April 20, 2021

Hotel Accounting 101: What Every Operator Needs to Know

by The Ottimate Editorial Team

In the US, hotel accounting is a logistical challenge as much as it is a business one.

Hotel accounting is a process that requires a seamless flow of data and communication across departments, vendors, revenue streams, and properties in different geographic locations — each with different regulations and tax codes.

Today, the U.S. hotel industry generates nearly $200 billion annually — a 40% increase from a decade ago. Even when adversity hits, the industry has proven to be extraordinarily resilient.

Text info from that states, "In the US, hotels and motels generate over $194 billion in annual revenue."

One Ottimate client, Golder Hospitality, said it best:

“We’re an industry that doesn’t shut down.”

This article will go over what makes hotel accounting so unique, its common problems, and how to fix them.

You’ll learn:

  • Unique Aspects of Hotel Accounting
  • 5 Essential Roles in Hotel Accounting
  • 5 Common Hotel AP Problems
  • Solution: Using an AP Software That Lives & Breathes the Hospitality Industry

Ottimate is the AP automation software that understands hospitality. See how we helped our client Golder Hospitality drive business expansion with a streamlined AP process.

Unique Aspects of Hotel Accounting

Hotel accounting has a few quirks to it. Here are some of the distinct aspects of hotel accounting that you won’t find in many other types of business.

Night auditing

As a 24/7 business, night auditing is essential for a smooth day-to-day transition.

Night auditing begins with a night audit checklist — a routine task that must be completed daily.

The night auditor’s job is to ensure the numbers for the day are in line with what’s expected. Every night, the night auditor prints reports on the trial balance, business on the books (future hotel bookings), compensation rooms, detailed description of room revenue, taxes, credit card payments, and cash & check payments. Then they prepare the numbers for an accountant to review later. They’ll also review daily reports and operate the front desk by checking guests in and out during the night.

At the end of the night audit, the audit circulates an electronic or paper routing pack that must get approval from all department heads and the General Manager. This is often required as part of the hotel audit with big hotel chains.

Varying room costs

Many factors can make the room rates vary — including weekends, holidays, certain seasons, and at times the hotel is near capacity.

Occupancy rates (the ratio of booked rooms to the total available rooms) significantly affect the hotel’s rates.

Rates can vary based on whether a hotel is almost full. When it’s near capacity, rates are higher because rooms are scarce and the demand is high.

Another factor that impacts occupancy rates, and in turn, room costs, is the season. Certain seasons in different properties will have busier periods that will drive costs up.

There are also extra room charges (called “incidentals”) that a guest can be charged for, like telephone use, damage to the room, missing items from the room, food & beverage, and dry cleaning service.

Varying charges depend on the hotel and the services they offer. In other words, each hotel offers different things and exists in different categories (like an overnight or extended stay hotel).

For example:

Extended stays tend to be cheaper because guests stay for a longer period. They also tend to offer amenities as if they were in an apartment, like a kitchen and the related accessories.

Overnight hotels are more expensive as they have high guest turnover — they only stay for a night or two. Some offer breakfast and room service, but the latter tends to come with fees.

Vendor contracts

Vendor contracts support the hotel’s operations — and hotels can’t operate without the vendors.

Most hotels have vendor contracts, and these vendors usually give a special rate as long as they have a certain number of rooms booked each month. 

Vendor needs vary, and hotels are usually willing to meet each vendor’s needs to obtain and keep their business. 

Hotels tend to have vendors for alcohol, food & beverage, transportation, guests’ supplies, and more.

Whichever vendors a hotel has, it’s crucial they follow company culture, standard operating procedures, and hotel guidelines.

Multiple revenue streams & departments

Usually, there are quite a few revenue streams involved with each hotel. Some of them have distinct P&Ls, and need to be accounted as such. 

Some of these operations are for just the guests, like most of the amenities on the property: pool, laundry, and so on. Other operations are available to the public: restaurants, bar services, spaces to rent for meetings, outside event catering, etc.  

Each department can bring a significant amount of revenue to the hotel. Multiple income streams allow the hotels to make more money and are better for the business’s health — since they can offer more than just rooms. 

However, just because it’s a “revenue stream” doesn’t mean it’s profitable. Some “revenue streams” are to just serve as an amenity for guests.

To keep track, often, there are distinct profit and loss statements for each department (such as room service, front desk, or restaurant).

Moreover, expenses are often shared or split between departments or properties.

5 Essential Roles in Hotel Accounting

Below are five essential roles in hotel accounting that combine to keep a hotel’s finances healthy and operations running smoothly.

1. Financial reporting

Financial reporting is one of the most important tasks that an accountant must carry out on a monthly basis. 

Any partners or owners of any given hotel look for financial statements at the beginning of each month. Much of the time, they don’t get them early enough.

Anyone invested in the hotel will want to see ASAP how the hotel did for the month, especially because the industry can be unpredictable and constantly changes.

The reports that should be run are the balance sheet, P&L, cash flow, the comparison between the current year vs. the previous year, and actual versus budget.

These reports are essential in determining how the hotel is performing. They can be used for financial models to help executives make future decisions and projections.

