Hotel Financial Statements Basics Which Are Owner Favorites Too 

Are you focusing your main attention to four hotel financial statements basics?

Why should you, you ask?

Well, simply because these are your hotel owner favorites too.

Good enough reason to pay attention right?

The outcome of not meeting your hotel owner expectations can, at its worst, be unpleasant.

But much before that, do you know what your hotel owner favorites are in the first place?

Hotel Owners pour millions into their hotel investments.

It is only reasonable they expect you to deliver a good return on that investment.

These 4 hotel financial statements deliver that in good measure.

So, knowing what your owners want is critical.

I will lay out 4 Hotel Financial Statements if you are keen on meeting and exceeding owner expectations.

And who does not want that?

Let's dive right in.

This blog post will focus on:

Do You Know Your Hotel Owner Hot Buttons?

Let me begin with a question you should ask yourself.

Do You Know Which are your Hotel Owner’s Hot Buttons?

What are Hot Buttons you ask?

Well, these hotel financial statements are your owner favorites!

The ones that fuel their expectations from you.

Aha, that got your attention.

Let me now tell you a story.

A story based on an ancient Indian parable.

I promise I will show you the connection with hotel owner expectations.

And I promise it will be worth it.

SHARE How to Read Hotel Financial Statements Infographic.

6 Blind Men and The Elephant Parable

The story goes...

6 Blind men came across an elephant.

The blind men started wondering what this huge thing is that they had come across.

Then they began to touch its body.

One of them said it's a fan.

This blind man had touched its ears.

Another said it's a spear.

This blind man had touched its tusk.

Yet another said it's a wall.

This blind man had climbed up and was touching one side of the elephant's massive body.

Another said it is a rope.

This blind man had gotten hold of the elephant's tail.

The fifth said it is a snake.

He was feeling the elephant's trunk.

Finally the sixth man said it is a tree.

This blind man had gotten hold of one of the elephant's front leg which was as big as a tree trunk.

A passerby who could see the animal in entirety stopped all of them dead in their tracks.

He told them that it is an animal called an elephant.

It is an animal with ears, eyes, trunk, tusks, tail and a big body.

He told them not to look at the parts individually.

But put them together, see relationships and then conclude what it looks like and what it is.

By now you are impatient.

The Big Picture Overview

What is the connection of the ancient parable with owner favorites?

And The Big 4 Hotel Financial Statements?

As it turns out there is a huge connection.

The moral of the story applies equally to your Big 4.

Let me explain.

I will be bringing in the four lead characters in our story of The Big 4.

The four lead characters are four hotel financial statements!

What, How, you ask?

Hang on, I am about to unveil this connection to you.

Each of these hotel financial statements plays a role.

Looking at them individually will be like the 6 blind men.

They were touching individual parts of the elephant's body and arriving at a conclusion.

You are giving me that questioning look.

You want to know how.

I will now prove the power of this principle to you.

It is often known as The Big Picture Overview.

WATCH this video of 6 Blind Men and The Elephant.

The Big 4 Hotel Financial Statement Characters in Your Business

Hotel Profit and Loss Statement

Welcome to the first character in our story - the profit and loss statement.

The profit and loss statement is called the performance statement.

it is the statement which measures business results of your hotel during a particular month.

The performance statement answers questions relating to: 

• revenues,
• expenses and
• profit for the period.

It also answers questions on increase or decrease of revenues, expenses and profit over last year.

Despite its power, the profit and loss statement suffers from a big shortcoming.

It will only show part of the picture - the performance of business results of the hotel.

For example it cannot tell you:

• what happens to the assets that actually produce the revenue during the month
• which the profit and loss statement records and shows.

Hotel Balance Sheet

A different kind of financial statement is needed to answer these kind of questions.

That hotel financial statement is your balance sheet.

This is the second character in our story.

On the one hand, the profit loss statement is called the performance statement.

On the other hand, the balance sheet is called the financial position statement.

