You can’t Create a Hotel Cash Flow Statement Without These 4 Things

hotel cash flow statement
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What is Cash Flow in the Hotel Industry?

As for virtually any business, cash flow management is an essential function for the daily running of hotels that tracks the income coming into an organization as well as income that ultimately goes out. By understanding how their cash flows perform, hoteliers can effectively address their liabilities and determine how much revenue is left in reserve.  

With an effective cash flow management process, hospitality-based organizations can importantly establish if the amount of revenue being raised is sufficient to pay off expenses that are necessary to maintain hotel services and ensure that guest expectations continue to be met.  

What is a Hotel Cash Flow Statement?

Central to this financial process is the cash flow statement, a crucial pro forma financial document for industry professionals that serves as a roadmap pointing to both current and projected business health. Complementing balance sheets and the income statement as well as loss statement, a hotel cash flow statement is a key piece of the financial puzzle that no hotel should overlook. 

In this article, discover the main components that make up a hotel cash flow statement in order to ensure an effective analysis, as well by step-by-step instructions on how to prepare a cash flow statement for hospitality-based businesses. 

How to Create One?

An average cash flow statement can be broken into three main sections: cash flowing into a business from operational activities, cash flowing in from investment and cash originating from financing activities. However, businesses have two slightly different approaches when it comes to creating a cash flow statement known as the direct and indirect methods.  

Operating activity

Both methods arrive at the same numerical value. However, the direct method provides an easier to understand analysis at the cost of taking more time to compile due to requiring data on every transaction taking place during the analyzed period. Conversely, the indirect method is often preferred as it provides results faster and is tied to the balance sheet.

If utilizing the indirect method, the first step in the cash flow statement creation process is to identify starting cash and cash equivalent balances for a specific period. This information is typically included within an income statement for the same timeframe. 

Regardless of which method is ultimately used, a cash flow statement first looks at cash flow from operating activities, a vital aspect demonstrating how much an organization has been able to generate from its service offerings. With the direct method, hoteliers combine all cash received from their operations and subtract all cash flowing out of operational areas. 

With the indirect method, hoteliers begin analyzing operational cash flow by starting with their net income total as mentioned above, and making adjustments to the sum based on changes in balance sheet accounts. Either method serves the purpose of forecasting the ability of operations to meet financial commitments, and ultimately is a matter of preference.   

Investing activity  

Once operating activity cash flows have been entered in, the cash flow statement next takes a look at investing activities. For hotel-based businesses, this includes any asset purchases and sales representing free cash such as new equipment and property expansions.  This may also include payments received as a result of a merger or acquisition. 

Financing activity

With financing activities representing the final section, hoteliers are able to analyze their cash flows from debt and equity. This includes listing cash flow transactions for dividends and repayment of debt principals. Within this section, hoteliers should keep in mind that any capital raised is considered cash flowing in, while the paying of dividends represents cash flowing out.  

Ending balance

Once cash flows have been compiled for each of the three activities, hoteliers must lastly calculate their ending balance. This sum importantly provides a valuation on what a business has either gained or lost during the reporting period. Achieving a positive net cash flow is the goal as it demonstrates hotel profit with more cash coming in than leaving an organization.   

Also able to indicate if a hotel is spending more than it is earning, a cash flow statement remains a crucial tool for hoteliers seeking to gauge financial plan performance and determine if any strategy adjustments are needed. It is a key asset that guides decision-making at virtually all hotel business levels and can mean all the difference between profitability and bankruptcy. 

What are the Usual Cash Flow Statement Formats for Hotels

Hospitality professionals have several options at their disposal when it comes to creating and managing cash flow statements. For those with accounting experience, many opt to use either an Excel template or an online platform such as Google Sheets as a cheap method for monitoring cash flows and performance forecasts. 

hotel cash flow statement

Yet for less financially adept hoteliers, the use of spreadsheet templates can become a time-consuming task that is prone to calculation errors if not managed with utmost care. To sidestep such potential concerns and risks, some hotel businesses may simply decide to contract an accounting consultant. However, this option tends to come at a significant cost.

The third option is to adopt a software solution that can automate and simplify much of the processes that go into creating a cash flow statement. Using this approach, hoteliers can let such solutions handle the hard work of performing calculations with the knowledge that any results are always accurate and sidestep the need for verification. They can also readily access a range of templates in order to effortlessly address any specific analytical need.   

Hotel Cash Flow Statement Examples

As with many things, and especially when it comes to finances and accounting, demonstrating how to create an effective cash flow statement for hotels is perhaps best achieved by including a visual example. The image below features cash flow statements for Hyatt Hotels over the course of several years:  

Cash Flow Statement Example

This example clearly includes the three main cash flow statement fields: Operating activities, investing activities and finally, financial activities. Under each field are related subsections that may differ according to the specifics of each business operation or the type of analysis sought out.   

With all the necessary fields calculated, including changes in property and equipment assets under operating activities, as well as fluctuations in long-term debt and equity under investing activities, net cash flow is indicated towards the end of the statement. 

By leveraging such information, the hotel brand can see that it operated with a negative net cash flow for 2021, while 2020 and 2019 represented positive net cash flow years. Such an analysis can prove vital to identifying what led to a reverse in performance in order to understand how a business can get back on track towards sustainable profitability and growth.

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Maína is the Head of Business Development Americas at UpStay. She graduated in Hotel Management and in German language and completed an MBA in Digital Marketing and E-commerce. She is a professional from the hospitality industry with experience as Distribution Director of a Brazilian group of 30 hotels and the Americas Director of an international Sales & Marketing representation company.
Maína considers herself an excellent communicator. She is a native speaker of Portuguese and speaks 4 other languages: English, Spanish, French, and German.

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