Let’s take a look at the various steps of analysing hotel income statements.
Step 1 – Export into Excel
The first thing you should do is export the P&L into an Excel file, because it makes it easier to calculate formulas and calculate variances in Excel for further analysis of income statements. If your profit or loss is not in Excel, either you can type it out or you can ask your finance department to export it into Excel and give it to you. It’s much easier calculate the variances or calculate percentages which will make it easier for you to review.
Step 2 – Calculate necessary variances and supporting ratios
The second step is to calculate the variance columns because some standard hotel accounting software doesn’t give the variances column and a few of them just give variance vs budget and don’t compare to the previous year. Some software does not calculate per occupied room statistics, while some does not add occupancy statistics. Variances, GOP flow-through and operational ratios are very important in analysis of P&Ls.
GOP flow through is an important aspect of managing the profitability of departments. Your hotel must maintain the flow through of profits compared to the revenue shortage or excess. If revenue is high, but profit has not increased relatively (i.e flow through is low), then it’s bad news because the hotel may not be managing expenses well.
Step 3 – Ascertain the Revenue & Profit variances
To understand the P&L, it is important to look at the overall picture of the department and whether the variance in the overall revenue & profit is favorable or unfavorable. The further review of expenses will also depend on this variance.
Step 4 – Find the breakdown for variances from marketing reports for further drill down
Once we have a feel for the overall variance, it is time to drill down to the second layer by going into further details. Let’s say if the room revenue is not favorable (i.e negative), what you want to do is to identify all segments which are negative. Then you have to identify all expenses which in terms of percentage are lower than the room variance, because the logic is that expenses should be controlled. Assume if the revenue is dropping by, let’s say 10%, expenses should drop by 10% or more, otherwise it will affect the hotel’s profitability.
Step 5 – Get to the last level of detail for reasons of variances
Once you know which segments are causing variances for revenue, and which expenses are causing a drop in profitability, what you should do is to get more details from:
- Supporting marketing reports such as nationality, booking source, lost business, booking pace etc., to understand what really went wrong in those impacted revenue segments.
- General ledger of relevant expenses to get itemize details so that you can control them by taking cost management exercises.
Let me know in comment below, if you follow other or more methods of analysing P&L.