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  • HFTP Research Report: Pre-opening Expenditures in Hospitality

    A study of the pre-opening budget; the timeline for these expenditures; timeline for onboarding of staff; and the selection, installation and training of the technology component. By Agnes DeFranco, Ed.

  • New Global Directors Join the 2018-2019 HFTP Board

    The HFTP 2018-2019 Global Board of Directors was installed during the association's 2018 Annual Convention and introduces new directors Toni Bau, Carson Booth, CHTP and Mark Fancourt. These extensive director profiles give insight into the distinguished professions and personal goals of HFTP's newest association leaders.

  • Letter from the HFTP Global President: At the End of the Year, We Reflect on the Best of the Year

    As we prepare to transition to the new HFTP Global board at the 2018 Annual Convention in October, I would like to take the time to reflect on my year serving as HFTP Global president.

  • Members Only: 2018 HFTP Compensation and Benefits Report

    By Tanya Venegas, MBA, MHM, CHIA. Results to the biannual survey conducted by Hospitality Financial and Technology Professionals (HFTP). Information includes data on compensation and benefits trends for finance and technology professionals in the club and lodging industries.

Hospitality Financial Leadership City/Region Wide Supply and Demand Analysis

The Hotel Financial Coach ·11 February 2019
When you are preparing your budgets, an incredibly valuable tool is what I refer to as the "citywide supply and demand analysis." I didn't come up with this, however, I am going to explain how it works, why it's so important to complete it at least annually and how to analyze it.In a previous post, I wrote about how to calculate your RevPAR index and how to measure this against your competitive set, sort of a manual version of what STR supplies. This concept is similar, but one does not replace the other and vice versa. The "citywide" report allows you to see where you are relative to your entire market, where you historically have been and most importantly where you think you're going and what you need to employ to get there.Most cities and regions have an entity that tracks accommodations statistics. This includes occupancy and rate and they publish this information at least annually. The typical organization is something like the "Blank City/Region Tourism Bureau." Your hotel is or certainly should be a member. Other hotels facing consulting and data collection firms may also have the information you need to establish the baseline for your analysis. What you want to find is a report that lays out the entire supply (number of rooms available) and the annual occupancy and room rate for your city/region. Once you have the three items above you can also (if not included in their report) calculate the rooms sold, the REVPAR and the total room revenue for each year. I recommend going back at least four years to establish a solid baseline. You should expect to see changes in the supply as hotels get added or possibly removed depending on your market.Once you have the entire market's information laid out in excel for four years, you want to build a similar chart below the entire market section and do exactly the same for your hotel. Take note of whether you include your hotel information or not in the entire market section and just make sure year over year that you are consistent. Some people will calculate the information with their hotel included and some will remove their hotel. I think, depending on the size of the market, the bigger it is the less you need to be concerned about including your data, and the smaller the size of the market depending on your hotel's size it may have an impact on the picture you're looking at.Once you have all the data laid out you will see the historical picture of how your hotel performs relative to the market. This comparison itself can be an eye-opener for your view of your property relative to the market. Now you need to add your current year's forecast to the spreadsheet. Your property numbers should be readily available and based on your knowledge of the market relative to your hotel and you need to estimate the current year's performance. Don't forget to add any new supply that has recently opened. Now you have five years of hotel operating performance to look at in order to answer many questions. What has been the trend relative to the market's performance and your hotel's results? In relation to you, is the market over or underperforming on occupancy? If it's one or the other, and it will be, then why? What drives these results and this dynamic? Is it your location, the brand or is your hotel recently removed or in need of renovations? The same analysis needs to be done as it relates to the average rate. What drives your results relative to the market? Are you winning or losing relative to where you should be based on your property's characteristics and value proposition? The RevPAR analysis will tell the complete tale. Now comes the fun part. You need to plot out how the market will perform in the next three to five years doing the following:Adjust the market for any new supply.Determine how the market will adjust its occupancy for the additional supply.Do the same with the room rates.Now you have a logical view of how you see your market performing historically and into the future. Does it make sense? Does your property's performance line up with the historical results the way you thought it would? Now do the same forward-looking projection for your hotel, considering your historical and current performance. Also consider the effects of new supply, competitors' renovation plans, and your hotel's improvement plans. This is where the rubber hits the road. Is your hotel losing ground in the market? Is it going in the other direction and outperforming the market? Are your overall market or hotel projections realistic? The whole point of the analysis is to help you see what's possible within your market and to generate ideas about what you need to do to remain or become more competitive.The market never stands still and in order to be on top of it, you first need to be able to establish your business's place in the market and make the necessary investments to keep or hopefully improve your position. Someone once said you can't manage what you can't measure. This simple and effective tool will help you manage your hotel's market position.

Your Guide to Credit Card Processing Fees and Rates [Infographic]

MarketingProfs·Requires Registration · 7 February 2019
Small business owners have enough to worry about without getting into the nitty-gritty of credit card transactions. As long as your process works and you're able to accept payments from your customers, then you have more important things to worry about.

Boston & Cambridge Lodging Market Peaks in 2018 as Demand Outpaces Supply

Pinnacle Advisory Group · 5 February 2019
Despite the market's continued demand growth and capacity constraints through much of the year, average daily rate (ADR) increased only 1.6% to $262. Similar to the trends experienced nationally, the market's revenue per available room (RevPAR) has begun to decelerate, increasing 1.9%.Of the six submarkets analyzed by Pinnacle Advisory Group, the Cambridge set of hotels experienced the largest increase in RevPAR. The ADR in Cambridge increased 2.9%, due in part to many of its largest hotels undergoing renovations in 2017 and early 2018. These increases to rate, matched with a 0.5% increase to occupancy, resulted in a RevPAR increase of 3.6%, greatly outperforming the overall market. As the only submarket to experience a decline in occupancy, the hotels in the Fenway/Longwood Medical Area experienced the weakest RevPAR growth of 1.0%.Although the key economic indicators are leading to a healthy outlook for the U.S economy in 2019, the Boston & Cambridge lodging market has two factors which will negatively impact its performance; supply growth of over 5.5% and a weak convention calendar comparative to the prior year. As Pinnacle has reported previously, the market is expected to experience a decline in RevPAR in 2019.The Pinnacle Perspective reports the Boston & Cambridge lodging market's performance on a monthly and annual basis. Individual reports provide an indication of performance metrics by submarket, hotel size, and price point. Data is collected from over 95% of the market's rooms supply and aggregated to provide detailed market reports for its contributors.

Jerry Schwartz slams Hunter Valley administrators

mycloud HOSPITALITY· 5 February 2019
Prominent hotel and tourism investor Dr Jerry Schwartz has lashed out at Hunter Valley Council administrators for a perceived lack of support for not just existing ventures and investments in the region but also for new ideas and initiatives.

