For any business, including hotels and resorts, effectively managing income is a key, if not the most important aspect of managing a successful and profitable operation. It is what ultimately leads to the meeting of revenue management goals and ensures sustainable business growth.
However, there is a wide range of factors that can come into play that influence a hotel’s income analysis. Should any field be overlooked, hoteliers can be left with an inaccurate reflection of their income generation, resulting in increased risks such as overspending that can upend financial projections and lead businesses exposed to potential bankruptcy.
Fortunately, hoteliers are not without effective tools that can ensure a comprehensive and always accurate assessment of income performance. This significantly includes the hotel income statement, a crucial financial document able to provide vital insight into a property’s overall organizational health.
What is an Income Statement in the Hotel Industry?
Using an income statement, hoteliers can easily review their financial performance for a specified period of time. Income statements importantly provide a uniform system that depicts the amount of revenue a business has generated by each source. Just as important to business planning efforts, it also lists a hotel’s various costs and financial responsibilities.
An income statement lastly reflects business net income, effectively demonstrating hotel and resort profitability while also offering vital insight into the financial resources a property has available for further business investment.
The 4 Main Parts of a Hotel Income Statement
As a comprehensive roadmap of a hotel’s incoming and outgoing finances, income statements include four key sections that should be on any financial planner’s radar. First and likely top of mind for many hoteliers is revenue. By reviewing this section, hoteliers can analyze all revenue sources in order to determine overall monthly income or income for another specified period.
Operating Revenue Versus Non-operating Revenue
An income statement’s revenue section is typically further broken down into two parts: Operating revenue and non-operating revenue. Operating revenue includes income from all primary sources, including guest room reservations, F&B purchases and amenity rentals, to name a few examples.
Non-operating revenue, on the other hand, covers income generated from sources that are not directly related to a hotel’s service offerings. This can include interest earned on revenue that is held in a bank account, or royalty fee earnings from business partnerships.
Within the gains section of an income statement, hoteliers are able to record and analyze yet another source of revenue that does not come from a property’s typical services. This may, for instance, include the selling of long-term assets such as equipment, land or fleet vehicles.
Key to managing a healthy business is determining the cost involved in supporting services that ultimately generate a hotel’s income. This is where an income statement’s expenses section comes in. Like revenue, expenses are segmented into several sub-sections in order to provide a clearer and more transparent understanding of various financial commitments:
Operating expenses include all costs necessary to provide and support a hotel’s various service offerings. Several examples can include stocking up on F&B inventory, payment of staff or purchasing housekeeping supplies. Without adequately anticipating such costs, hotels risk service disruption which inevitably leads to reduced profits and reputations.
With non-operating expenses, an income statement is able to provide hospitality businesses with a complete picture of all financial commitments that go beyond supporting a property’s services and amenities. Some examples include the payment of taxes or interest on loans.
The final section of an income statement refers to any financial loss that a hotel business incurs with regard to selling long-term assets or when faced with unanticipated costs such as legal fees or penalties. Hotel management can leverage this loss statement analysis to ensure that unpredictable costs don’t upend financial projections or effective resource planning.
How to Create a Hotel Income Statement Step-by-step
First Determine the Reporting Period
Before getting into the specifics of compiling each section that makes up an income statement, hospitality businesses first need to identify the appropriate timespan they wish to review. Commonly utilized reporting periods include creating statements for a monthly, quarterly or annual review, with each providing a specific list of benefits.
A monthly income statement is typically used for identifying any necessary adjustments that affect business services and operation in the month to come. This, for example, could include a need to purchase additional F&B inventory due to an onsite conference that is set to increase overall occupancy numbers.
In contrast, an annual income statement provides a high-level overview of any business performance trends over time. This significantly allows hoteliers to identify any opportunities or risks that may require a strategy shift and/or change in long-term investment efforts.
Adding Up All Revenue Sources
Fortunately, performing calculations for an income statement involves only basic arithmetic, and with regard to business revenue, a property needs only to add up its various revenue-generating streams. However, hoteliers must take care to include all revenue sources in order to obtain an accurate assessment of income performance.
