Hotel Finance Foundations

A hotel is really several small businesses under one roof. There's a rooms business, a restaurant and bar business, maybe a spa, a parking business and a gift shop. USALI groups every sale into one of four revenue lines:

Why rooms matter so much

Once a hotel is built, an extra room night costs relatively little: cleaning, linen, amenities, utilities and a booking commission. So the rooms department often keeps around 70–75 cents of profit from every dollar it sells. A restaurant keeps far less, because it buys food and needs many staff for each sale. That's why hotel finance teams watch room revenue so closely.

The three numbers everyone talks about

• Occupancy = rooms sold ÷ rooms available. How full were we?
• ADR (average daily rate) = rooms revenue ÷ rooms sold. What price did we get?
• RevPAR (revenue per available room) = rooms revenue ÷ rooms available. It combines both, because RevPAR = occupancy × ADR.

A hotel can lift RevPAR by filling more rooms, by charging more, or both. A full hotel at a very low price can have a worse RevPAR than a hotel that's 75% full at a good price. Try it below.

Packages: one price, two departments

When a guest buys “room with breakfast” for $160, USALI does not record $160 as room revenue. Finance splits the package: perhaps $140 to Rooms and $20 to Food & Beverage. Each department gets credit for what it actually delivered, which keeps department profits honest.

The finance team is the hotel's scorekeeper and its safety net. It records every sale and cost, checks that nothing is missing or wrong, pays people on time, collects money owed and tells management what the numbers mean. In a small hotel, three people may cover everything. In a large resort, there may be twenty or more.

Under USALI, the cost of the finance team sits in Administrative & General (A&G), one of the undistributed departments. Finance does not earn revenue directly, but it protects all of it.

The finance calendar

Finance work runs on three rhythms:

• Daily — income audit of yesterday's revenue; daily cash reconciliations (outlet cash drops, the bank deposit, and card settlements matched to the bank); approving purchase requests (PRs); entering and checking supplier invoices; the flash report; and answering department heads' questions and sorting out day-to-day issues as they come up.
• Weekly — supplier payment runs, receivables follow-up, payroll for hourly staff, forecast updates.
• Monthly — the month-end close: count stock, record accruals for costs not yet invoiced, reconcile every balance sheet account, and produce the USALI P&L, usually within a few working days.

Controls: why finance double-checks everything

A key idea is segregation of duties: the person who does a task should not be the person who checks or approves it. The cashier takes cash, the general cashier counts it, and the income auditor checks the totals. The person who enters an invoice is not the person who releases the payment. This isn't about distrust — it protects staff and the hotel from honest mistakes as well as fraud.

Hotels sell every hour of every day, across many outlets and systems: the property management system (PMS) for rooms, point-of-sale (POS) systems for restaurants and bars, and separate systems for spa or parking. The daily audit makes sure everything sold yesterday was charged correctly, paid for or billed to the right person, and recorded in the right department.

It happens in two parts. Overnight, the front office night manager works through the end-of-day (night audit) checklist and closes the day. Next morning, the income auditor in finance continues the audit and checks everything in detail. Some hotels still employ a dedicated night auditor, but today the night audit is mostly a front office checklist, with finance taking it forward.

The three ledgers

Money that guests and companies owe the hotel sits in three “buckets”. Income audit checks each one every day:

What the income auditor looks for

• Rates — does each room's rate match the booking, the contract or the published rate?
• Discounts and complimentary rooms — is there written approval from someone allowed to give it?
• Voids and allowances — are cancelled or reduced charges explained and approved?
• Payments — do card and cash totals match the bank and card settlement reports?
• Missing charges — is every occupied room charged? Is every restaurant bill posted?

The daily revenue report (the “flash”)

The income audit ends with a short report sent to the General Manager and department heads every morning. It typically shows yesterday's and month-to-date occupancy, ADR, RevPAR and revenue by department, compared with budget, forecast and last year. Managers use it to react quickly: if month-to-date ADR is behind budget, revenue management can change prices that same day.

A hotel buys thousands of things: fish and vegetables every day, linen and soap every week, a new boiler once in a decade. The procure-to-pay process makes sure the hotel buys only what's needed, at an agreed price, receives what it paid for, and pays the right supplier on time — no more, no less.

The three-way match

Before paying any supplier invoice, accounts payable compares three documents:

1. The purchase order — what we agreed to buy and at what price.
2. The goods received note — what actually arrived.
3. The supplier invoice — what the supplier is asking us to pay.

If all three agree, the invoice is approved for payment. If they don't, the invoice goes on hold until purchasing or the department sorts it out with the supplier, usually through a credit note.