Hospitality Financial Leadership: The 5 Hidden Costs of Being Branded

Hotel Online· 4 February 2019
Marriott. Hilton. IHG. Wyndham. Choice. For years these chains have publicized the advantages of working with them: advanced loyalty programs that promise to bring consistent customers, low fees, tough negotiations with OTAs, and preferred financing options. Not so fast.
Article by Kacey Bradley

6 Ways to Manage Your Hotel During a Natural Disaster

The Drifter Collective · 4 February 2019
Resorts and hotels in locations prone to natural disasters take steps to protect themselves. While proactive measures and planning can establish a plan for your hotel, in the midst of the disaster, attentive management and action are crucial.As tourists turn to you and your staff and upcoming reservations approach, you can skillfully handle the situation and look toward recovery options. Here are six ways to manage your hotel during a natural disaster.1. Assess the Safety of Guests and EmployeesYour primary concern should be the security and health of your team and your guests. In a time of crisis, make sure water, food and resources at your hotel's disposal are available to your workers and guests. In your and your staff's interactions with guests, take precautions to keep guests as calm as possible. You trained staff should be able to recommend helpful tips for the uncertain circumstances.As a part of your community, people without places to stay will likely turn to you. Depending on the level of disaster, you can act as a housing solution or offer discounted rooms to victims, relief workers and volunteers. Demonstrate care to emergency guests, and consider flexibility on your pet policy during this time.2. Change Marketing TacticsWhile you're dealing with a natural disaster, avoid waste in marketing by pausing your SEM campaign. Your PPC budget can become unhelpful when your website gets lumped with updates on the state of the storm. Reduce your emphasis on region-specific keywords until the conditions change.In the same way, curb your regional email marketing. As you can't take bookings right now, postpone these tactics for when you can confidently reopen. Replace your regular email campaign with messages crafted for an emergency.3. Regulate UpdatesAs guests use hashtags and their feeds to express their experience at your hotel, tune in to social media to review these communications. Maximize your social media platforms to offer updates to guests, concerned parties and the community.Keep guests and interested parties notified on the progress of the natural disaster with frequent posts. Respond to questions on these platforms, too, if possible.4. Keep Track of Any DamageIf it's safe to make your rounds and examine the area, you can begin scouting out your hotel grounds. Assign workers to look out for potential repair needs.This can inform your recovery plan and help you gauge when you can reopen the hotel or resort. You can keep guests from dangerous areas as the storm winds down and begin to identify actionable steps for the coming weeks.5. Prepare to File an Insurance ClaimYour policy may cover several parts of your hotel's lost income during the disaster, from rebooking to evacuation. But you'll also have impacts on the structure, vehicles and overall property. Prepare to file an insurance claim to get a quick estimate of your recoverable costs.As hotels end up having high occupancy during disasters due to a lack of shelter, hoteliers rely on insurance experts to evaluate the building for damage. You can contact an insurance agent, contractors and repair professionals to obtain an accurate assessment.6. Formulate a Cleanup PlanTo cut down on the time your staff and outside workers will take to clean up the property, contemplate the best way to tackle the necessary tasks. Do you need to remove debris first? Or will draining water and drying the area be your first move?You can meet with a committee or your staff to organize a cleanup strategy. Get the facilities back to a functional state efficiently with swift action.Focus on Recovery After a Natural DisasterAs your hotel encounters a natural disaster, you have to deal with many considerations. You can never be overly prepared for a crisis, but when it happens, your next step is to look toward recovery. Rebuilding and repairing can set your hotel on track to thrive again.

U.S. Department of Labor Changes Rule for Tipped and Non Tipped Work

Hotel Business Review by· 3 February 2019
The U.S. Labor Department's Wage and Hour Division ("DOL") recently revoked its so-called "80/20 rule" for employees who receive tips. This "rule" had attempted to provide guidance about what happens where restaurant servers and other tipped employees work on tasks that don't directly generate tips, such as rolling silverware or wiping tables. The rule generally stated that where a tipped employee spent a "substantial amount of time (in excess of 20 percent) performing general preparation work or maintenance," the employer could not take a tip credit and needed to pay the employee the full minimum wage.
Article by David Lund

Earned and Unearned Revenues - Understanding the Difference

The Hotel Financial Coach ·29 January 2019
Just like baseball has an unearned run as a scoring feature, in business we have unearned revenues. In this piece I will discuss the difference between earned and unearned revenue and how it applies to the hospitality business.First off though we need to review the American classic game of Baseball and how an unearned run works. This will be especially important for those of us who are not the sport's most avid fans. In baseball you score an unearned run when an official, the umpire, decides the player crossed home plate due to an error (mistake) by the defending team. A good example is: an outfielder drops the ball and the runner on third base is able to make it to home plate before the outfielder is able to locate the dropped ball and throw it to the catcher. That's an unearned run.In the hotel business we earn income or revenue (the same thing) when we deliver service. In my workshops we do a piece on the difference between the two types of income. Most people think that income is earned when the money is paid. But this is not the case. An advance deposit is a good example of this. When someone pays us money to hold the room we have not yet earned the income, so we cannot take that deposit and treat it as revenue yet. We must hold it as a liability until we earn it. This is a tricky concept at first glance. How can a deposit be a liability? It's a liability because use of the room has not happened yet! We have a duty to return the deposit under most conditions if the client should cancel in the appropriate period of time. These features make this transaction a liability. We record the payment as a debit to cash (asset) and a credit to the deposit account (liability).With the advance deposit example, the income is not earned until the guest actually arrives. Once the guest has come to stay, we move the deposit from the liability to the asset side on the guest ledger account. Each night they stay with us we book the room revenue, and this goes against the deposit until it is all used up. The nightly recording of the room revenue from an occupied room is a perfect example of earned income. This practice goes to support the matching principle that states we match revenues with expenses regardless of when the money is received.Another good example of unearned income or revenue is rent received in advance. In most hotels some space is rented out for shops, offices or even vitrines (a fancy word for showcases). Many times, the rental agreement will call for rent to be paid by the tenant to the landlord in advance. In this case rent is due for the entire year on January 15th. When a check for the full years rent is received, it creates a problem; the income has not yet been earned. Therefore rent is unearned income and must be treated as a liability until we earn it.With the rent example the transaction is booked as follows. The rent for January is recognized as earned and the remaining balance of the payment is placed in the unearned rent account which is a liability. From this point on, each month 1/12 of the value of the unearned rent received in January will be moved from the liability account to the rent revenue account. This process is a great example of the matching principle and the conservatism principle.We're matching revenues to the periods they are earned, in this case each month this year we can match 1/12 of the value of the payment as revenue that is earned. We are conservative in our approach to recognizing the revenue. In this case it would be a mistake to recognize all the income in January, as attractive as it might sound, as it would be a contradiction to the conservative principle. The conservatism principle clearly states that we can only recognize revenue when we're completely assured that it was earned. In the case of the rent there might be concern that the tenant could cancel the lease and be due the balance of that rent. Both of these facts tell us how to treat this transaction.A final example of unearned income that is particular to hotels is an attrition or penalty charge to a group that does not meet its commitment of room nights. In many cases this charge includes an, "if you re-book" clause that states the customer can get a credit for some or all of the penalty charged if they bring the hotel an additional piece of business. Just like the rent example above, we cannot recognize this payment as income until it is earned. In this case it's simply a matter of knowing when the condition of re-booking expires. On that date we can recognize the revenue.That is the story of earned and unearned revenues.
Article by Robert Braun

Hotel Franchise Agreements: What happened to my Area of Protection?

