Guide to hotel financial statements

What are hotel financial statements?

Hotel financial statements are designed to provide insights into a specific aspect of your business. 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.

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 hotel financial statements include?

Hotel 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 incoming and outgoing money of your business. This can give you a clear picture of your past, current and predicted future performance.

Why are hotel 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.
• Investment – 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.

What is a 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.

Hotel income statements are designed to provide financial insights into a specific aspect of your business. As a hotel operator, staying on top of your finances is essential to the long-term profitability of your business.

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.

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 sample

There are three main elements of a hotel income statement:

1. 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

2. 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

3. Net profit 

This is calculated by subtracting all your expenses from your revenue.

Hotel income statement example

Here’s a simple, hypothetical hotel income statement example:

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

Tips for preparing an income statement in the hotel industry

Preparing an income statement in the hotel industry is crucial for understanding the financial health of your business. Here’s how to do it effectively:

• Gather all relevant data. Before you begin, ensure you have all the necessary financial data. This includes revenue from room bookings, food and beverage sales, and any other ancillary services your hotel offers.
• Categorise your revenues and expenses. Break down your revenues by category, such as room sales, event space rentals, and dining. Similarly, categorise your expenses into fixed costs like salaries and rent, and variable costs like utilities and supplies.
• Control for seasonal variations. The hotel industry often experiences seasonal fluctuations. Ensure your income statement reflects these changes, helping you plan for peak and off-peak periods.
• Include depreciation. Hotels have significant assets that depreciate over time, such as furniture and equipment. Factor in these depreciations to get an accurate picture of your net income.

Other 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.

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:

1. 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

2. 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

3. 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:

1. Cash incoming

This covers all the main cash-generating activities of your business, such as room bookings, food and beverage sales and other sales.

2. 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

How to use hotel income statements effectively

An income statement isn’t just a piece of paper; it’s a tool that can drive strategic decisions. Here’s how to use it to your advantage:

1. Look at how your expenses are affecting your net profitability

Regularly scrutinising each cost, from utilities to staff salaries, can unveil potential areas for savings. For instance, while some costs are fixed, there might be variable expenses where negotiations or alternative solutions can lead to reduced outlays. Supplier contracts, in particular, should be revisited periodically to ensure you’re getting the best value for your money.

2. Understand whether you’re bringing in enough of a profit

After all overheads are accounted for, does the profit align with industry benchmarks? If there’s a noticeable discrepancy, it might be an indicator that your pricing strategy needs recalibration. Perhaps there’s room to adjust room rates during peak seasons or introduce special packages to attract more guests.

3. Fine-tune your sales and marketing strategy

If substantial resources are being channelled into marketing campaigns but room bookings remain stagnant, it’s a clear sign that the strategy needs re-evaluation. Embracing innovative marketing approaches, such as personalised promotions, loyalty schemes, or even strategic partnerships, can be the catalyst that propels your revenue to new heights.

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.