Among many other responsibilities, monitoring and effectively managing a hotel’s budget falls on the shoulders of the general manager (GM). While most hotels employ an accounting team or individual to assist in that effort, it’s ultimately up to the GM to ensure the ongoing financial health of the establishment. This involves understanding key financial statements and how to use them to guide budget decision-making. A profit & loss (P&L) statement ranks high on the list of the most important of those reports.
The Importance of a P&L Statement
A P&L statement provides visibility over all capital flows in and out of the business. The report outlines incoming profits and outgoing expenses. It also highlights organizational and departmental performance, allowing GMs and department leaders to see how they are performing in accordance with the budget. Analyzing these reports regularly allows for data-driven decisions when it comes to operations.
Often, P&L reports pulled for different periods are compared to better understand how the hotel is performing presently compared to last month, quarter, or year. Only once hotel owners and managers have a clear picture of that performance, they can make decisions to improve, which may include:
- Adjusting room or amenity prices
- Sourcing new vendors that can offer better pricing for the same products
- Changing up the sales and marketing strategy to drive more revenue
- Adjusting departmental budget allocations
A P&L report also feeds into other important reports, like a hotel’s balance sheet or
cash flow statement. These are equally powerful in terms of the insight they provide managers into an organization’s performance. Its critical numbers reported on a P&L are accurate to ensure the best decisions are made.
Key Components of a P&L Statement
This powerful report can be broken down into three sections to better comprehend the information it provides. The first section contains all revenue the business generates, generally broken down by type (i.e. room reservation fees, revenue from food and beverage sales, and private events).
Expenses represent the next section on a P&L statement, which is broken down into smaller subcategories as well. Fixed expenses are those that remain constant, including insurance, property taxes, and other property costs or loan repayments. These costs don’t fluctuate based on how busy a hotel is or how many rooms go unfilled each night.
Operational expenses are those costs accrued in order to deliver services to customers and are broken down into the revenue stream they can be attributed to. For example, food and beverage expenses are recorded separately from housekeeping expenses. Operational expenses can and do often fluctuate, depending on various factors – booking numbers being the biggest influence.
There are undistributed expenses included which are those that cannot be attributed to a particular department or function because they support all. This includes staff working in an administrative or HR role. Lastly, some expenses are beyond the control of the hotel but still need to be accounted for in the P&L statement. These include interest, taxes, depreciation, and amortization (ITDA).
The last important part of a hotel’s P&L statement is net income. This number goes by many additional names, including “profit,” “earnings,” or the “bottom line.” Calculating net income is a simple math equation once revenue and expenses are clearly outlined. Begin with the total of all revenue and deduct the total of all expenses to get net income for the reporting period.
Interpreting a P&L Statement
Knowing what each line item on a profit and loss statement represents is just the first step. Interpreting the meaning behind those numbers and using them to make informed decisions is how strong GMs thrive. Thinking of the big picture, hotels need revenue to consistently top expenses for the business to remain profitable. Generally, GMs are more concerned with EBITDA (earnings before interest, taxes, depreciation, and amortization) rather than net earnings, as those expenses are beyond their control in their role as managers.
Also, paying close attention to departmental revenue and expenses helps managers identify when resources aren’t being allocated effectively. The more detailed those line items are, the more specific managers can be in identifying these inefficiencies. However, it’s important not to break down expenses so much that a P&L becomes convoluted and hard to interpret.
Finding Management Positions within the Hospitality Industry
Understanding the importance of and how to interpret a P&L statement is just one aspect of the role of a hotel GM. The position also requires strong communication skills, the ability to motivate and lead others, and a thorough understanding of all aspects of hotel operations and how to keep them running smoothly. While highly rewarding, the role itself is not easy. However, finding a management position can be.
We’ve gathered all hotel job opportunities within our organization (and its 50 locations nationwide) into one comprehensive database to make job searching quick and simple. In addition to GM roles and other management positions, there are roles available for those looking to just break into the hotel industry. We offer extensive training programs to ensure new team members are set up for success in their roles from day one while developing the skills needed to grow within the organization and the hospitality industry as a whole. To take the next step in your hotel career, no matter what step that is, check out our current opportunities today!