JMBM ·29 January 2019
Before the mergers and acquisitions, new brand launches, and the development of soft brands, a hotel chain typically had a few iconic brands in each chain scale that customers could easily recognize and differentiate from the competition. Guests could rely on their knowledge of the brands for a predictable experience commensurate to the brand promise. Moreover, it was common for brands to operate, own, or both operate and own properties, giving brands "skin in the game" and greater ability to create a uniform guest experience. Over the years, however, franchising became the preferred model for growth, shifting more of the costs of development and costs of ownership to hotel owners. Today, you would be hard-pressed to name a hotel that owns a significant number of properties.While the move to managed and franchised hotels freed up capital to invest in new growth, the brands faced a new dilemma -- how to build or convert more hotels in a market where they already had operating branded properties. After all, brands could not rely solely on fee-based revenue from existing properties growing at single-digit RevPAR to meet expectations of Wall Street investors, but they also couldn't open the same brand next to one that already existed.As brands pursued franchised growth, they have also tried to retain the right to saturate a market with their affiliated flags. Hotel brands now uniformly reserve the right to operate competing properties in the same location as existing properties -- helping them to fulfill their goal of expanding their markets. Hotel owners, of course, have a different view -- having the only property of their brand (or of any competing property, whatever the brand) is a benefit, and allows the owner comfort that they will be able to benefit from their investment.Owners' challenges in obtaining protection from competition by their brand's other hotel owners using the same reservation system.Owners see a number of benefits to limiting competition within the brand:Avoiding market confusion - if two hotels of the same brand (or similar brands) are located close to each other, it's natural that there will be market confusion, and guests can confuse one property with another. This makes it more difficult to present a predictable guest experience and reduces loyalty.Maintaining occupancy and rate - multiple competing hotels in a market makes it more likely that each hotel will operate at less than optimal occupancy, driving lower rates and resulting in direct financial and reputational loss. Hotel owners recognize that they benefit from having an adequate number of rooms in the market; they also recognize that a surplus of rooms results in losses.Intra-brand conflicts - the entry of a new competing hotel can come at the expense of an older property. A new property may have facilities that make it more attractive than an older property. Moreover, the brand will have to allocate scarce resources (personnel and funds) to the new property, diluting its attention to the existing hotel.Benefits of new builds - there is also the likelihood that a new property will divert business from an older property - everyone wants something new, the new property will be the "bright shiny penny," and the new property may have updated facilities. To compete, an existing property may be forced into an "arms war" to spend more money to retain the same patronage.Typical terms for territorial protectionGiven the importance of a territorial protection, brands offer limited comfort to owners. First, the area of protection generally covers only the specific brand, not potentially competing affiliated brands. Thus, a brand can open multiple flags appealing to the same clientele without limitation. While brands claim that each flag attracts only a specific clientele, and different brands under the same ownership do not compete with each other, that suggests a level of differentiation among consumers that may not be clear.Second, the term of the exclusion typically covers only a portion - often a small portion -- of the term of the franchise or management agreement. Brands limit the term because of the belief that a stabilized property can compete effectively with a new property. However, as noted above, new properties have inherent advantages; in fact, an older brand might need more protection in the later years of its term than the early ones.Perhaps one of the most troubling exceptions to territorial restrictions is "chain acquisitions." Brands typically exclude "an acquisition of a minimum number of hotels from the prohibition against competition, allowing a brand to acquire management or licensing rights for a property, and convert it to a directly competing flag - allowing them to do through acquisition what they could not with a newly constructed property. While brands take the position that since this does not change the competitive landscape, it ignores the fact that a new hotel under the same name will come onto the market must create a change.Why do brands care?Brands resist territorial protection for the same reason they resist any restriction on their operations - their goal is to expand to as many properties and rooms as reasonably possible, and an area of protection that seems reasonable today may not give the brand adequate room for expansion in the future. Brands may foresee that an area that can support a single hotel property today might support multiple properties in the future.Brands also argue, with some validity, that owners are protected by markets, which will not support financing multiple properties - in effect, relying on owners, lenders and investors to ensure that a market does not become oversaturated.Brands may also point to the barriers to entry in a particular location - lack of available properties, zoning and other issues that can make it uneconomical to build a property. This does not, however, protect against developers or investors who are able to overcome those barriers, or against changes to remove the barriers.What should Owners do?The greatest threat from ineffective restrictions is likely to occur in a slowdown. In a recession, a shrinking demand pie gets apportioned in smaller shares to feed all the new franchisee growth that chains have aggressively pursued.In the next downturn, as brand awareness has been diluted, fewer customers may remember what that new brand is and what it stands for. Alternatively, they may simply compare their options online and pick the best price, without regard to a specific brand.Chains currently benefit from a low-capital and low-touch franchising model while hotel owners take the bulk of the risk -- the franchisor gets a big part of hotel gross revenues (regardless of where that revenue is generated). In many cases, they take as much as 15% or more of gross revenues, when marketing, central services, reservations and other costs are included.But when chain reservation systems start generating fewer reservations during a downturn, the effective cost of being part of a chain could be significantly higher because the owner pays fees to the brand for reservations. Owners will need to work harder to source business from other channels.Since brands fight any restrictions, what should owners consider in negotiating areas of protection?First, owners need to consider the likelihood of changes in economic conditions. A good economy today may mask potential weaknesses in the market. While a market may currently support multiple properties, when the economy weakens, the need for protection will become clearer.Owners should also be aware of the different issues facing secondary or tertiary markets, compared to a primary market. A single new competitor anywhere in a smaller market could have a greater effect than a number of new competitors in a larger market.Consideration needs to be given to the importance of an AOP in an agreement. When all is said and done, the AOP is just one issue to be negotiated in a franchise or management agreement. Where does it stand in the hierarchy of issues? Can it be used as leverage for something more important?Finally, as brands consolidate, owners will find that they are competing not against another reservations system, but against their own reservation system - one of the reasons for wanting an area of protection in the first place.Like many terms in brand-generated agreements, limits on areas of protection are often presented as a non-negotiable term. The importance of territorial protections in brand agreements should encourage hotel owners to rethink them and consider how they can gain meaningful protection, and how they can leverage their bargaining power.The Global Hospitality Group at Jeffer Mangels Butler & Mitchell LLP has unparalleled experience in negotiating all aspects of brand management and franchise agreements. Contact Robert Braun ( if you have questions on how we can assist you in your negotiations.This article is one result of a dialogue with experienced professionals at Expedia, and we thank them for their insight.For more information on hotel branding, management and developmentYou will find a lot more information related Hotel Development, Hotel Franchise and Hotel Management Agreements on the Hotel Law Blog.The following are only a few of the resources you will find there:Hotel Management Agreement & Franchise Agreement Handbook 3rd edition is released for free downloadThe importance of Comfort Letters in financing franchised hotelsChecklist for negotiating Hotel Management Agreements/Hotel Operating Agreements - The HMA PRO ChecklistHotel Lawyer with insights on "How to get a great hotel operator"The 5 questions every owner should ask before selecting a hotel brandWhen should you choose a brand for your hotel? And when should the brand manage your hotel?Dual-branded hotels -- What every owner or developer should knowHotel Franchise Agreements and the 5 biggest mistakes a hotel owner can makeHotel Lawyer on Repositioning: The New York Times reports 39 percent increase in reflaggingHow to get the right hotel operator

Hilton CEO Nassetta expecting 2019 to be the 'best yet

Meetings Today Blog·28 January 2019
Hilton’s CEO and President, Christopher J. Nassetta, said he expects this year to be the company’s “best yet” in a sign the accommodation industry is set for a strong 2019. Speaking at the Americas Lodging Investment Summit (ALIS) in Los Angeles on Monday (Jan 28), Nassetta said the best year yet was more than just revenue and growth.

