Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Development of systems to collect and report financial information
Analyzing this same information
Making finance-related recommendations to assist management decision making
Record and summarize financial data
Purpose of bookkeeping:
The Accounting Function
Facility Engineering & Maintenance
Controller: The individual responsible for recording, classifying, and summarizing the hotel’s business transactions.
Purpose of accounting:
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Financial management system that collects accounting data from an individual hotel site and combines and analyzes that data at the same siteGM and controller take larger role in preparing financial documents
Financial management system that collects accounting data from an individual hotel(s), then combines and analyzes the data at a central sitePrevails in chain-operated or multiproperty hotel companies;company will likely employ CPA for data analysis
Centralized accounting systems:
Decentralized accounting systems:
The Accounting Function (cont.)
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Rooms available for forecasted period
Estimated rooms for the period
Estimated occupancy rate for period
Total rooms sold/total rooms available = occupancy percent (%)
Estimated ADR (average daily rate) for period
– Total room revenue / Total number of rooms sold = ADR
RevPar (revenue per available room) for forecasted period
– Occupancy % X ADR = RevPar
Rooms revenue forecast should include at minimum:
Revenue Forecasting: Rooms Revenue
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Number of guest rooms sold directly impacts amount of Food and Beverage sales volume
Revenue Forecasting: Food & Beverage Revenue
Controller will forecast sales generated from:
– Room service
– Banquets
– Meeting room Food and Beverage revenue
– Audio visual equipment rental
– Service charges
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Pay-per-view moviesParking chargesInternet access chargesGift shop sales of newspapers, cigarettes, candy, lotion, soda, etc.Telephone (local/long distance calling)Guest laundryCoat check feesGolf feesTennis feesHealth club usage feesPool fees
Typical examples of other revenue sources include:
Revenue Forecasting: Other Revenue
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Allowing management to anticipate/prepare for future business conditions
Providing communication channel whereby hotel objectives are passed to various departments
Encouraging department managers who have participated in budget preparation to establish their own operating objectives, evaluation techniques, and tools
Providing GM with reasonable estimates of future expense levels and serving as tool for determining future room rates
Helping controller and GM to periodically evaluate hotel and its progress toward financial objectives
Important functions of a budget:
Budgeting
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Long-Range
Budgets
Encompass relatively lengthy period, generally 2–5 years or moreUseful for long-term planning, considering wisdom of debt financing, refinancing, and scheduling of capital expenditures
Budgeting (cont.)
Annual Budgets
Must be produced by individual hotels and submitted to central office for review in large, multiunit hotel companiesDeveloped to coincide with calendar year
Monthly Budgets
Helps determine whether maintaining progress toward goals developed in annual budgetGreat use for seasonal hotelIn text, refer to figure showing Waldo hotel property operations and maintenance department operating budget for January
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Known as profit and loss statement
Lists hotel’s revenues, expenses, GOP, and fixed charges for specific time (month, fiscal quarter, or year)
In no case should this period exceed middle of next reporting period
Income statement
Balance sheet
Statement of cash flows
Key financial documents:
Income statement:
Financial Statements: Income Statement
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Income Statement InformationThis Period’s Actual
Revenues
Less Direct operating expense
Equals Department operating income
Less Overhead (undistributed) expense
Equals Net income (GOP)
Less Fixed expense
Equals Income before taxes
Financial Statements: Income Statement (cont).
GM can answer: How did hotel perform during this period?
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Tricolumned Income StatementThis
Period’s Actual
This Period’s
Budgeted
Last Year Same Period
Actual
Revenues
Less Direct operating expense
Equals Department operating income
Less Overhead (undistributed) expense
Equals Net income (GOP)
Less Fixed expense
Equals Income before taxes
Financial Statements: Income Statement (cont).
GM can answer: Hotel performance during this period? Hotel performance compared with performance estimate (budget)? Where did estimates vary significantly? How did hotel perform compared with same period last year? Where were significant changes from last year evident?
