Hospitality Learning Online
Profit and Loss Statement
"Beware of little expenses, a small leak will sink a great ship”
Benjamin Franklin
Beware of all expenses, beware of your payroll, your revenues, your relationship between both and all your variances. Because if you are not aware you are unable to act.
One of the most important financial tools hotel managers use is Profit and Loss Statement or Income Statement.
P&L is a picture of the financial health of the property. Property P&L contains a lot of good information and is being reviewed on multiple different levels. Department level, property Executive Level, corporate office, property ownership and depending on whether your company public or not, could be shareholders as well.
In this chapter, we will review and take an approach to analyze P&L on property department level.
Every P&L has the same layout and contains the same information with exception of few differences varying from company to company.
P&L will start from Summary page that shows all revenues, expenses and profit following by department Profit and Los statement.
In addition to Departmental Revenues and Expenses on this page, you will see Undistributed Expenses or Other Expenses.
Undistributed expenses, according to Uniform System of Accounts for the Lodging Industry are expense centers that do not produce revenues. This category will include Administrative and General Expenses, Utilities, Repairs and Maintenance, Sales and Marketing.
The summary page will also include a few other pieces of information. However, I would like to drive your attention to one of them as of now- Gross Operating Profit or House Profit.
GOP is a very important profit measuring tool for the manager. It allows managers to make a full impact on profitability.
Formula for GOP is simple:
Departmental Revenues-Departmental Expenses= Profit
Profit - Undistributed Expenses= GOP
Next, we are going to review Departmental P&L.
Departmental P&L- provides detailed information on Revenues, Payroll, Expenses, and Profit for the specific department. Allows the manager to understand what areas are underperforming and what areas are performing well within department and division.
Please note, below example is to illustrate and provide you with a general idea of P&L. It is a very simplified version of real Rooms Division P&L, but it is sufficient to provide with a general understanding of key areas.
This report, whether it is Rooms, F&B or other area should be carefully analyzed to understand variances between Actual, Goal and Last Year numbers.
Report need to be viewed to understand relationship between Revenue and Expenses. Did Expenses change when Revenue changed? How?
How Room Segments are performing? Where do we need to concentrate?
How well are we meeting occupancy numbers and ADR? How well are we managing expenses? What is the situation with payroll? How are we remedying under performing areas?
This report is a snapshot of how well department is performing, how active department heads are reacting to changes in Revenues and how Division is able to meet financial goals.
While too much data might may be little complex at the beginning, especially if you are reviewing P&L for larger property, it is very simple. Whether it is small or large property, correlation and key players are the same.
Revenue- if goes up or down next below two criteria’s must change proportionately
Payroll- must be controlled based on productivity number(room,covers)
Other Expenses- must be controlled based on occupied rooms or other drives
Profit is a result of your hard and smart work