Hospitality Financial Leadership - Balancing Daily Revenues and Settlements

By David Lund - The Hotel Financial Coach

21 February 2022
Lund

The hotel business is a form of retail business. Every day we must balance our revenues with our settlements, just like you would if you owned a store. Or for that matter any business that has sales every day and the customers pay for their purchases at the time of the sale.

But (and it is a big but) the hotel world and the daily balancing act is different. That’s what this is about, why we are different and what you need to do to safe guard your assets. In this case you need to be able to balance the day’s receipts and keep the accounting on your general ledger nice and neat and most importantly, what we in the business like to call clean.

To understand what to do, look at what is going on inside the hotel business because this directly affects the accounting approach.

To contrast the hotel to a store: A store is one dimensional. The one dimension is a sale equals a settlement. If someone buys a sweater, you credit the sale and the taxes collected and debit their form of payment. Do this one thousand times in one day and that is pretty much the end of the story.

In the hotel world things get dicey because it is three dimensional

  • One dimension is performing the transactions like the sweater example above. Perhaps it is a guest who buys lunch and pays with cash. Simple and neat, one and done, just like the sweater.
  • The second dimension is the guest signs the meal to their room and they are staying for a few days. The cash for the sweater gets replaced by a charge to the “guest ledger.” This is a running tab of charges is kept for the guest during their entire stay.
  • The third dimension that might also occur is the guest leaves the hotel and, because they have credit, is sent an invoice. All the while in dimensions two and three the daily work must balance, including the subledgers and recognition of all revenues.

For both the second and third dimensions this is where subledgers come into play. If the guest charges the lunch to the room the credit is for the sale and the corresponding debit is to the guest ledger. The guest ledger is the running balance of what the guests in house owe the hotel. The guest ledger is a form of a receivable.

Then, if the client has what is called “city ledger” approval when their stay is over, and they check out, the guest ledger is credited and the “city ledger” debited. This means an invoice is sent for payment. This also is what some properly refer to as a receivable. These subledgers live in detail inside the property management system and they need to tie back to the control total on the general ledger. This is the point where most people can lose it, at least for the first few times.

Not only do you have to account for the sales and settlements to cash and credit cards like a normal retail operation does daily, you also need to able to balance the guest ledger and the city ledger to the property management system totals as well as to the general ledger.

If you are not aware and on top of this additional balancing act that must be done daily things can quickly get out of control and it is possible that you are never aware of what is really going on.

Here is an example of what can and does happen often if you do not comb through the entire mess every day:

The guest comes to check out and there is a problem with their account. Perhaps they had a service problem like cold water or a noisy room, or maybe their lunch did not sit well. They complain and demand a resolution (sound familiar?). The front desk has the ability to check that room out with a balance and not process a payment right away or in fact, ever. That balance will just sit there until someone does something with it. A responsible individual needs to review the guest ledger details report “daily” to ensure this does not happen.

Another aspect that also can complicate things is the need to balance the subledger to the general ledger and this should be done daily. Problem is that not everyone posts the transactions daily. Some do it monthly by posting a bigger entry with all 31 days included. If this is the approach it can still work, but you need to make sure you are checking the balance of the subledgers to the GL daily. You do this by capturing the net change and tracking the opening balance plus the net change to calculate the theoretical balance of the general ledger. Then compare this to the property management system’s detailed guest ledger report.

For many hotels, this daily process and daily balancing act is missing. If you compare your guest ledger detailed report to your general ledger control total and they do not match it means you have a problem that needs sorting out. One way or another you need to correct it (probably taking a hit to your P&L).

So, do not overlook this super important process. Ensuring your business is in balance is a daily exercise. Don’t ever miss a day!

For more information about David Lund, visit hotelfinancialcoach.com

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David Lund

28 Kineo St
Portland, ME 04103
United States
Phone: 4156969593
hotelfinancialcoach.com

David Lund

David Lund is The Hotel Financial Coach, an international hospitality financial leadership expert. He has held positions as a Regional Financial Controller, Corporate Director and Hotel Manager with an international brand for over 30 years. He authored an award-winning workshop on hospitality financial leadership and has delivered it to hundreds of hotel managers. David coachs hospitality executives and delivers his Financial Leadership Training throughout the world, helping hotels increase profits and build financially engaged management teams. He speaks at hospitality company meetings, associations and he has had several articles published in hotel trade magazines and he is the author of three books on Financial Leadership. David is a Certified Hotel Accounting Executive through HFTP and a Certified Professional Coach.

David Lund

The Hotel Financial Coach
Phone: +1 415 696 9593
david@hotelfinancialcoach.com