Hospitality Financial Leadership: Earned and Unearned Revenues - Understanding the Difference

Hotel Online·28 January 2019
Just like baseball has an unearned run as a scoring feature, in business we have unearned revenues. In this piece I will discuss the difference between earned and unearned revenue and how it applies to the hospitality business.

Tourism Tidbits: Confronting the World's Changing Economic Times

Hotel F&B·23 January 2019
Perhaps Charles Dickens said it best when he stated that we live in the best and worst of times. There is little doubt that the tourism industry is facing some interesting and challenging times. Its transportation component has to deal with the irregular and hard to predict cost of fuel, both in the form of gasoline and jet plane fuel, but also the fact that antiquated air systems combined with a major decline in customer service have made millions of travelers understand why the we derive the word “travel” from the French word “travail” meaning (hard) work.

Tax Alert: Foreign Entity Ownership Compliance - Don't Ignore the Repatriation Tax

Hotel Law Blog | By Jim Butler·23 January 2019
The tax lawyers at JMBM have significant experience in advising clients with international business interests, and keep them informed of developments that affect their businesses. Recently, JMBM issued a Tax Alert regarding the obligations of those owning an interest in a foreign entities to determine whether a repatriation tax payment must be made under the Tax Cuts and Jobs Act.

Three Ways to Safeguard Your Restaurant or Hotel Against Fraud

mycloud HOSPITALITY·18 January 2019
Restaurants and hotels used to be low-priority targets for online fraudsters, but now, online fraud trends are shifting. As omni-channel and mobile experiences expand, both the restaurant and hotel industries are becoming more vulnerable to new methods of online fraud attacks. In order to guarantee a fraud-free New Year, merchants in these sectors should ensure their fraud prevention solutions are agile enough to continually adapt to dynamic fraud trends.
Article by Erich Baum

Possessory Interests in Hotel Real Estate

HVS ·17 January 2019
What is a Possessory Interest?A possessory interest is created when a private-sector tenant is granted exclusive use of real property (land and/or building) that is owned by a tax-exempt entity, typically a municipality or a state or federal government agency. The right to occupy and use the land and/or building is usually conferred via a leaseThe Trump International Hotel opened in September 2016 with 263 rooms and was adapted from the historic Old Post Office and Clock Tower. Trump Hotels leases the land and building from the General Services Administration (GSA), a tax-exempt independent agency of the United States government.The Marriott Marquis Washington, D.C. opened in May 2014 with 1,175 rooms, on land leased from the District of Columbia (and a related quasi-public agency). The District aggregated the land through multiple acquisitions for the express purpose of expediting the hotel's development. The property functions as the District's convention center headquarters hotel.In the case of the Trump Hotel, the possessory interest includes both the land and the building. For the Marriott, the possessory interest includes only the land. As in a typical ground lease, the Marriott lease stipulates that ownership of any building improvements constructed by the tenant will revert to the landlord at the lease's termination. Thus, ownership of the Marriott includes both a possessory interest in the land and a leasehold interest in the building. In both the Trump and Marriott cases, the leases run for approximately 100 years, including extension options. Because of the long term and the high quality of the assets, each interest has an investment profile basically consistent with that of a fee simple interest, except for the property rent burden.The Four StandardsTo qualify as a possessory interest, four standards must be met. The tenancy must be independent, durable, and exclusive of the rights held by others, and it must provide private benefit to the possessor above that which is granted to the public. Independence means that the tenant enjoys the freedom to use the property without the landlord's undue intervention. Durability is established by the contractual term over which the tenant will enjoy the use. And with exclusivity, the possessor can legally exclude others from interfering with its use of the property.Sounds Like a Leasehold Interest, Right?When appraising a possessory interest, the appraiser must exclude the value of any rights retained by the public owner/landlord, or any rights that will revert to the public owner/landlord when the lease expires. These same considerations hold true for any valuation of a typical leasehold interest. Furthermore, in a typical ground or property lease, the tenant is responsible for all property tax payments, land and building. The same is true of a possessory interest. Essentially, possessory interest is different from a leasehold interest in name only, the key distinction being that the landlord is a tax-exempt public entity.Why Then Was Possessory Interest a Necessary Creation?Possessory interest as a distinct form of taxable property was created to assure that private-sector tenants occupying public property were appropriately taxed for any enjoyment and/or economic benefits conferred to them by the lease. Because the landlord is exempt from property taxation, tenants have argued that it is unfair for them to have to pay taxes on property that hasn't been taxed previously and are only now taxed because of the fact of their tenancy. Tenants have asked, why is paying rent to the government or other public agency not enough?The logic underlying the additional payment of property tax expense holds up upon further consideration. The tenant pays rent to occupy the land and/or building; that is the public's return on the value of the property. These rent payments are unrelated to ad valorem property taxation, which is levied to fund municipal services. In the case of a large-scale commercial hotel, the tenant's possessory interest tax payments compensate the municipality for the costs of providing infrastructure, fire and safety services, and public education. These burdens are funded through ad valorem taxation. Without a taxable possessory interest, the tenant's share of these expenses would be unfairly distributed to the municipality's other taxpayers.How to Value?The valuation methodology is basically the same as the methodology applied in a typical leasehold appraisal. A discounted-cash-flow (DCF) analysis is recommended; if the remaining lease term exceeds 50 years, then the standard ten-year DCF methodology typically applies, with reversionary proceeds from an assumed sale quantified at the end of the tenth year.For leases with less than 40 remaining years, HVS typically employs a DCF analysis extending through to the year of expiration, with no reversion included.Lease terms with 40 to 50 years remaining are open to interpretation. The appraiser can extend the DCF over the remaining life and exclude the reversion, or use a ten-year DCF and reversion, adjusting the terminal capitalization rate upward to reflect for the shorter lease life remaining.In cases where the contractual rent fluctuates significantly in comparison to the assumed inflation rate, the appraiser is advised to extend the DCF to the full term, no matter how many years remain, and again exclude the reversion.What if the Assignment is a Property Tax Appraisal?When determining the property value for ad valorem taxation, the ground and/or building rent is excluded as an operating expense in the forecast of EBITDA Less Replacement Reserve. The rent represents the contractual return on the possessory interest component. Excluding it as an expense assures that the possessory interest value component is captured in the total real property valuation used to calculate property tax expense. If a single-year direct capitalization methodology is applied, the property tax rate can be loaded into the selected overall capitalization rate. If a DCF is used, the property tax expense should be iterated using the total property value and the Year One property tax expense as mutual unknowns. Appraisers sometimes avoid the iteration process by loading the tax rate into the discount rate instead, but the results are mathematically erroneous, with the error becoming more significant with the magnitude of the value. In a DCF, the tax rate can and should be loaded into the terminal capitalization rate in either case, however.ConclusionPossessory interest is less complicated than it sounds. It exists primarily as a means of ensuring fair distribution of ad valorem property tax expense across the population of taxpayers. For appraisals performed for bank or acquisition purposes, the same set of factors that are associated with typical leasehold valuations apply. For appraisals developed for property tax assessment purposes, the property rent is excluded from the income approach forecast so that the possessory interest's real property value component is appropriately captured.

