The hotel’s financial control function typically analyzes hotel activities using the standard P&L reclassification, which identifies four main divisions that represent the hotel’s core business area: room revenue, food and beverage, telephone and other income. Rooms and snacks are the main drivers of value, and other income can help the overall contribution. For each of the four departments the Hotel Financial Control calculates the profit of the department and then the total profit of the hotel department.
We then deduct unallocated costs (including administrative and general, marketing, repair and maintenance, energy costs, etc.) to obtain the hotel’s gross operating income, and deduct fixed costs (including equipment and other rent / lease, real estate and other taxes, construction and other insurance, etc.) for net operating income.
The main dimensions and performance indicators in the hotel industry are defined as occupancy, multiplicity, annual sleepers, GUR (number of sleepers per free bed) ARR (average room rate), revenue PAR (per available room), revenue POR (per occupied room) . The main indicators of hotel profitability are based on gross operating income (GOI-Par and GOI-Por) and net operating income (NOI-Par and NOI-Por). Hotel valuation ratios are often associated with RevPar, GopPar and NoiPar.
Nice, but it’s time to make a few changes. Although the hotel industry is less subject to rough changes, there are two factors that offer financial control of hotels to make some shifts in the aforementioned retraining: online booking and new financial real estate structures. Let’s see how these drivers can lead to some improvements to look at hotel bills.
Hotel bookings include direct hotel bookings (by phone or online), “chain” bookings on labels and online bookings (via basic online bookings). Each of these channels requires a different organizational structure, different contracts and different costs. This is not a simple choice of sales and marketing associated with the cost of sales and marketing: the decision to emphasize that the Internet channel is changing, rather than traditional channels, dramatically changes the hotel business and hotel results. We worked as an advisor together with a hotel manager in a famous place in Italy. We decided that “chain” booking on labels was too expensive and could be replaced by ordering online. As a result, there was an increase in the total occupancy of hotels without reducing the average cost of rooms. The installation of the new system required three months of investment – peanuts compared to what the hotel paid to have a famous label on the door. But in order to really control every penny of value, we needed a hotel financial control system.
The point is this: Is it correct that Hotel Financial Control considers the cost of sales to be an unallocated expense, since these costs do not insist on an equal flow of income? In other words, we noticed that the sales channel brings different sales costs in the rooms department and the F&B department. In this case, we may decide to include different cost effects on the sales channel per department. P&L with more precision.
Another problem with the structure of financial control of hotels depends on the new ownership of 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, perhaps higher rewards depending on the efficiency of the hotel, and they look at long-term capital appreciation. The structure of the lease / rental agreement and its cost is therefore not just one of the fixed costs of the hotel, but a “cost”. Hotel financial controls cannot simply incorporate this into P&L in a row, but in-depth analysis is needed. Perhaps we want to include the share of rent / lease in operating expenses so that the profits of our department really reflect the profits of the firm. In addition, we may want to determine in the appropriate income and disbursement the corresponding rental / rental costs.
And finally a few words on other issues: phone revenue and SPA revenue.
Everyone who visits the hotel owns at least one mobile phone and pretends to be completely covered by the Internet: so the hotel’s revenue from phones is limited. The wellness area, including profits from the SPA and fitness, is instead increased: Hotel financial controls often replace the telephone department line with the SPA department line.
Therefore, as an advisor in this area, we are faced with the need of clients to further improve the financial control of hotels so that it truly supports management in decision-making.