Businesses of all sizes across industries have found that standardized business processes bring many benefits. The same applies to the hotel industry, especially hotels interested in staying on top of their financial statements. One of the leading approaches that enable hotels to provide operation information on request is the Uniform System of Accounts for the Lodging Industry (USALI).
Regarding accounting standards, this is the go-to solution for the lodging industry. It’s important because it provides consistency, relevancy, reliability, and objectivity in accounting work.
Below, you can find more information about USALI, including its history, the most noteworthy benefits, structure & components, and how to implement it in your hotel.
History of USALI
USALI is not a brand-new accounting standard. It has been around for more than 100 years. Let’s see how it was created and why it was created in the first place.
Background and evolution
Back in the 1920s, right after World War I, the economy in the US flourished, and the lodging industry started generating a lot of revenue. Suddenly, it has become challenging for businesses in the vertical to handle financial and revenue management.
Cost control, financial reporting, financial analysis, and performance benchmarking became borderline impossible because every business handled accounting in its own fashion.
The latest edition of the standard is the USALI 12th edition which introduces a brand new section to the parties in the lodging sector. The new section is “Energy, Water, and Waste.” It includes new reporting requirements to reflect the latest sustainability requirements changes. Nevertheless, the 11th edition is still the most popular in the sector.
Reasons for developing USALI
The accounting operations in the lodging industry grew more complex with every passing year. Reporting financial activities became quite a problem for everyone in the vertical, including the lodging association.
Lodging financial and accounting professionals found a way to address these challenges, creating what turned out to be a turnkey system for accounting in the lodging sector. The 1st edition came out in 1926. The Hotel Association of New York published it. The first edition successfully solved the major challenge, thus establishing a uniform responsibility accounting system for lodging businesses.
Benefits of using it
The most noteworthy benefit of USALI is the uniform system for accounting practices for the lodging industry. It contains guidance for all businesses in the sector, which makes all accounting processes, including reporting, compatible among businesses in the vertical.
By introducing a uniform system, it managed to significantly reduce errors in reporting and make accounting transparent. We’ll address the benefits of using USALI in more detail in the advantages of using it in the section below.
USALI structure and components
As a universal system for accounting and reporting in the lodging industry, USALI has to outline and standardize a wide range of processes. Its creators decided to simplify the instructions, and they grouped them into five sections.
What should you know about each section?
The 11th edition comes with five sections. Let’s quickly go through the sections and see what each of them stands for:
- Operating Statements – this section contains operating statements for both operators and owners. It includes the following key elements: operating revenue, departmental expenses, departmental profit, undistributed operating expenses, gross operating profit, management fees, income before non-operating income and expenses, non-operating income and expenses, and EBITA;
- Financial Statements – this section includes six sub-sections: technical reporting topics such as balance sheet, statement of income, statement of comprehensive income, statement of owner’s equity, statement of cash flows, and notes to financial statements. Some of these topics are a must-do to stay compliant with the US GAAP;
- Financial Ratios and Operating Metrics – this section includes detailed examples of how to do operating metrics and financial ratios to keep track of your hotel’s financial performance. Operating metrics include rooms department operating and additional food and beverage metrics, among others. Financial ratios include liquidity, solvency, and activity ratios;
- Revenue and Expense Guide – this section includes two guides, each with detailed instructions. The revenue guide comes with Sorted by Item and Sorted by Department/Schedule and Account name sections. The expense guides come with the same sections. It can help you store and track all your revenue and expenses in one location;
- Gross vs. Net Reporting – this is the crucial section of USALI. It helps you structure your reports properly. This section covers indicators for net revenue reporting, indicators for gross revenue reporting, and case study examples of gross versus net reporting.
How to use it for financial management
Standardizing your hotel’s accounting and reporting process by USALI standards lets you discover details about your hotel’s financial performance. How to use this system to achieve it? The most important thing to do is to complete your operating statements and chart of accounts.
Completing operating statements will help you see details about your hotel’s income and expenses by category over a specific period (month/year). A chart of accounts will help you discover all costs and revenue generated by various products, services, assets, and processes, such as labor costs, food and beverage sales, and sales and marketing expenses.