Understanding the Importance and Use of The Reserve for Capital Replacement

The Hotel Financial Coach ·14 January 2019
The concept for the use of the reserve account is important to understand. It is also essential that hotel operators ensure the reserve is properly funded per the terms of the Hotel Management Agreement "HMA." The use of the reserve is an important tool to utilize to protect the operator's rights and long-term viability. Many people mistakenly think the reserve account is the owner's responsibility and therefore it's up to the owner to determine and ultimately control the funding. But not so fast, the manager has a right and a duty to ensure the proper transactions are performed on a timely basis using the clauses that are in the HMA. There are many important aspects to understanding the reserve and how it impacts the ultimate success of the hotel. This includes the hotel's values as well as the value of the management agreement. One could say that there is something for everyone here!First and foremost, the intended use of the reserve account is to ensure the hotel is kept looking and functioning at a high standard. It's essential that both the owner and the brand ensure this is the objective and the funds are set aside to properly maintain the asset. The reason it is not simply left to the owner to decide the amount to fund and when is because it's often the case that the money is not available. This is due to the hotel's profit performance or the owner's other needs, which can be many and endless. Whether the hotel is making its profit targets by way of the budget is irrelevant to the requirement to fund the capital reserve in most cases. Owners are usually quick to request or even try and demand the reserving be stopped when the hotel faces a bad year or a cash crunch. These circumstances are all too often and challenging for both the owner and the manager. Operators need to be on their toes so to speak and hold the owner's feet to the fire, to do what is necessary. Protecting the operator's rights is what is at stake here. Although it may appear counterintuitive to have the manager insist the owner fund the reserve when facing a cash shortage, it is what is required. It is in the agreement to begin with because it is essential for the ultimate success of the hotel, which is what everyone wants.The clause or clauses in your HMA will outline the amount to be set aside in the reserve account. In some cases, the cash must also be transferred into a special bank account. By doing so it ensures its availability and separation from the operating funds. Look closely at the exact wording in paragraphs covering the reserve account use. Look for "funding" and "transfers." Normally it is somewhere between three and five percent of total revenue monthly. However, it is common for a new hotel to have a period where less or even no funding is necessary until the end of the capital funding grace period.From the point of view of understanding the HMA's intent around the requirement to fund the reserve, the manager needs to ensure funds are available for future improvements. This is a must for the ultimate goal of keeping the property competitive. This helps to ensure the hotel's longevity, an important aspect for the operating company as it helps to protect the all-important management fees. If the hotel fails to stay ahead of its competitive set and loses its market share, the hotel management company can also lose the right to manage the hotel. The RevPAR test is sometimes included in HMA's for the purpose of protecting the owner should the management company be unable to perform. It is imperative that the manager ensures the capital is properly funded and ultimately spent to keep the asset fresh, helping to ensure that its performance is adequate.The other test that is constantly being evaluated is the annual profit target test. Most HMA's will have a clause that defines the profit test. When it comes to the hotel's performance everything is tied together. Customers want fresh hotel products, the hotel needs a constant supply of business, the competition makes improvements, and the hotel's profits go up and down based on the performance of the asset. Availability of capital is essential to maintain the profitability in the long-run. The proper use of the capital reserve is inexplicably linked to the ongoing success of the hotel and that means the funding cannot be played with. If it is, the operator risks shooting him/herself in the foot!Be vigilant when it comes to protecting the rights of the operator and know that owners will try and distract you from your prize. The enjoyment of managing a well-capitalized hotel asset is that prize.

Book with confidence at Wotif? No, it's just 'Puffery' says Expedia·10 January 2019
Lawyers are supposed to protect the reputations of their clients, not trash them, but it looks like someone forget to tell the highly-paid legal eagles representing Expedia in Australia, who’ve inadvertently done a hatchet job on the credibility of once-iconic Australian subsidiary They did this by arguing that Wotif should not have to refund the cost of Canberra man Hugh Selby’s horror Hawaiian holiday because its “Book with confidence” statement is “puffery” (exaggerated or false praise), while saying that if you’ve got a problem with that, please read the fine print, we’ve got you covered there.

Hospitality Financial Leadership The Matching Principle

The Hotel Financial Coach · 8 January 2019
I tell my Introductory Hospitality Financial Leadership Workshop participants that the concept behind the matching principle is "the most important concept today." Why? When it comes to producing financial information, it's the cornerstone of understanding why we do almost everything the way we do it in the business world. The profit and loss statement cannot exist and be in any way accurate without using the matching principle every step of the way. Grasp this and you are well on your way to understanding the other principles and most importantly putting these principles to work in your day-to-day hotel leadership role.Some of you are probably thinking this is for the bean counters and the propeller heads to chew on. Nothing could be further from reality. Being a financial leader means you understand and employ business principles. These principles are universal and without them, you're akin to a plumber who doesn't understand why water flows the way it does. So read on and get your schtick together.You most likely have endured the wrath of someone when the financial statement came out in your hotel and you had expenses that month from a few months back. This was probably because someone else lost the invoice or failed to put it through to accounts payable. That is the matching principle getting abused! Here is what it's all about and how to use it properly.What does the matching principle mean? Why is it so important to grasp if you want to be a leader who has or wants financial leadership skills? The matching principle, because of its name and the definition, is a bit confusing at first glance. The matching principle states, in order to have meaningful financial information we must match all revenues with their costs at the time the revenue was earned. Here comes the confusing part, match all revenues with costs "regardless of when the money exchanges hands."That's right! We want to consistently match the revenues with costs at the time the revenue is earned, regardless of when the money comes or goes. This is technically the definition of accrual accounting which is the polar opposite of cash accounting. Cash accounting realizes revenues and expenses when the money changes hands. You can compare the cash accounting system to the old shoe box. Money goes in the shoe box when people pay us, and money comes out when we pay for our costs. If there is money left in the shoe box that's our profit.The matching principle provides a much clearer and very precise picture of profitability because we don't need to take into consideration the timing of payments either coming or going. It's not the case that the payments are not important. It's just not necessary to take the payments into consideration when we calculate our profit using the matching principle and accrual accounting.So how does all of this relate to hotels? Here is an example from a client who I recently helped convert from the cash basis to the accrual basis in his four hotels. He was confused because his monthly financial statements didn't always make sense. We discussed why the statements seemed too good to be true certain months and downright awful in other months. He knew that he paid his people every two weeks, which means that every month you're only recording two pay periods. It also means that every six months you come across a month with three pay periods (that's just the way the calendar works). He also knew that annually, in June, he needed to pay the real estate taxes that covered the first half of the year and the next six months. Other items also made the statements wonky, like insurance, utilities, and benefits. What he knew was the statements were bogus because he had a timing problem. What he didn't know was how to fix it.Introducing the two stars of this matching principle show: Mr. Pre-Paid and Mrs. Accrual. These might sound like ominous characters but really they are simple and straightforward. Mr. Pre-Paid acts to allow the insurance payment to be paid now and then split the cost evenly into the next 12 months. This allows for a smooth ride of the profit and loss statement rather than having it all show up this month, which is what would happen under the cash system. Mr. Pre-Paid only goes one way, pay it up front and then spread the cost evenly into the months that are covered. This is the matching principle in action.Now let's look at Mrs. Accrual. She is a bit different in that she must go two ways. Any time she goes one way she must eventually go the other way. Let's use payroll as an example. Every month I have two pay periods and to properly match my revenues and expenses I need to accrue for the missing days. Well, guess what? Next month I need to do the same thing, but I also need to reverse the previous month's accrual, so I match that month's costs to the revenues. Accruals bring expenses into my month's statement before I have the actual invoice, or with the example of payroll into my P&L before I pay people. In both expenses and payroll, I need to include everything that has been spent this month regardless of whether I have paid for it yet. Once the accrual is booked I'm now matched and expenses line up with the revenue earned. Once the accrual is recorded it's normally reversed the next month because the actual invoice showed up and the payroll got paid.I'm going to repeat myself, but it's worth it because it is so important to understand this. The matching principle works on the idea that expenses and revenues all need to be included in each profit and loss reporting period, regardless of when the money is collected for the revenue earned or when the cash is paid out for the expenses or payroll.Get this into your DNA and make sure all your departments' expenses get booked properly or accrued each month. Those invoices and packing slips on your desk need to be sent down the hall so they are included in this month's results. Without the matching principle working smoothly and completely in your hotel you will be in for a rough ride.