Paying suppliers well

• Payment terms — “Net 30” means pay within 30 days of the invoice. “2/10 net 30” means take a 2% discount if you pay within 10 days, otherwise pay the full amount by day 30.
• Payment runs — most hotels pay on fixed days (for example, every Thursday) so cash is planned, not random.
• AP aging — a report that groups unpaid invoices by age: current, 30, 60, 90+ days. Old items mean a supplier may be unhappy, or that an invoice is stuck.
• Supplier bank details — any change request is verified by calling the supplier on a number you already have. Fake “we changed our bank account” emails are a common fraud.
• Accruals — if goods arrived in March but the invoice comes in April, finance still records the cost in March. That's how the P&L shows the true cost of each month.

Profit is what's left after costs, so finance needs to understand how each cost behaves. USALI groups every department's expenses into three families: cost of sales (what was used up to make a sale, like food), labour costs and related expenses (salaries, wages, benefits, staff meals) and other expenses (supplies, laundry, commissions, licences…).

Fixed, variable and semi-variable

• Fixed costs stay the same whether the hotel is full or empty — insurance, the GM's salary, an annual software licence.
• Variable costs move with every sale — guest amenities, food ingredients, card fees, booking commissions.
• Semi-variable (also called mixed) costs have a fixed base plus a moving part — electricity, or a team with permanent staff plus extra hourly staff on busy days.

This is why a busy hotel is so profitable: once fixed costs are covered, each extra sale only carries its variable cost.

Note that fixed and variable are a management accounting view used for budgets and forecasts. USALI itself classifies costs by department and by type, not by how they behave — the two views are used side by side.

Inventory: money sitting on a shelf

Food, drinks, linen, cleaning chemicals and guest supplies are all money until they're used. Good inventory control means:

• Par levels — a standard quantity to hold, so you don't run out or over-buy.
• FIFO — first in, first out. Use older stock first to cut waste.
• Requisitions — departments take stock from stores only with a signed request.
• Monthly counts — finance and stores count everything at month-end, ideally as a “blind count” where counters don't see the expected quantity.
• Variance review — the gap between what the system expects and what was counted is investigated.

Calculating food cost

Cost of food sold isn't just “what we bought this month”. It's what we actually used for guests:

Opening stock + Purchases + Transfers in − Transfers out − Closing stock − Credits = Cost of food sold

Credits remove the cost of food that was not sold to a paying guest. Under USALI that cost is charged to the department that used it:

About staff meals: in most hotels, food for the staff canteen is bought directly into its own staff-meal cost centre, so it never enters food cost and nothing needs to be deducted. A credit is only needed when the main kitchen issues its own stock to the canteen.

Then food cost % = cost of food sold ÷ food revenue.

Everything in modules 00 to 04 ends up here. The USALI Summary Operating Statement reads top to bottom like a staircase. Each step takes away another layer of cost:

1. Operating revenue — Rooms, F&B, Other operated departments, Miscellaneous income.
2. Departmental expenses — each earning department's own costs.
3. Total departmental profit — what the earning departments made together.
4. Undistributed operating expenses — Administrative & General; Information & Telecommunications Systems; Sales & Marketing; Property Operation & Maintenance; Utilities.
5. Gross operating profit (GOP) — the headline number for how well the hotel is run.
6. Management fees — paid to the hotel operator, if there is one.
7. Non-operating income and expenses — rent, property taxes, insurance and similar owner-level items.
8. EBITDA, then a replacement reserve for furniture and equipment, giving EBITDA less replacement reserve.

Below is a simplified monthly statement for a 200-room hotel. Move the sliders and watch every line, margin and KPI update. Tap any line for an explanation.

How to read any hotel P&L in five questions

1. Against what? A number alone means little. Compare actual with budget, forecast and last year.
2. Price or volume? Did room revenue move because of occupancy, ADR, or both?
3. Margins, not just money. Look at each department's profit as a percentage of its revenue. Rooms around 70–75% and F&B around 25–35% are common rough reference points, but every hotel is different.
4. Per room. RevPAR, TRevPAR and GOPPAR let you compare a 100-room hotel with a 500-room one.
5. Flow-through. If revenue is $100,000 above budget, how much of it reached GOP? Low flow-through often means costs grew faster than sales.

Where do the details live?

The summary statement is the cover page. Behind it, USALI defines a detailed schedule for each department — the rooms schedule, the F&B schedule, A&G and so on — showing revenue, payroll, cost of sales and other expenses line by line. When a manager asks “why is Rooms profit down?”, you open the rooms schedule to find the answer.

Pick an answer to see the explanation straight away. Your best score appears on the dashboard.