Financial fundamentals involve learning how to record and classify your business transactions, including revenue, assets, liabilities, and profitability.
The primary function of financial management is to ensure that all monetary resources of the hotel are correctly handled. Hotel owners have to properly balance the incoming revenue with the outgoing expenses, including labor, and the different operating cost aspects of running a hotel.
Financial management lays the foundation of a successful business. Likewise, the most successful hotels rely on fundamental financial management principles to enable them to manage their property profitably.
Financial management provides pathways to attain goals and objectives in your hotel. It measures your hotel’s efficiency.
Discuss with your Area Director how to establish your hotel accounting system.
A hotel bookkeeping system involves summarizing, reporting, and analyzing the hotel’s financial position for a particular period, further helping in budgeting, forecasting, and future cost planning.
.
Accounting for revenue and expenses can help ensure you maintain proper bookkeeping and have basic knowledge of business finances.
Aids you in properly managing and organizing your business finances.
When it comes to financing options available for the hotel industry, several financial institutions will utilize the SBA (Small Business Administration) and the USDA (United States Department of Agriculture) Rural Development business loan programs that are available through the United States Government.
The government loan programs help facilitate business loans for lenders along with their potential borrowers in order to improve job creation and overall economic development. The SBA and USDA loan programs also provide an opportunity for financial institutions to participate in certain loan requests that they normally could not with just traditional financing; while allowing the potential borrower an opportunity for better financing terms to include lower down payments options.
Simply put, Cash receipts minus cash disbursements for a given period equals your cash flow.
A cash flow projection is a financial statement that tries to show how cash is expected to flow in and out of a business over a future period. Cash flow is vital at your hotel because you always need money on hand to pay suppliers, pay bills, and pay for repairs.
.
Cash flow is the inflow and outflow of money from your hotel. It allows you to assess debt, reinvestment opportunities, pay expenses, payout to yourself, and provide a cushion against future financial challenges.
GOP is a metric that is helpful in determining operating efficiency before non-controllable fixed expenses.
GOP is a useful tool to measure the performance of a hotel. It represents the amount of operating profit earned in your hotel once you subtract your operating and variable expenses from your total revenue.
.
It allows you to quickly determine if your hotel is making a profit and provides data to make changes necessary to drive profitability.
With your Area Director, calculate your hotel’s GOP.
Within the hotel industry, making sensible hiring decisions can significantly affect whether or not your hotel is ultimately successful. LABOR/Staffing is finding the right worker with appropriate qualifications or experience and recruiting them to fill a job position or role.
Creating, training, and managing the right team, one you have confidence in, will be the backbone of your success.
Two main components drive changes in hotel labor costs: Changes in the number of hours worked at a hotel and changes in the average hourly compensation of employees. Understanding these and how they affect your expenses will impact your hotel profitability.
Capital Expenditure (or Capex) is the formal budget that identifies the need for replacing, renovating, and expanding your hotel’s long-term assets. An example of Capex is your hotel’s furniture, fixtures, and equipment (FFE).
Capex can help maintain your hotel, and its equipment and invest in the overall value of your hotel. Types of capital expenditures can include purchases of equipment, company vehicle, land, computers, furniture, or software.
This type of investment can affect future revenue. Keeping up with guest expectations can make your property more competitive.
Direct expenses of a hotel are constant and do not change. These usually are not affected by changes in occupancy or sales volume.
Examples include:
Knowing your direct expenses and how to track and manage them affects your overall profitability.
Understanding your cost and how they compare to similar hotels will give you the foundation of understanding how to control them.
Review your hotel’s direct expenses with your Area Director and discuss best practices to track and manage them.
A variable cost is a hotel expense that increases or decreases depending on a hotel’s usage volume; they rise as usage increases and fall as usage decreases.
It is important for hotel operators to make daily decisions to manage costs and maintain operational efficiency.
As your hotel occupancy increases, variable costs will increase; as hotel occupancy decreases, variable costs usually decrease as well.
With your Area Director, review your variable cost and create a plan to increase profitability.