Anatomy of a Hotel Audit

Hotel Business Review by· 6 January 2019
These are challenging times for the hotel industry. Due to skyrocketing operating costs, most U.S. hotel groups have still been unable to reach operating margins commensurate with the industry peak in 2007. Consumer preferences demand upgrades in technology and room renovations, cutting into the bottom line even as rising salaries, wages, benefits and staffing levels add to labor costs.

Hospitality Financial Leadership: The Top 10 Interview Questions About The Hotel's Finances for a General Manager and the Best Answers

Hotel F&B· 2 January 2019
Interviews are tricky, for both the candidate and the interviewer. A GM’s job interview is a challenge for the incumbent because they need to be ready for just about anything. This is especially true as it relates to the financial picture of the business as seen through the interviewer’s eyes. The opposite is also true as many times the person doing the grilling does not have a broad base of experience relating to the daily inner workings and nuances of the hotel world. Here is a list of common questions and good answers as well as a few bonus questions you can ask the person doing your audition.
Article by David Lund

The Top 10 Interview Questions About The Hotel's Finances for a General Manager and the Best Answers

The Hotel Financial Coach ·31 December 2018
Interviews are tricky, for both the candidate and the interviewer. A GM's job interview is a challenge for the incumbent because they need to be ready for just about anything. This is especially true as it relates to the financial picture of the business as seen through the interviewer's eyes. The opposite is also true as many times the person doing the grilling does not have a broad base of experience relating to the daily inner workings and nuances of the hotel world. Here is a list of common questions and good answers as well as a few bonus questions you can ask the person doing your audition.1. What makes you qualified to be the person in charge of the financial direction and health of my hotel? This is a wide open and leading question. Wide open because the health of the hotel is like your body and every inch counts and needs to be properly looked after because it all adds up. Leading because it's designed to catch up the fair weather GM's that think the finances are the Controllers baby. The best answer here is: as the GM, my job is to lead all aspects of the hotel. The finances are what I consider to be one of the three pillars of our business. The guests, the colleagues and the money are all what I come to work to manage every day.2. Who in your opinion is ultimately responsible for the finances in this hotel?Again, this is a leading question. The inexperienced answer is: the Controller or Director of Finance is responsible for the numbers since they run the accounting department and produce the financials. The correct answer is: as the General Manager I am ultimately responsible for all aspects of the business and in this case "especially the numbers."3. As the GM what is the most important thing you will do to ensure the hotel is a financial success? This is a pinpointed question and there are several good answers. The one that I like the best is: as the GM, my job is ultimately to ensure each department in the hotel has their financial plan. I am also responsible to ensure the plan is executed on a consistent basis with a high level of success.4. What exactly does each hotel department head need to do to be successful with their financial plan and how will you ensure this happens during your tenure? This is a vision and planning question. You already laid out the vision for the departmental finances in your answer to question 3, and the best plan is to ensure each manager is trained to F TAR W on a consistent monthly basis. That is - Forecast, Track, Adjust, Review and Write. For my complete F TAR W recipe read my article at Under your tenure as the GM what are each manager's financial responsibilities? This is a wide-open question that cries out for a cracker jack answer. Exactly what is it you will be asking each leader to accomplish with their financials? The best answer is: there are sometimes three things, but always at least two for which each manager is accountable to me. These are departmental revenues in some cases, but always their payroll and expenses. The answer is simple, but most people miss this because they don't see the effective strategy of having each person on the team charged with their own piece. Many fumble this one with mumbo-jumbo about the Controller and director/divisional organization; the simple and effective method and the response is if someone does the schedule or orders the supplies for their area, they are the ones with whom we will organize and create agreements on the necessary financial responsibilities.6. What will you do when you have a bad month and miss the forecast? This is a great question and one that you should expect. We will all have months when we miss the forecast; that's just part of the game. But what will you do when you screw up is a tough question to answer. The most effective response is: learn from what didn't work, analyze the areas where we missed, examine why and determine what we can do going forward so as not to repeat the same mistakes. There will always be challenges to overcome and learning from our mistakes is the best answer. Skip the Trumpesque answer that we never miss a month or get captured (sorry I could not resist).7. What are your thoughts on managing and measuring flow thru? This is a very technical question, but it's easily handled if you understand and utilize the concept. A super answer is: it's always our focus to maximize profits when revenues are higher in the current period compared to the last and focus on retention when revenues are lower. Each area should have a detailed plan for their payroll and expenses as well as utilize a monthly flow-thru analysis to determine exactly where costs are higher. With this information we can take the appropriate actions going forward to ensure we don't repeat the same missteps. The answer shows you know how to analyze the variances with the flow-thru concept and most importantly how to manage into the next month to continually get better.8. Can you tell me your specific ideas on controlling payroll in the hotel?These guys are tough and it sounds like they are really trying to nail you down, but again if you know your stuff the answer is right in front of you. Each department must have an approved staffing guide and formula in my hotel. An approved list of fixed positions by department and a formula for determining variable payroll should be provided based on rooms occupied or cover counts in rooms and F&B. From this a weekly schedule is produced that revolves around measuring productivity with the goal of always making or beating the monthly productivity targets. Wow - I think you just got the job!9. How do you go about writing an effective monthly commentary that the owners will find useful? This question is calling out your understanding of the "full disclosure principle" as well as your broader leadership philosophy. The seasoned answer falls off the W (Write) in #4. The commentary serves three main purposes to help your hotel move forward:To tell the stakeholders what you see coming in their business that the financial statements cannot reveal like: competition, impeding regulations, capital issues, human resource challenges, etc.It's an incredibly effective way to let your stakeholders know you're on top of the many challenges you collectively face, and you use these current variances to plan and manage future activities to mitigate negative impact and capitalize on the positive.By having your management team participate in the creation of the commentary you ensure that the future direction and challenges of the business are being met in all areas by your team.10. As the GM what would be your personal leadership style? This is a wide-open question that gives you an opportunity to demonstrate how you see your role and what you will bring to the table during your tenure, should you get the job. I think a great answer goes something like this and it's two-fold. One, my belief as the GM of the hotel is that leadership is about developing my team and communicating the wants and needs of all stakeholders. This is done while continually moving the business forward. Secondly, leadership in a hotel is about knowing that all three pillars of the business are equal. We all come to work every day with a high level of enthusiasm and energy all the while knowing that the job is never done, and things will never be perfect! Sounds great right?