Performance benchmarking
Finally, USALI enables performance benchmarking for all businesses in the lodging industry. Since all the financial reports are standardized, it becomes straightforward for hotels to benchmark their financial performance against their historical records or the financial performance in the vertical.
Implementation of USALI
If you find the benefits of USALI attractive or have to implement them to stay compliant, you should ensure that the entire process goes smoothly.
Steps to implement it in a hotel
Here is how to implement USALI in a hotel step by step.
Step 1: Bring all people in key positions together
The data you’ll have to enter into the USALI spreadsheets comes from several sources across your organization’s departments. More importantly, your accounting and front desk teams will be mainly in charge of keeping books according to standard practices. That’s why it’s essential to bring together all people in key positions in your hotel together. Provide them with an opportunity to understand the benefits this system delivers to facilitate its implementation.
Step 2: Organize hotel staff training
USALI subscribers get access to dozens of learning materials, including guides, videos, and webinars. Consider organizing hotel staff training to ensure everyone understands this system and how to use its sections properly.
Step 3: Collect all the necessary data
Once your team is proficient in USALI and everyone in key roles is up to speed, you should start collecting all the necessary data. You can review the USALI spreadsheets to ensure you have all the data required to complete them.
Step 4: Assign roles and responsibilities
To ensure USALI standards across accounting and reporting, you should assign roles and responsibilities to your department heads, managers, and other essential employees. It will help you uphold USALI implementation standards and practices throughout the organization.
Implementation challenges
Implementing a new system is always challenging, especially when it is designed to standardize a wide range of processes in an organization. Such is the case with this system. Here are the significant challenges that you can encounter when implementing SALI:
Limited knowledge
Limited knowledge is a common challenge. The departments at your hotel are used to proven processes and methodologies. USALI is a brand new concept, and the chances are that your staff doesn’t know much about it. To unlock all its benefits and avoid errors, they must be brought up to date with best practices regarding each of its five sections.
How to overcome it?
The most efficient method to overcome it is to organize staff training. USALI-related certification programs, webinars, and learning materials can enable people to use the system as advised. Once your staff goes through training, they will be able to apply their knowledge and start practicing USALI in your hotel.
When you get the spreadsheets done by USALI standards, things will get much easier as everyone will know which data is essential and how to complete the data entry process.
Lack of executive support
Lack of executive support is among the most common challenges when implementing new systems and solutions impacting core business processes. Such is the case with USALI as well. Before implementing it, you will need to get the green light from all the shareholders and managers. Fortunately, there is a straightforward way to overcome it.
How to overcome it?
The implementation depends on how well you pitch your idea to the executives and shareholders. You should make a data-driven presentation for the meeting. It should include information on what USALI is, what it can do for your hotel, and why you should go through the trouble of implementing it. You should highlight the benefits and how they can help you streamline financial management and reporting for your business.
Change-resistant organizational culture
Change-resistant organizational culture is not something that only happens in the lodging vertical. Businesses across industries face this challenge. It’s to be expected when you think about it. Your staff is already used to managing processes in a well-established manner. How do you motivate them to abandon the old practices and start using something they’ve never used before?
How to overcome it?
You should invite everyone to the meetings from the very start. It’s of the utmost importance for everyone in key departments to understand what USALI is and how it will help them manage finances and reporting. The focus should be on why it is better than the current methods and what makes it easier to use.
Data silos
Finally, data silos are common in organizations that haven’t entirely digitized their business processes. When the departments are not interconnected, the data they generate remains only relevant to them. There is no centralized location where they can keep the data and use it for insights and data-driven decision-making. To unlock the full potential of this system, you need to centralize your data and keep it well-structured and error-free.
How to overcome it?
To streamline the implementation, you should consider various digital solutions to help you track, monitor, record, and store your data. Suppose you are not using a hotel POS system. In that case, this would be a nice opportunity to start using one to facilitate room reservations management, guest check-ins and check-out tracking, payment processing, and data collection. In addition, you can assess the following solutions that are compatible with USALI standards for your hotel:
- Hotel Back Office for Microsoft Dynamics – this software will help you manage your entire hotel’s accounting;
- Finoko – this tool streamlines data collection, reporting, and financial statements all by the latest standards;
- Docyt – this platform leverages AI to automate accounting for your hotel and get access to USALI financial statements in real time;
- WORTH – this is another USALI-friendly profit-management tool for hotel owners.
