As a hotel operator, staying on top of your finances is essential to the long-term profitability of your business. With the right financial information at your fingertips, you can make sound decisions for your hotel, fine-tune your business strategies, deal with any red flags before they become bigger problems and drive sustainable growth.
There are various types of hotel financial statements, and each one is designed to provide insights into a specific aspect of your business.
This guide walks through everything you need to know about financial statements for hotels: what they include, why they’re important, common types of financial statements and what key insights they can provide.
What do financial statements include?
Financial statements include information about the financial activities of your hotel. The exact information included differs depending on the statement, as we’ll cover in more detail below.
Generally speaking, though, financial statements cover information about the incomings and outgoings of your business. This can give you a clear picture of your past, current and predicted future performance.
Why are financial statements important?
Financial statements are a critical component of running a profitable and sustainable hotel. They can tell you things like:
- Whether you’re making enough hotel revenue
- Whether that revenue is translating into hotel profits
- How much you’re spending on operational expenses and overheads
- Whether you have enough cash on hand to pay the bills
Financial statements can help with:
- Operations: Financial statements can be used to review the efficiency of your hotel operations and make necessary adjustments to processes, staffing, etc.
- Investments: You use financial statements to figure out if you have the appropriate funds and financial standing to invest in new areas for your hotel.
- Credit and loans: Lenders will ask for financial statements to determine if your hotel is financially stable enough to receive a loan.
- Marketing & pricing: Analysing financial statements can indicate whether your hotel’s marketing and pricing strategies are bringing in enough revenue, and whether you need to adjust your approach.
Types of hotel financial statements
There are several different hotel financial statements you can use to look at different aspects of your business. Here are some of the most common types to be aware of.
Hotel income statement
A hotel income statement, also known as a profit and loss statement, P&L statement, statement of operations or statement of earnings, tells you how much money (revenue) your business brought in and how much of a profit you earned from that revenue over a particular period.
Simply put, a hotel income statement shows you how much money your hotel is making, and how much you’re losing. You can use an income statement to analyse your profits and losses over any time period you like, but they’re most commonly created for a month, quarter or year. You can also use an income statement to compare your profitability against the industry average (as of June 2020, the average hotel profit margin was around 18%).
What is a hotel income statement used for?
A hotel income statement gives you a general overview of how your business is performing financially over a specific period. This can be helpful for:
- Setting prices for your rooms or services (to maintain a healthy profit margin)
- Looking at how your expenses are affecting your net profitability
- Understanding whether you’re bringing in enough of a profit
- Fine-tuning your sales and marketing strategy
You’ll also need a current income statement if you want to apply for a hotel business loan. Banks and lenders will check your net income compared with your expenses to make sure your hotel is financially stable enough to lend money to.
Elements of a hotel income statement
There are three main elements of a hotel income statement:
- Revenue
Revenue, also called sales or income, covers any money received from operating your hotel. This includes income from:
- Rooms
- Food & beverage
- Entertainment
- Guests services such as massages and spa treatments
- Expenses
Expenses include all your outgoings, such as:
- Cost of goods sold (COGS)
- Rent or mortgage
- Staff wages
- Utilities
- Franchise fees, if applicable
- Property taxes and insurance
- Debts
- Marketing and advertising expenses
- Net profit
This is calculated by subtracting all your expenses from your revenue.
