Thread by @somehotelguy

Next up in the #HotelTwit series is an intro to the P+L!

Every operating co has their own format, so I’ll show you a representative example (with no #s) and also an example of how I like to look at it (with fake #s)

Going to focus today on the Summary, and will get into departmental levels in the future

Meet the summary P+L! This shows - on the left side - the monthly performance for the month run, against both budget and prior year - and on the right side - the YTD version of the same!

It has basic dollar amounts and variances, along with percentages and a few PORs. But, I find this difficult to read. I’ve said it before but it bares repeating - hotel operator accounting systems suck!

Here’s how I prefer to look at things - in Excel, and with the ability to calculate my own variances based on the appropriate metric for each category

Now with image 🥴

Let’s talk a bit about each P+L department!

Rooms - this is the department with all things related to the rental of guest rooms. Housekeeping, front office, reservations costs / commissions, cleaning supplies, etc.

Food & Beverage - All things F&B! Will have sub-departments for each outlet (I.e., restaurant, banquets & catering, room service), but worth looking at in aggregate bc nobody allocates shared costs (like kitchen labor) well

I really wish companies did that / accounting systems let them (we don’t, to my endless disappointment)

Parking - just what it sounds like! It’s only here as a department IF (a) the parking operation is run by the hotel; and, (b) there is revenue associated. If it’s outsourced (e.g., 3rd party valet where hotel takes a commission) it would show in Miscellaneous Income

You might see other departments here depending on the property. Things like Spa, Golf, Water Sports, Casino, etc.

Other Operated Departments - this is where the small ancillary businesses sit. Gift shops, long distance phone calls, video rentals, etc.

Miscellaneous Income - here’s where you’ll find revenues that have no associated expenses. Commissions are the classic example - I send parking biz to your garage, and I get $X per parking hour for the referral

Also, the controversial Resort Fee sits here, typically net of any associated costs (e.g., if a F&B voucher is given)

Departmental Profit - perhaps best thought of as “Gross Profit”. Profit from operations prior to unallocated overhead

Undistributed Departments - these cover expenses that are not easily directly allocated to a revenue generating department

Administrative & General - this covers management oversight of the hotel (e.g., General Manager cost, Accounting & Finance, HR) as well as costs that run across the property (e.g., credit card commissions)

Information & Telecommunications - cost of systems and technology. Everything from the monthly cost of your PMS to the monthly cost of your executive team’s cell phone plan

Sales & Marketing - all costs associated with sales and marketing of all departments of the hotel. Labor cost of the sales team, any promotional or advertising spending, all eCommerce spending, etc

Definitionally includes franchise fees, but I like to break out Royalty Fee and Marketing Fee into their own line item and just include Loyalty Fees here

Property Operations & Maintenance - your engineering staff, your maintenance contracts (e.g., elevator, HVAC, boiler), parts, etc. Nothing capitalized goes here

Utilities - Electricity, natural gas, steam, sewage, oil, etc. You know, the good stuff.

Gross Operating Profit - Departmental Profit less Undistributed Expenses, often called “House Profit”. This is essentially the level at which most hotel operators have control… everything below this is more real estate than ops related (except the next item)

Management Fee - this will be the amount you pay your operator, including the base management fee (usually 2% - 4% of gross operating revenues) and the incentive management fee (10% - 20% of NOI over a return hurdle)

Non Operating Income & Expenses - this is for things related to the real estate rather than the hotel ops. Property Taxes, Insurance, Ground Lease Payments, Lease Income, Equipment Lease Payments, Owner Expenses all go here.

EBITDA - Earnings Before Interest, Taxes, Depreciation, and Amortization. I’m not an accounting professor, so I’m not going to explain this one.

Replacement Reserve - An amount set aside annually (usually 4% of GOR) to fund replacements of FF&E and renovation work. Amount generally driven by brand and lender

EBITDA Less Replacement Reserve - Net Operating Income

Next time, we’ll talk about how we benchmark each, then we’ll look at an example for how we’d use that benchmarking as a first screen on an acquisition