It is a statement showing: 

• assets,
• liabilities and
• capital of your hotel.

The financial position statement answers questions relating to the assets, liabilities and capital of your hotel.

Financial position tells you: 

• what the hotel owns and
• what it owes.

Despite its power, the balance sheet also like the profit and loss statement earlier suffers from a big shortcoming.

It also shows only part of the picture - the financial position in general of the hotel.

For example, it cannot tell you: 

• how much change took place in your cash balances
• from various sources between last and this month.

It also cannot tell you what cash flow your hotel might need in the future.

Hotel Cash Flow Statement

So the first two characters of our story, the profitable statement and the balance sheet in spite of being powerful still have shortcomings.

The third character in our story is the cash flow statement.

The cash flow statement is called the cash movement statement.

In other words: 

• how much did the cash balances change
• between previous and current period.

How much was the inflow outflow and net flow.

The cash movement statement answers questions relating to cash balance movements.

And sources of inflow and outflow.

It talks about changes to cash balances but not the cash balances themselves.

Alas, the cash flow statement has a huge shortcoming.

It is able to give you information only related to cash.

For example, say, you needed to know: 

• whether you had an approved budget
• for buying kitchen equipment.
• Or whether your laundry equipment needed to be replaced,

the cash flow statement is unable to assist.

Hotel Capital Expenditure Statement

So, the profit and loss statement is called the performance statement.

The balance sheet the financial position statement.

The cash flow the cash movement statement.

Enter, the capital expenditure statement which is called the fixed assets statement.

It mainly works with fixed assets although some related elements are also considered.

The fixed asset statement answers questions relating to fixed assets.

What is the life of your laundry equipment?

Is there a need to renovate your guest room interiors?

And so forth.

Alas, the capital expenditure statement also has a huge shortcoming.

It is able to give you information only related to fixed assets.

For example, if you wanted to know:

• what your inventory of food and beverage was and
• whether that was adequate or
• how much you owe your equipment suppliers,

the capital expenditure statement was unable to provide that information.

Don't Treat Hotel Financial Statements as Independent Silos!

So, what is the lesson we have derived from our story of the four lead characters:

• profit and loss statement,
• balance sheet,
• cash flow statement and
• capital expenditure statement.

Just like the six blind men story!

You cannot be looking at financial statements in parts.

You must be able to get the full picture - the big picture.

For that, you need to step back and look at relationships between the financial statements.

Too many hotel finance training courses focus on analyzing individual financial statements.

Without understanding that the power is in bringing them together and looking at the entire picture.

Only when you look at the full picture you will be able to understand the relationships among them m.

This is what makes your decision making powerful.

Each of these hotel financial statements plays a role.

Looking at them individually will be like the 6 blind men who were touching individual parts of the elephant's body.

And arriving at incorrect conclusions.

This technique is often known as the big picture overview.

The power in your decision making comes from looking at your big four together.

And seeing relationships among them.

Harnessing those relationships is what will empower you to optimize profit in your operation.

That is true hotel financial analysis.

This is your Big 4 Hotel Financial Statements.

These are owner hot buttons since they produce the ultimate return on their investments.

Ignoring these is equivalent to not focusing on: 

• performance,
• cash generation,
• asset management and
• finally return on owner investment itself.

So, harness the power of The Big 4.

Go and optimize profit in your operation with these hotel financial statements.

Steps You Can Take Right Now

STEP 1

Ask your Hotel Financial Controller to show you the Balance Sheet, Cash Flow Statement. 

STEP 2

Identify what the Balance Sheet shows as financial position? Ask your Controller what the owners prefer to see.

STEP 3

Identify departments which make the best contribution to hotel cash in flow and spend the most (outflow)?

STEP 4

Identify how you plan out your capital expenditure in a year? Do you consider what cash outflow it will require?

STEP 5

Ask yourself whether as a hotel manager you are managing the hotel owner hot buttons adequately.

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