Hotel income statement example
Here’s an example of a simple, hypothetical hotel income statement:
| PROFIT & LOSS STATEMENT | |||||
| HOTEL NAME | START DATE | END DATE | |||
| ABC Hotel | 01/07/2022 | 31/07/2022 | |||
| INCOME | |||||
| REFERENCE ID. | DESCRIPTION | AMOUNT | |||
| A1 | Guest Reservations | $65,000 | |||
| A2 | Food Purchases | $9,000 | |||
| A3 | Events | $17,000 | |||
| A4 | Other | $7,300 | |||
| INCOME TOTAL | $98,300 | ||||
| LESS SALES RETURNS / ALLOWANCES ( enter “-” negative amount ) | $(7,562) | ||||
| TOTAL REVENUE | $90,738 | ||||
| EXPENSES | |||||
| REFERENCE ID. | DESCRIPTION | AMOUNT | |||
| R1 | Utilities | $2,100 | |||
| R2 | Maintenance | $1,760 | |||
| R3 | Depreciation | $2,950 | |||
| R4 | Staff Wages | $25,400 | |||
| R4444-5349 | Insurance | $1,650 | |||
| R4444-5350 | Legal Fees | $780 | |||
| R4444-5351 | Advertising | $1,850 | |||
| R4444-5352 | Supplies | $475 | |||
| R4444-5353 | Other | $850 | |||
| EXPENSE TOTAL | $37,815 | ||||
| NET INCOME BEFORE TAXES | $60,485 | ||||
| TAX RATE ( enter % ) | 10.00% | ||||
| INCOME TAX EXPENSE | $6,049 | ||||
| NET INCOME | $54,437 | ||||
Balance sheet for hotels
A balance sheet, also called a statement of financial position, summarises all of your hotel’s business assets (what you own) and liabilities (what you owe).
In a nutshell, a balance sheet shows you how much money you would have left over if you sold all your assets and paid off all your debts at a particular point in time. This is known as your equity.
The formula for calculating your equity is as follows:
Equity = Assets – Liabilities
What is a hotel balance sheet used for?
Like an income statement, a balance sheet provides a picture of the financial health of your hotel.
By analysing a balance sheet, you can assess whether you have borrowed too much money, whether your assets can be converted into cash quickly if needed (i.e. if they’re liquid) and whether you have enough cash on hand to cover expenses.
Balance sheets are also used to secure business loans and funding from private investors.
Elements of a hotel balance sheet
The three main elements of a hotel balance sheet are as follows:
- Assets
Assets cover everything you wholly own, which includes tangible and intangible items such as:
- Property
- Equipment
- Furniture
- Food & beverage inventory
- Other inventory
- Cash
- Vehicles
- Intellectual property
- Trademarks and patents
- Liabilities
Liabilities cover everything you owe, which includes items such as:
- Short-term and long-term loans
- Accrued bills such as mortgage/rent and utilities
- Staff wages owed
- Taxes owed
- Equity
Equity is the combined value of all your hotel’s assets after deducting your liabilities.
Hotel balance sheet example
Here’s an example of a hypothetical hotel balance sheet:
| Balance sheet for ABC Hotel | ||
| 2021 | 2020 | |
| Current assets | ||
| Cash | $21,506 | $20,000 |
| Petty cash | $200 | $200 |
| Accounts receivable | $5,013 | $5,000 |
| Inventory | $20,887 | $21,000 |
| Prepaid expenses | $1,098 | $1,100 |
| Total | $48,704 | $47,300 |
| Fixed assets | ||
| Property and land | $150,000 | $150,000 |
| Renovations/improvements | $20,000 | $12,000 |
| Furniture and fitout | $28,777 | $30,777 |
| Vehicles | $32,513 | $32,513 |
| Equipment/tools | $21,000 | $18,000 |
| Total | $252,290 | $243,290 |
| TOTAL ASSETS | $300,994 | $290,590 |
| Current/short-term liabilities | ||
| Credit cards payable | $7,523 | $6,000 |
| Accounts payable | $18,237 | $18,000 |
| Interest payable | $450 | $380 |
| Accrued wages | ||
| Income tax | $10,087 | $9,870 |
| Total | $36,297 | $34,250 |
| Long-term liabilities | ||
| Loans | $148,222 | $146,231 |
| Equipment finance | $48,000 | $46,500 |
| Total | $196,222 | $192,731 |
| TOTAL LIABILITIES | $232,519 | $226,981 |
| NET ASSETS (NET EQUITY) | $68,475 | $63,609 |
| WORKING CAPITAL | $12,407 | $13,050 |
Cash flow statement for hotels
A cash flow statement shows how much cash is going in and out of your hotel over a specific period. This is known as your cash flow.
