To find any successful business, financial management policies play the most vital role. Sound financial management lays the foundation of a successful business. Similarly, fundamental financial management is an important factor for most hotels. They rely heavily on such management to run their property profitably.
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Does Your Business Have Well-Defined Financial Management Policies?
Or, Are You Following Proper Guidelines To Achieve Goals?
In this article, I listed the best practices you can apply in your hotel business. These best practices are proven for ensuring growth and profit.
Let’s find out what they are:
Overview on Best Practices in Hotel Financial Management
1. Create an annual budget for your hotel
2. Build a detailed model that you can use to track your spending and budget
3. Run ongoing auditing process to track P&L (Profit & Loss) information
5. Set financial goals for your managers and employees to achieve in their respective fields
6. Build a team of highly skilled finance professionals
7. Now, let’s learn more about the best practices:
1. Annual Budget – if you want the complete financial breakdown of your property, then create an annual budget for it. It gives you a clear picture of financial goals and what you can do to achieve end goals and stability.
#Takeaway: collect and document figures to evaluate the possibility of gaining stability and financial goals.
2. Tracking Model – you need to come up with a mechanism to track expenses as well as revenue. With a budget in hand, managers can reinforce an operational tracking model for monitoring purposes.
#Pro Tip: include worksheets covering property maintenance, energy, revenue, and payroll.
3. Compare Actuals Against the Budget – how much have you spent in each operational area against the budget? Compare spending data to gain insights on the areas you need to improve on. Yes, by comparing, you can identify areas that are exhibiting inconsistencies, or the areas that are exceeding expectations.
#For Example: food expenditures may not be consistent with occupancy rates. In order to know how much they are varying, comparison can offer information over a given time frame. Your room bookings may not be consistent with revenue.
# Takeaway: actuals against the budget comparison will help you find out the negative issues that are impacting profitability. So, run all these exams.
3. Utilize Financial Reporting – standards reports can come in really handy to offer managers valuable insights on each operational area. Furthermore, specific reports can help you identify goals and strategize based on their property.
# Takeaway: create and understand the use of reports, so you can take advantage of them.
4. Accountability – from average room rate to occupancy to inventory control, there are different kinds of people at different levels. Are you all performing to your full potential? Hold the person accountable for what they do. Create an auditable environment that allows you to trace, track and sort out differences when necessary.
# Takeaway: enforce a sound hotel financial and accounting system and ensure accountability.
5. Expect Changes And Adjust Accordingly – the market is volatile. Conditions do not stay the same all the time. You should expect fickle marketing conditions. Once you have a sound financial management system in effect, you can make adjustments to adapt to changes.
# For Example: fuel costs tend to arise from time to time. If you have expense worksheets and organized cost management, you can address how the increase in cost is impacting revenue, operating expenses, and profitability.
6. Understand The Power of Financial Formula – to make your hotel a top performer, you need to implement fundamental accounting principles properly. With the well-defined financial formula in place, you can identify potential issues and make necessary adjustments efficiently and quickly.
You can operate your hotel business as expected once you have a powerful financial management system in place. To ensure growth, sound financials are imperative. In this article, I listed the best financial practices you can adopt to make your hotel business a lucrative one.
Last Updated on October 19, 2022 by Magalie D.
Magalie D. is a Diploma holder in Public Administration & Management from McGill University of Canada. She shares management tips here in MGTBlog when she has nothing to do and gets some free time after working in a multinational company at Toronto.