Let’s be honest. The first time we all opened a hotel’s P&L (profit & loss) statement, it felt like trying to make sense of a foreign language. If you’ve ever tried to read a P&L, squinted at the numbers, and quickly closed it, you’re not alone.
Your hotel has guests. You’re earning revenue. Easy, right? What’s the point of diving deep into your hotel’s financial statements? Well, here’s the truth: revenue can shift in a heartbeat. An often overlooked part of managing a budget is that it’s designed with certain revenue targets in mind. If you fall short one month, spending likely needs to be cut.
That’s where P&L statements become crucial. Knowing how to read a P&L statement is one of the most powerful skills a hotelier can develop. These documents show you where your hotel has been, where it’s bleeding money, and where it’s quietly crushing it. That way, you can accurately refresh your budget to provide the best possible experience to your guests without eating too much into your bottom line.
In this guide, we’ll break it all down together. You’ll learn how to read a P&L and why these statements can make or break the growth of your business.
What Even Is a Hotel’s P&L Statement?
We probably don’t have to be the ones to tell you that running a hotel isn’t just about selling rooms. Often, it’s several businesses running under one roof. As an owner, you’re selling lodging, maybe operating a restaurant, and even offering event or meeting spaces. Your hotel’s P&L, sometimes referred to as an income statement, shows you:
- How much money your hotel brought in (revenue)
- How much it spent (expenses)
- And what’s left over (profit)
It covers a specific time period, usually a month, quarter, or year. Importantly, it’s not only for accountants. It tells you where you made money and where you might be losing it. As an owner, knowing how to read a P&L can help you spot things such as:
- Rooms performing well
- Restaurant sales slipping
- Increases in sales or marketing spending without higher profits
How Hotel P&L Statements are Structured
So, what sections can you expect when learning how to read a P&L statement? Think of it less like a spreadsheet and more like a step-by-step story of how revenue turns into profit. Here is a sample P&L, line-by-line:
1. Revenue: This is the top line, literally and financially. Often this is broken down by department: Rooms, Food & Beverage, Events/Meetings, Other (spa, parking, and resort fees). Remember, this is the starting line, not the finish.
2. Departmental Expenses: This is where many hoteliers fall short. Revenue is great, but you need to subtract the costs required to keep the lights on. For example, your hotel’s P&L could account for housekeeping supplies, food costs, and any wages for staff working during events.
3. Undistributed Operating Expenses: These are costs shared across your property. Think admin costs, marketing expenses, property operations and maintenance (POM), and even utilities. While these costs don’t directly affect revenue, they’re essential to providing the best guest experiences.
4. Gross Operating Profit (GOP): Once you subtract departmental and undistributed operating expenses, you get your GOP. It shows how profitable your hotel is from operations before debt, taxes, and other non-operational costs.
5. Fixed Charges or Other Expenses: Insurance, property taxes, management fees, and depreciation or amortization are all expenses you can see on this line when reading a P&L statement.
6. Net Income: Otherwise known as your true “bottom line.” This tells you if the business really made money during that time period. The higher the number, the greater your total income.
Reading a P&L: Key Terms
Before we dive into how you should leverage your hotel’s P&L statement, let’s quickly break down some terms you’ll likely come across:
- ADR (Average Daily Rate): It might sound like a complicated formula, but this is essentially the average price guests pay per room. Say you sold 100 rooms for $15,000. Your ADR would be $150.
- RevPAR (Revenue per Available Room): This is how much revenue each room generates. You calculate this number by multiplying ADR by the occupancy rate. So, if your ADR is $150 with a 75% occupancy, your RevPAR would come out to $112.50.
- NOI (Net Operating Income): When learning how to read a P&L, it’s critical to understand this number. Your hotel’s NOI is the total profit after operating costs and fixed expenses.
- Flow-Through: This is how much revenue turns into pure profit. Every hotelier dreams of this number increasing, as it represents the amount of money that stays in their pocket.
How to Leverage Your Hotel’s P&L Statement
You know how to read a P&L. You’ve seen a profit & loss sample template. Now, how do you put the numbers to work? Here are our top four tips for ensuring your hotel’s financial statements don’t go to waste:
1. Look at Trends: Don’t simply look at a month and forget about it. Is revenue growing? Are labor costs creeping up? One month doesn’t tell the story. Analyzing year-over-year (YoY) can help you tell a more complete story to include major events such as the Super Bowl, World Cup, and more.
2. Compare Budget and Forecasts: Is your hotel hitting its revenue goals? If not, do you know why? A hotel’s P&L without any benchmarks is simply a grouping of numbers.
3. Ask Smart Questions: “Why are utility costs up 20%?” “Are we spending too much on F&B labor for what we’re bringing in?” “How much profit is each room actually generating?” These are just a few of the questions all hoteliers should ask themselves when reviewing their hotel’s financial statements.
4. Consider Accounting Software: The risk of manual reporting errors is always high. With M3’s award-winning accounting software designed specifically for the hotel industry, you can automate your P&L statements and enjoy daily reporting. Schedule a demo to learn more about how our solutions help hoteliers take the guesswork out of bookkeeping.
Frequently Asked Questions
What is a profit & loss statement?
A hotel’s P&L statement is a financial report showing how much money the business earns, how much it spends, and whether it turned a profit over a specific period.
Is profit & loss the same as an income statement?
Yes. Understanding how to read a P&L statement is the same as knowing an income statement. Different industries use different terms, but both show revenue, expenses, and profit over time.
How can I generate a profit & loss statement?
You can generate your hotel’s P&L using accounting software, spreadsheets, or reports. This will track recorded revenue and expense data over a specific time period.
How do I prepare a profit & loss statement?
To prepare a P&L, total your revenue, subtract operating and overhead expenses, and calculate the remaining profit or loss. Most businesses rely on accountants or software to organize it correctly.