Vision, flexibility key to success of soft-brand hotels Featured Articles·21 December 2018
Uniqueness is the selling point of a soft-branded property, but it also can create challenges when it comes to budget.
Article by Robert Mandelbaum

Boutique Hotels: Premium Performance Impacts Flow-through

CBRE Hotels ·21 December 2018
While boutique hotels comprised just 3.2 percent of the total U.S. lodging supply in 2017, boutique projects represented 17.8 percent of the rooms in the development pipeline as of June 2018. Boutique hotels are popular with developers for a variety of reasons:* They frequently offer unique, localized experiences that are favored by today's travelers* They give the developer an opportunity to be creative with the facilities and services offered* They achieve premium levels of occupancy and ADRTo gain a better understanding of the performance of this popular segment of the lodging industry, CBRE Hotels' Americas Research (CBRE) partnered with the Boutique and Lifestyle Leaders Association (BLLA) to develop six competitive classification categories. The categories are based on a combination of branding, management, and chain-scale, three factors that influence the market position and performance of boutique and lifestyle hotels. The six competitive classification categories, along with representative brands, are listed below:* Legacy Brands/Upper-Priced: Andaz, Canopy, Indigo, Kimpton, W Hotel* Legacy Brands/Lower-Priced: A/C, aloft Hotel, MOXY, Tru* Soft Brands: Autograph, Best Western Premier, Curio, Hyatt Unbound* Referral Groups/Independent Properties: Historic Hotels, Leading Hotels, Small Luxury Hotels* Boutique-Lifestyle Brands/Luxury: Belmond, Montage, Thompson, Valencia* Boutique-Lifestyle Brands/Upper-Upscale: Affinia, Charlestowne, Joie De VivreUsing these six categories, CBRE publishes quarterly forecast reports that present three-year projections of occupancy, average daily rate (ADR) and RevPAR. Further, once a year the report provides revenue, expense, and profit metrics that allow boutique owners and operators to benchmark the financial performance of their hotels.As the budgets for 2019 performance are being finalized, we present the latest forecast and financial benchmarks from the September 2018 edition of Trends and Expectations for Boutique and Lifestyle Hotels.MARKET PERFORMANCEIn 2017, the 1,281 properties in the U.S. designated by BLLA and CBRE as boutique and lifestyle hotels achieved an aggregated occupancy of 70.5 percent, and an ADR of $208.52. This represents a 6.9 percent occupancy premium, and a 64.7 percent ADR premium, compared to the performance of the overall U.S. lodging industry for the year. During 2017, hotels in the Boutique-Lifestyle Brands/Upper-Upscale category achieved the greatest occupancy level (79.6%), while the boutique properties that are either non-branded, or members of a referral group earned the highest ADR ($253.14).Through June of 2018, the boutique segment appears to be maintaining its premium performance levels. Through the first six months of the year, RevPAR levels are up nearly 5.0 percent from the first half of 2017. Leading the RevPAR gains are the boutique properties in the Legacy Brands/Lower-Priced and Boutique-Lifestyle Brands/Luxury segments.Looking towards 2019, all six categories are once again forecast to achieve gains in RevPAR. However, like the U.S. lodging industry as a whole, the pace of RevPAR growth will slow down. Boutique-Lifestyle Brands/Luxury properties are projected to enjoy a RevPAR gain of 3.1 percent in 2019. RevPAR growth for the remaining five categories is expected to be less than 2.0 percent.FINANCIAL PERFORMANCEBecause of the comparatively high levels of personal service and food and beverage offerings, boutique hotels do achieve relatively low profit margins compared to industry-wide benchmarks. Using data from CBRE's Trends in the Hotel Industry survey, properties that meet the BLLA/CBRE definition of a boutique hotel achieved an average gross operating profit (GOP) margin of 33.8 percent in 2017. This is less than the 38.3 percent average for all hotels in the Trends sample.The impact of the higher levels of labor and food and beverage can be seen in the total operated departmental expense ratios. On average, the boutique hotels in the Trends sample averaged a total departmental expense ratio of 41.0 percent of total operating revenue. This is greater than the 37.5 percent average for the entire Trends sample. Conversely, the average undistributed department expense ratio for boutique hotels (25.2%) is just slightly above the overall sample average of 24.3 percent.As would be expected, GOP margins for boutique hotels are clearly influenced by the offering of food and beverage. Boutique hotels that have restaurants and lounges achieved a GOP margin of 33.3 percent in 2017. Concurrently, boutique properties that do not offer food and beverage service averaged 47.1 percent. When analyzing GOP margins across the six competitive classification categories, we find an inverse correlation between the ratio of food and beverage revenue to total revenue, and the GOP margin.INVESTMENT IN HOSPITALITYFor owners and developers, an investment in boutique and lifestyle hotels is an investment in hospitality. Historically, this segment has been at the forefront of new and creative facilities, services, and amenities all aimed at providing a more personal level of service and a unique experience. Yes, this puts a strain on operating expenses, and therefore limits the flow through to the bottom-line. Fortunately, the premium occupancy and ADRs achieved by these hotels provide the opportunity to achieve profit levels that deliver the desired return on investment.
Article by Shep Hyken

Do Your Customers Trust You This Much?

Shepard Presentations, LLC. ·19 December 2018
There was a magic shop in Washington, DC owned by Al Cohen. I met Al when I was a teenager. As I started to perform more and more for money, I could afford to be a regular customer of Al's. Whether I bought tricks from his newsletter or came to the shop in person whenever I was in town, Al would consider me one of his "regulars." One day Al said, "Shep, I know what you like. I get new magic books and props in here every week. If you want, I can take your credit card number and send you whatever I know you'll want. If I'm wrong, send it back."Without hesitating, I handed over my credit card info. Every so often I would receive a package from Al's shop. He was never wrong. Not once did I return an item. He knew me so well - and treated me so well - that I trusted him.About ten years ago I had a little convertible. I bought it on eBay for a few thousand dollars. I referred to it as my "hunk of junk." It was fun to drive, and it was mechanically sound. The car was 35 years old, and most regular car dealers wouldn't work on it because of its age and the difficulty to source parts. I found a mechanic who had one bay in an industrial area and knew how to work on these older cars. I remember taking my car in for service and asking him, "What's this going to cost me?" He replied with a smile, "Half of what the dealer charges. You'll have to trust me." Well, I did, and he never disappointed me. Whenever he worked on my car, it was always less than I thought it would be, and I'm sure at least half of what a typical dealer would charge. I'm glad I trusted him.Not long ago I had dinner at one of my favorite restaurants. The owner asked if I trusted him to surprise me with a meal that he knew I would enjoy. I reminded him I didn't like mushrooms. He prepared an amazing meal. It wasn't on the menu. I had to trust him, and he didn't disappoint. I can't wait to go back and trust him again.These are simple examples just to make the point. It doesn't matter what type of business you are in, trust creates loyalty. Earning your customers' trust typically takes time. It comes from a predictable and consistent set of experiences. Your customers know what to expect, and you deliver every time. They also know you won't take advantage of them. So, how much do your customers trust you?

