Revenue to the bottom line-no matter what the actual revenue is.

If your top line met or exceeded budget then this percentage number is called your FLOW. If you missed your budget for the top line, then this number is called your FLEX. Company requirements for Flex and Flow percentages vary so be sure to ask your boss what your goals should be for either of these scenarios.

REACT: For Future Success

A successful General Manager will always know how all of these numbers reflect on the operations of the hotel and its staff. Reading and understanding the P&L every month will give you the tools you need to perform better, save more, project outcomes, and plan for the future. Your hotel is always expected to outperform itself- month after month and year after year- and you are the key to making that happen.

june mccreight author

June McCreight

June McCreight began her career in the hospitality industry as a housekeeper in 1996. In the years since, she has risen through the ranks, learning maintenance, front office, sales and revenue management, property management and district management, bench management and opening team management. She has trained hundreds of hoteliers and won many awards for her management successes. In 2011, June wrote and published, The Strangers in My Beds, a fictional novel based strictly on the strange events of her career in hotels. In 2014, June partnered with her father, a very accomplished software architect, and opened the business, Coba Enterprise Management, LLC with a very unique and specialized CMMS (Computer Maintenance Management System) software for hotels.

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