While some properties view it as an optional step, it is recommended to segment revenue into operating and non-operating revenue categories as this provides hoteliers with a better grasp on precisely how and where their income is generated.
Moving on to Business Expenses
Next up in creating an accurate income statement that reflects business performance health is ensuring that all expenses are included for the time period under review. This again involves listing each item that consists of a business expense, followed by adding all such items together in order to determine a property’s total expenses.
Some properties may again opt to include all expenses within just one category, and this is ultimately up to their discretion. Some may also include losses within the same category depending on if there are any to report.
However, to really gain a complete understanding of where each expense is coming from in order for more informed decision-making, it’s strongly advised to list each expense item within separate operating and non-operating expense categories along with a designated loss section (if applicable).
Determining Net Income
With all income, gains, expenses and losses accounted for, the next and final step is to calculate a property’s net income. To make things easier, included below is a formula that is typically used to calculate net income performance:
Net Income= (Revenue + Gains) – (Expenses + Losses)
Being able to identify a hotel’s net income is crucial for effective business planning. After all expenses and other financial responsibilities have been subtracted, what is left ultimately represents a property’s profit. This is the revenue that hoteliers have available to add to their saving accounts, make additional investments or otherwise increase business expansion efforts.
How to Read a Hotel Income Statement: A Use Case Example
Likely the best way of demonstrating how an income statement works and what information is included is to provide a visual example. Below is a screenshot of an income statement from the Grand Hotel that takes a look at the year-over-year performance:
First up on the property’s income statement is revenue, which the hotel decided to break down by rooms, F&B, telephone and ‘rentals/other income revenue,’ which essentially is the property’s non-operating revenue/gains.
Under each of the rooms/F&B etc. categories and following revenue also comes operating expenses. Rooms, for example, list out items such as employee payroll which are required in order to adequately service each guestroom. The same applies to F&B and telephone services which likewise require employees to maintain operations.
In this example, the hotel has also created a separate section for additional ‘undistributed’ operating expenses that don’t necessarily belong to a specific department, but are nonetheless essential to running a modern hotel business. These include costs associated with marketing, maintenance and energy bills.
Listed separately towards the end of the income statement are items such as ‘property taxes’ and ‘insurance,’ which can be considered non-operating expenses. Also featured is a category listed as ‘depreciation,’ which can be regarded as one of the property’s losses. This same section also includes an example of non-operating income which comes in the form of interest.
With all relevant incomes and expenses accounted for, the Grand Hotel is able to calculate its final ‘net income’ section. Doing so not only allows the property to determine their level of profit for the year, but by performing a year-over-year analysis, they can see that their current business strategy is resulting in sustainable profit growth ($5,400).
Income Statement Formats for Hotels
A quick Google search of income statement examples can demonstrate that they can be as varied as the diverse needs of each hotel business. However, hoteliers are able to select from a wide range of excel templates in order to identify one that fits their specific requirements best.
In addition to excel, some hoteliers may prefer using online spreadsheet versions such as Google Sheets. This can provide the advantage of making and sharing updates in real-time with other team members, sidestepping communication delays while ensuring both informed and speedy decision-making abilities.
There are also accounting tools available that can assist with simplifying much of the income statement creation process, while also reducing the likelihood of making inadvertent mistakes. For example, Intuit offers several tool package options for businesses to choose from based on their specific reporting needs.
Ultimately, hoteliers should work closely with their designated finance management team members in order to identify a template and workflow process that works best for them.
Income statement samples
Template in excel
For hoteliers seeking to use excel for their income statement needs, included below is another example that can serve as an effective template for what sections and fields should be included:
Graduated from Standford University, Arielle has over 5 years of experience in the Hospitality industry. She holds an MBA in business administration from the IDC Herzliya, Israel. She currently works as Account Manager at UpStay, building and maintaining strong, long-lasting customer relationships. She is deeply passionate about helping hoteliers unlock significant new revenue streams from unsold premium inventory.