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How to analyze your P&L statement

Key to understanding your hotel’s profitability, your P&L statement outlines your profits or losses over a given time period—as the name suggests. If you’re unfamiliar with the role P&L plays in a hotel or would benefit from examples of profitability in practice, we’ve covered those in earlier articles.

However, if you’re ready to move onto analyzing your P&L statements and gaining insights into your hotel’s profitability, the below article should guide you on how to read your statement. Plus, we’ll point out some common pitfalls and offer some tips along the way.

A brief recap of the P&L statement

One of the three key financial statements, profit and loss tells the narrative of your business over a specific period of time. For most hoteliers, accounting software automates reporting for their properties and provides quick insight to income and other financial areas.

The key question is what you do with the numbers provided by your system? How do you read this data? In order to understand the numbers, you need to have a handle on the document structure. This is the way to P&L statement success, at least from an analysis perspective.

How to analyze your P&L statement?

A significant proportion of the hospitality industry follows guidelines laid out in the Uniform System of Accounts for the Lodging Industry (USALI), now in its 11th edition. This is what we use at STR to enable apple-to-apple comparisons when receiving P&L data from our clients.

So, we will use these guidelines to talk you through a typical hotel P&L statement. All USALI-based statements look alike, so once you can read one then you’ll be able to read them all. Now, let’s have a look at the structure of this report:

Revenues

Revenues represent the amount of income generated by your property’s in-house and outside guests, the full list of revenue sources consists of:

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P&L statement revenue sources breakdown

Departmental Expenses

Next, you have all expenses linked to the above departments. These are your direct costs and vary dependent on your number of guests, as they are directly linked to hotel operation. A hotel will only generate room expenses if the guest stayed in this room, because they will use amenities, bed linen and so on.

In different industries, it’s what we call cost of goods—how much you spend to purchase what you’re selling or providing. These costs, which are quite high in hospitality, vary widely depending on industry.

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P&L statement departmental expenses breakdown
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How to apply Miscellaneous Income to your P&L statement
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Analyze expenses as ratio to sales for effective benchmarking

Undistributed Expenses

As you might expect, undistributed expenses are those not directly linked to the hotel operation but still necessary for the hotel to run. They are linked to back-of-house departments that have no direct contact with guests such as property and maintenance—this team is not directly in contact with guests, but is vital to operations.

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P&L statement undistributed operating expenses breakdown
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Your IT&S department should include all expenses related to your IT department

Gross Operating Profit (GOP)

This is the revenue left after subtracting departmental and undistributed expenses.

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Monitor gross operating profit over time to understand financial health

Fixed Expenses

The final category is called fixed expenses because these costs do not vary in relation to your hotel’s guest numbers. While you can adjust your rooms department costs dependant on occupancy levels, you cannot adjust your rent or insurance payments—regardless of whether you experience 20% or 80% occupancy.

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P&L statement fixed expenses breakdown

NET INCOME

This is the final bottom-line profit number of a business, after all expenses have been deducted from revenues. From this value you can view your net profit or loss. It is essentially the remaining amount once you’ve paid for everything that your hotel requires in order to operate. Or, in simpler terms, what the owner takes back.

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Managing your net income effectively in your P&L statement

Conclusion

With a strong understanding of your P&L statement, you are better positioned to assess the financial health of your business, opportunities for growth and how you compare with the competition. Ultimately, this process helps you decide if you’re on the right track.

Our P&L program is here to guide your decision making when it comes to the bottom line. Learn more here or contact profitability@str.com

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