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Of all assets, none consider relative value/worth of staff, including the GM, actually operating hotelValue of experienced, well-trained staff not quantified
Provides a point-in-time statement of overall financial position of hotel“Snapshot” of financial health of hotelCaptures the financial condition of hotel on day it is produced, rather than telling how profitable the hotel was in a given accounting period
Functions of balance sheet:
Financial Statements: Income Statement (cont.)
Limitations of balance sheet:
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Financial Statements: Balance Sheet
Waldo Hotel Balance Sheet
Assets
Cash $75,000
Accounts receivable 50,000
Inventories on hand 25,000
Prepaid expenses 10,000
Total assets $160,000
Property and equipment $7,000,000
(Less accumulated depreciation) 500,000
Net property and equipment 6,500,000
Total assets $6,660,000
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Financial Statements: Balance Sheet (cont.)
Waldo Hotel Balance Sheet (cont.)
Liabilities and owners’ equity
Current liabilities
Accounts payable $75,000
Wages payable 25,000
Total current liabilities $100,000
Long-term liabilities
Mortgage payable $6,300,000
Total liabilities $6,400,000
Owners’ equity 260,000
Total liabilities and owners’ equity $6,660,000
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
How much cash was provided by hotel’s operation during accounting period?What was hotel’s level of capital expenditure for that period?How much long-term debt did hotel commit to during that period?Will cash be sufficient for next few weeks, or will short-term financing be required?
It is critical that the hotel not only is profitable, but also that it maintains solvency.
Statement of cash flows can answer the following:
Financial Statements: Statement of Cash Flows
It shows cash effects of hotel’s operating, investing, and financing activities.
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
For rooms:– Number of rooms available for sale, number of rooms sold, occupancy rate, ADR, RevPar, and other rooms revenue information
For Food and Beverage:– Restaurant sales, bar and lounge sales, meeting room rentals, banquet sales, and other Food and Beverage revenue information
For other income:– Telephone revenue, in-room movie revenue, no-show billings, and other income
The “Daily”
Controller’s office should provide GM with a timely recap of prior day’s rooms, Food and Beverage, and other revenuesPrepared from data supplied nightly by PMS
Daily Operating Statistics: Manager’s Daily Sales Report
The Daily includes the following:
The more detail you desire, the longer the Daily!
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Rooms availableTotal rooms occupiedRooms occupied by guest typeOccupancy percentTotal ADRADR by guest typeTotal RevPar
Documentation and verification of night auditor’s report is an important function of the controller’s office.
Detailed room revenue report includes:
Night auditor report provides a wealth of info. on room sales.
Daily Operating Statistics: Detailed Room Revenue Statistics
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Adjustments and
Allowances
Reduction in sales revenue credited to guests because of errors in properly recording sales or to appease a guest for property shortcomings.
Daily Operating Statistics: Adjustments and Allowances
Adjustment VoucherADJUSTMENT
NO 348685
(1)
DATE (2) 200xx
NAME (3) ROOM ORACCT.NO. (4)
EXPLANATION (5)
SIGNATURE
X (6)
11-09-0199 (7)
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Employee error in charges– Employee training program, cash sales systems, or guest service techniques
Importance of completion of allowance & adjustment voucher:
Daily Operating Statistics: Adjustments and Allowances (cont.)
Hotel-related problems– Equipment inspection programs, guest service training
Guest-related problems– Total monthly allowance and adjustments / total room revenue = room
allowance and adjustment %
– This percentage varies based on hotel age, quality of staff and training
programs, and type of guest typically served
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Charging guests’ credit cards for items not purchased, then keeping money from erroneous charges
Changing totals on credit card charges after guest has left, or imprinting additional credit card charges and pocketing cash difference
Mis-adding legitimate charges to create higher-than-appropriate total, with intent to keep the overcharge
Charging higher-than-authorized prices for products/services, recording proper price, and keeping the overcharge
Giving/selling credit card numbers to unauthorized individuals outside hotel
Credit card-related techniques used to defraud guests:
Internal Controls: Cash
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Cashier training programs
Sales revenue recording systems
Cash overage/shortage monitoring systems
Enforcement of employee disciplinary procedures for noncompliance
Methods of evaluating cash control systems:
Internal Controls: Cash (cont.)