Hotel Profit and Loss Statement: how to create it?

Xotels ·19 December 2018
Hotel Management isn't merely about strategy. There are many layers, each of which require your undivided attention. Human resources, operations, budgeting, and income and cost control are but a few areas which necessitate focus, as well as the requisite knowledge and skill. But how can you efficiently assess the business areas that generate maximized profits?To accomplish this step and provide the best platform from which your hotel will succeed, the key is to prepare and execute a carefully structured profit and loss statement. In this article as we review a Hotel P&L sample based o the Uniform System of Accounts for the Lodging Industry (USAL), a rich resource that provides numerous key insights for hotel managers.A hotel profit and loss (PnL) statement provides you with an analysis of your hotel's revenue, cost and profit performance. It helps you understand how much bottom line margin the property is making. Therefore, it is essential for any hotel manager to fully understand each line item of their P&L statement, and where pertinent, how to interpret the data to inform business decisions.Note: You may also see P&L statement referred to as your hotel income statement, profit and loss report, statement of financial results, income and expenses statement, or statement of profit and loss.They are typically carried out on a monthly, quarterly and annual basis. Although the frequency is entirely at your discretion and what you think is best for your hotel, I would recommend to review such a report at least with a monthly frequency to avoid the business moving off beyond control. Larger hotels even provide such reporting on a weekly or even daily basis to really micromanage their financial successThe importance of profit and loss statements for independent hotels1. HIGHLIGHTING CAPITAL FLOWSPeriodic P&L reports are essential for the success of your hotel, as they highlight where your profits are coming from and where your expenses are going. For this reason it is a key tool you want to make data-driven decisions on expenses and revenue at an operational level.2. UNDERSTANDING PRECISELY HOW EACH DEPARTMENT IS PERFORMINGYour P&L statement provides a close scrutiny of departmental performance across your hotel. It also allows you as the hotel manager to analyse this performance compared with your overall and departmental budgets per week, month, quarter or year.The key benefit is that it provides you with insights to identify financial performance weaknesses and strengths. You can then act accordingly to make improvements, such as through cutting hotel costs, enhancing underperforming areas, or investing in new revenue growth streams.The P&L is of course strongly linked to your other two essential financial statements:1. Balance Sheet and Liabilities (A&L) Statement2. Cash Flow StatementThe P&L feeds both these statements. Therefore, its correct and accurate structure, execution and understanding is critical to help small and independent hotels keep a tighter rein on cost control.The simple 5-step plan for an effective hotel profit and loss statement templateImplementing the following four steps will provide a strong foundation from which to develop an effective P&L report:1. Sound management of all revenue operations, producing accurate and timely numerical information for your hotel accounts department (sales figures, expenses and so forth)2. Periodic accounts department preparation of accurate and insightful P&L reports to deliver to management3. Management analysis of the P&L with the purpose of identifying where the hotel is meeting or exceeding established goals / budgets and where improvements can be made. Management must determine the correct course of action to take in order to maximize outcomes, based on the information provided by correct and accurate P&L statements4. Hotel management oversees and implements the previously decided course of action regarding improvements and the resolution of problem areas5. Periodic reviews of the entire P&L workflow process, from drawing up your P&L reports to interpretation and implementation of decisions based on their insights. Rigid commitment to a review process helps you to identify where further improvements can be made and what is and isn't contributing to the provision of value-added data and informationKPIs and elements of a hotel P&L statement:For the specific case of hotels, the most important KPIs to look at in our Profit & Loss statement are the GOP (gross operating profit) and NOI or NOP (net operating income or profit)Working out your GOP (gross operating profit)1. Add the revenue and costs from all operational departments (restaurant, bar, banquets, front office, housekeeping, engineering and others).2. Deduct all the undistributed, fixed and overhead costs to work out your NOI (net operating income) and EBITDA (Earnings Before Interest Taxes Depreciation). This is basically the profit generated from the hotel's own operations.A hotel P&L statement includes the following elements:1 . REVENUE OR TOP LINEThis is typically itemised into individual revenue sources. These include room turnover, food and beverage revenue (restaurant, breakfast, bar, room service), and if applicable, events, activities, spa membership and gift shop income, among other possible revenue sources.Once you have the figure of the total sales revenue, the cost of sale (commissions that are paid to different sales channels, for example to the OTAs ) should be diminished to obtain your gross profit.2. COSTSa) Operational expensesThese are the operational costs for delivering the services of each revenue source, for instance: restaurant, bar, banquets, front office, housekeeping, cleaning, engineering and others.b) Undistributed expensesOverheads such as administration, staff, and property-related costs.c) Fixed expensesThese costs remain constant. They include property tax, property-related costs such as building and/or equipment rental, amortization, depreciation, insurance and the interest to pay on loans or debt, such as from loans, lease and insurance.d) Interest, taxes, amortization and depreciation3. EARNINGS OR BOTTOM LINEDifference of deducting the cost from the revenue. It is also known as net income, profit or earnings.Here's a sample hostel profit and loss statement:1. REVENUE OR TOP LINETo calculate the total revenue generated:Room RevenueFood & BeverageBreakfast RevenueBar RevenueRestaurant RevenueRoom Service RevenueOther Departmental revenue:EventsActivitiesSpaTelephoneGift ShopParking2. COSTSa) Operational expenses:RoomsPayrollCleaningLaundryOtherF&BFood CostBeverage CostPayrollCleaningLaundryOtherOther departments: spa, events and othersPurchasing CostsPayrollOtherb) Undistributed costs:Administration, excluding what has been taken into account already for being related to services of the hotel.Marketing and distribution expenses, you can take into account: cost of commission to OTA, cost of metasearch, marketing expenses and other sales channels costStaff not directly related to rooms, including F&B, spa and events staffCleaningOtherc) Fixed expenses:Property taxProperty rentalEquipment rentalInsuranceBy applying the following formula we obtain our NOI (net operating income) or EBITDA (Earnings Before Interest Taxes Depreciation Amortization):Revenue - Expenses before Interest, Taxes, Depreciation and AmortizationTo conclude with the P&L statement, the final step is to calculate the following:InterestTaxesDepreciationAmortizationThe above sample is of course a simplified version of a hotel P&L statement. Your accounting department may wish to break your own P&L statements down into more detail to aid greater understanding and provide deeper insight.A final wordTo understand your P&L as well as possible, what it boils down to, simply, is this: total sales minus total costs equals hotel profits. While it doesn't need to become complicated, the more detailed your P&L, the better for your understanding and insight regarding overall hotel operability and performance.Any hotel management business that wishes to achieve healthy financial results, should invest a good amount of time to build a well structured profit and loss statement, and review it monthly with the members of the hotel executive and management team. It is a key step to your success!Download your free copy of a sample hotel P&L statement in Excel or PDFAs ever, please let me know your thoughts!Cheers,Patrick Landman @ Xotels

The Importance of Understanding the Profit and Loss Statements.

Hotel F&B·14 December 2018
As CEO of a hotel management company that has generated over €190 million in the last year, I can tell you how important it is to control every detail of your business’s finances, both on the revenue and cost side.


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