Having enough cash on hand to pay the bills and buy goods and assets is an essential part of hotel management. A cash flow statement can tell you whether you’re likely to run into any issues in this area.
You might be earning steady hotel revenue but if you’re overspending or your expenses are too high, you can quickly end up with negative cash flow. And even if you’re profitable, if there’s not enough cash landing in your bank at any time, paying the bills such as rent/mortgage, wages and inventory can be a challenge. That’s why it’s important to keep an eye on your cash flow throughout the year.
What is a hotel cash flow statement used for?
A cash flow forecast tells you how much cash you have coming into and going out of your business. With this information, you can make necessary adjustments to improve your cash position, such as cutting expenses, finding new hotel revenue streams or changing your pricing and marketing strategies.
At the other end of the spectrum, if you have a cash surplus, you can consider investing back into your hotel through upgrades and renovations, hiring staff or expanding your operations.
A cash flow statement can be used to see if you:
- Have enough cash to cover expenses
- Need to make adjustments to your pricing or marketing strategies
- Can afford to upgrade or renovate
- Can hire new staff (or need to reduce headcount)
- Should consider borrowing some money
Elements of a hotel cash flow statement
The two core elements of a hotel cash flow statement are as follows:
- Cash incoming
This covers all the main cash-generating activities of your business, such as room bookings, food and beverage sales and other sales.
- Cash outgoing
This includes all the expenses related to running your hotel, including loans, wages, fees, interest and other costs.
Your cash balance is calculated by subtracting the total of your cash outgoing from your cash incoming.
Hotel cash flow statement example
Here’s an example of a simple quarterly cash flow statement for a hotel:
| Cash flow for ABC Hotel
|
|||
| July | August | September | |
| OPENING BALANCE | $85,000 | $88,450 | $105,099 |
| Cash incoming | |||
| Sales | 67000 | 64399 | 66500 |
| Asset sales | 1200 | 0 | 0 |
| Debtor receipts | 2500 | 2800 | 1300 |
| Loans | 1400 | 1500 | 1300 |
| Total incoming | $72,100 | $68,699 | $69,100 |
| Cash outgoing | |||
| Purchases (stock etc) | 10000 | 5700 | 8500 |
| Accountant fees | 800 | 0 | 500 |
| Advertising and marketing | 2000 | 0 | 2000 |
| Bank fees and charges | 100 | 150 | 120 |
| Interest paid | 100 | 150 | 120 |
| Utilities (electricity, gas, water) | 6700 | 3000 | 2500 |
| Telephone | 500 | 600 | 500 |
| Rent & rates | 10000 | 10000 | 10000 |
| Motor vehicle expenses | 2000 | 2000 | 2000 |
| Repairs and maintenance | 6000 | 0 | 0 |
| Licensing | 250 | 250 | 300 |
| Insurance | 1200 | 1200 | 1200 |
| Income tax | 5000 | 5000 | 5000 |
| Wages (including PAYG) | 24000 | 24000 | 24000 |
| Total outgoing | $68,650 | $52,050 | $56,740 |
| Monthly cash balance | $3,450 | $16,649 | $12,360 |
| CLOSING BALANCE | $88,450 | $105,099 | $117,459 |
Hotel financial statement: Key summary
Financial statements are a key part of running a successful and profitable hotel. Although different types of financial statements show different information, they all provide insights into your hotel’s financial standing. The three most common types of financial statements for hotels are:
- Income statement (also known as a profit & loss statement)
- Balance sheet
- Cash flow statement
Together, these three financial statements can tell you:
- Whether you’re earning enough revenue
- Whether your hotel is profitable
- How much you’re spending
- Whether you have enough cash on hand to pay the bills
- Whether you can afford to invest in growth, such as through renovations and upgrades
- Whether you should adjust your pricing or marketing strategies
- Whether you might need to consider borrowing some money
With these insights, you can make smarter and more impactful decisions about your hotel.