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Facility Engineering & Maintenance
Accounts Receivable (AR): Money owed to hotel because of sales made on credit.
Internal Controls: Accounts Receivable
Facility Engineering & Maintenance
Direct Bill: An arrangement whereby a guest is allowed to purchase hotel services and products on credit.
Guest seeking credit would complete a “Direct Bill Application” (refer to figure in text).
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Which guests are allowed to purchase goods/services on credit
How promptly those guests will receive bills
What is total amount owed to hotel, and how long have those monies have been owed
Controller’s job to establish:
Internal Controls: Accounts Receivable (cont.)
Facility Engineering & Maintenance
A controller, together with a GM, should establish credit policies that maximize number of guests doing business with hotel yet minimize hotel’s risk of creating uncollectable accounts receivable.
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Accounts Receivable Aging Report
Waldo Hotel: Accounts Receivable Aging Report for January, 200X
Total amount receivable $100,000.00
Number of days past due
Less than 30 30–60 60–90 90+
$50,000
$30,000
$15,000
_____ _____ _____ $5,000
_____ _____ _____
_____ _____ _____
Total $50,000 $30,000 $15,000 $5,000
% of Total 50% 30% 15% 5%
Internal Controls: Accounts Receivable (cont.)
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Payment of proper amounts
Payments made in a timely manner
Payment records properly maintained
Payment totals assigned to appropriate departments
Charge for goods/services used by hotel, invoiced by vendor, not yet paid
Sum total of all invoices owed by hotel to its vendors for credit purchases made by hotel
Accounts Payable (AP):
Internal Controls: Accounts Payable
Four major concerns in AP systems:
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Use a system of coding to assign actual costs to predetermined cost centers
Implement functioning expenses coding system
Create system whereby total payments to vendors match vendor billings exactly
Maintain good relations with vendors by prompt payment of invoices
Take advantage of discounts offered by vendors for prompt payment
Ensure legitimate invoices are paid only for amount actually due
Invoices, and payments for those invoices, should be checked by at least two people
Payment of proper amounts:
Internal Controls: Accounts Payable (cont.)
Payments made in a timely manner:
Payment records properly maintained:
Payment totals assigned to appropriate departments:
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Ensuring payment is made to vendors only for goods/services actually received
Internal Controls: Purchasing and Receiving
Payment should be withheld if all services have not been performed
Before AP invoice is paid, check terms of sale, product prices quoted by vendor, and list of products against actual vendor’s invoices
Devise payment system that ensures member of property management team has:– Preauthorized work– Confirmed cost of work– Verified work is satisfactorily completed
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Internal Controls: Inventories
Facility Engineering & Maintenance
Secure accurate inventory from each department where monthly inventories are taken (refer to monthly income statement).
Beginning period value of towel inventory+ Towel purchases
= Cost of towels available
– Ending period value of towel inventory
Cost of towels used in period
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Proper payment of employees’ salaries and wages is an important function of the controller’s office
Keep detailed, department-specific (individual) payroll info.– Important due to fluid nature of labor usage in hotel
Advice to GM about prevailing wage rates, worker productivity, variation from budget, and future labor needs
Internal Controls: Payroll
Hotel Operations Management, 2nd ed. ©2007 Pearson EducationHayes/Ninemeier Pearson Prentice Hall
Upper Saddle River, NJ 07458
Internal Audit
Independent verification of financial records performed by organization operating hotelCost-effective in multiunit hotels
Audits
Facility Engineering & Maintenance
Auditor: The individual conducting independent verification of financial records.
External Audit
Independent verification of financial records performed by accountants employed by organization operating the hotel