How to overcome these challenges
Fortunately, there are a couple of methods to help you overcome the above-listed challenges. Lack of executive support and change-resistant organizational culture calls for a comprehensive approach. You should find relevant case studies to communicate the value of implementing USALI to decision-makers and department heads. Your strongest argument is the significantly increased potential for performance benchmarking.
Examples of hotels that have successfully implemented it
Now, let’s go through some implementation case studies to help you better understand the main concepts, challenges, and benefits it delivers.
Effectiveness and efficiency in the Portuguese hotel companies
This case study assesses the value USALI brings to Portuguese hotel companies with the co-leadership model. Remember, this system makes it easy for everyone to understand hotel financial reports. The study finds out that USALI enabled Portuguese hotel companies to significantly improve effectiveness and efficiency. The study finds that the effect comes from the system’s capacity to increase productivity in hotels where co-leadership exists.
USALI streamlines decision-making for Hotel Baía managers
A case study of Hotel Baía and the implementation of the USALI account management system tells us that it can help with decision-making. The financial data is easy to access and understand. This case study also shows that hotels can make adaptations when needed. The hotel in question introduced some adaptations to USALI to use it not only for reporting but also to inform internal decision-makers.
USALI in financial reporting in Madeira Archipelago
This case study is here to help you understand that you might have to postpone the implementation. The researchers included all hotels in the Madeira Archipelago to find out how many of them use USALI. They’ve found out that adoption rates are above 61%. The hotels that didn’t implement it share a common reason – they were satisfied with the current accounting system.
Advantages of using USALI
The most important advantages of using this system include improved hotel revenue management, cost control & financial analysis, and financial reporting. Let’s dive into specifics.
Benefits of hotel revenue management
You probably know that the hotel revenue management’s ultimate goal is to have the right room for the right person at the right time. How can USALI help with this? USALI provides you with in-depth insight into your hotel’s financial performance. You can benchmark your performance to predict customer needs and demands and make relevant pricing and distribution strategies.
Cost control and financial analysis
USALI standards will reflect on your entire “track and record financial operation” in your hotel, including revenue and expenses. You can take cost control to another level once you get instant insight into how much every asset costs and see how much revenue it generates. You can analyze your finances on demand and compare your hotel’s performance to past months and years.
Financial reporting
USALI was initially created as a system for standardizing financial reporting for businesses in the lodging industry. If you are looking for a comprehensive financial statement and reporting system, it can provide you with everything you need.
Conclusion
USALI is one of the most critical standardization systems for accounting and reporting in the hotel industry. It enables hotels to keep books and uniformly submit financial reports. This approach allows a hotel to quickly compare its financial performance against its historical data or perform benchmarking against competitors’ hotels in the niche.
Furthermore, this system helps streamline revenue management, cost control, financial analysis, and financial reporting. It’s a system that has been around for almost a century now. Due to the benefits it offers to hotels, USALI standards are penetrating the rest of the travel sector. It’s safe to assume that the system will continue to be a go-to standardization system for management accounting.
FAQ
The new edition comes out approximately every ten years. The USALI 11th edition was published in the spring of 2014, while the latest 12th edition is scheduled for release in the fall of 2023.
No, USALI is not reserved for the lodging industry in the United States. It is applicable in countries outside of the US as well.
The USALI handles different currencies and exchange rates via the “Miscellaneous Income” section, where hotels can track, record, and review foreign currency exchange income.
While USALI is the most common standardization system for accounting and reporting in the lodging industry, a solid alternative would be the International Financial Reporting Standards (IFRS).
USALI integration doesn’t disrupt the hotel’s existing financial software and processes. It has a minimal impact but, in return, makes data information intelligible.
Unless the laws and regulations in your country specify that your financial reports should reflect USALI standards 100%, you are free to customize them to fit the unique needs of your hotel or lodging business.
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.