2. Budget management

Budgets are essential for a hotel’s success. And the budget season is a critical time for hoteliers.

Often, budget preparation starts in August and budgets become final in November. 

A lot of market research has to be done to complete revenue and expenses projections. Market trends and historical data are excellent sources if they’re available to hotel accountants.

With so many different factors to consider, it can be challenging to create a budget. One month a disaster could happen, causing occupancy to rise because of the unforeseen circumstance. And another could be uncharacteristically quiet, causing food to be overstocked. 

Text sourced from that states, "The year-over-year decrease in KPIs (March 2021): RevPAR decreased by 15.8%, ADR decreased by 14.5%, and occupancy decreased by 1.4%."

The COVID-19 pandemic, for example, was something the hotel industry never saw coming. Overnight, all the budgets they had prepared had to be changed. They needed flexibility in terms of revenue and keeping expenses down.

The best way to create a budget for a hotel is to stick with specific percentages of the revenue for expenses and try to stay within that range — rather than sticking with concrete numbers.

3. Payroll processing

For payroll processing, it’s essential that all times worked are entered for every employee.

The accountant has to ensure that every department is entered and each manager has signed off on the employees’ timesheets. 

There are many different payroll processing software, and the hotels get to choose which program they’ll process their payroll with. 

4. Expense tracking

Part of expense tracking is making sure each department stays within a certain dollar amount. This is one of the biggest challenges that an accountant faces.

Certain items — like hygiene products, laundry detergent, and cleaning supplies — can run out quicker than expected. These must be ordered as quickly as possible. In short, some areas are hard to keep within a range.

Having to communicate with each department and letting them know where they stand with expenses is often challenging and time-consuming for multiple reasons.

For example, asking for people to get approval before they order anything is often a good practice. But it doesn’t always happen that way because the need might be urgent.

With so many departments, it can be hard to control expenses.

5. Financial auditing

Auditing the financials and comparing the actuals versus the budget is essential for any accountant, especially a hotel accountant.  

This is a great way to determine the hotel’s financial ins and outs, making sure each department isn’t spending too much money. And if they are, they need to find out why.

Being familiar with every category and purchase is crucial for the accountant to work successfully.

Someone should be able to ask the accountant why a particular expense may be higher than anticipated, and the accountant should have the answer at hand.

There are many common categories accountants should know, including room expenses, maintenance, utilities, food and beverage, G&A, income, franchise fees, and others.

Each category needs to be analyzed monthly, and an accountant should figure out what should or should not change for the next month.

Hotel financial auditing should follow GAAP principles — and it’s a good practice to have quarterly audits to ensure the hotel is always compliant.

5 Common Hotel AP Problems

While there are various kinds of obstacles for hotel accountants, we’re going to stick with some of the biggest hurdles we see as an AP software vendor for hotels.

1. Spending too much time processing invoices

According to our data, manually processing invoices can cost between $12 and $30 each.

What makes this worse?

Hotels receive a lot of invoices, especially since there are so many departments and moving parts in a hotel. 

For example, there are cleaning supplies for housekeeping, food and drink for the restaurant, amenities that need to be placed in the rooms, and all utilities.

Having to enter invoices is a time-consuming task because each relevant department must approve each invoice to ensure that the invoice is correct and the right amounts were received.

Additionally, having to track down a specific department’s management is difficult and time-consuming, which can result in the late payment of an invoice.

2. Struggling to track price changes for specific items

There are different vendors that products can be ordered from — and each vendor changes its prices at least 2 times a year.

It can be a significant challenge to constantly monitor the vendors and their price changes, not to mention comparing these costs across properties. 

When price changes aren’t properly tracked, shrinking profit margins can fly under the radar.

Most franchise hotels make it mandatory to stay with certain vendors to get the “branded” items, making the selection of vendors slim.  

And sometimes, it’s challenging to compare certain items because it’s not exactly apples to apples all the time.  

3. Manual audits are costing too many hours

Audits can be one of the most time-consuming things because the auditor is always looking for previous years’ information. 

Sometimes, this information is hard to track down, especially if vital documents are all in paper format.  

When a franchise conducts a tax audit, the hotel has to produce state, city, and county documents for a certain number of years. This costs too many hours in labor just to dig up old documents.  

4. Losing unknown amounts of profit due to human error

When data for invoices are entered manually, there’s a lot of room for error.  

In fact, reports have shown that manual data entry causes 3.6% of invoices to have errors.

And sometimes, the numbers manually entered in the accounting software aren’t accurate.  

On top of that, many OS in hotels don’t communicate with the accounting software — and that’s where the manual entry comes in, causing errors in turn. 

Many hotels with a restaurant have three or more systems — which can be far too many to manage. 

And when there are huge systems with manual data entry involved, each mistake can be costly. 

5. Poor exporting quality from their hotel accounting software

When a hotel’s tech stack doesn’t work together, it’s made up through manual labor, which causes additional costs in wages and errors.

Unfortunately, some hotels have software that doesn’t communicate with other software.

And like previously mentioned, some hotels have more than one operating system because they’re not using an OS that can do it all.  

This leads to more manual data entry — leading to errors and inaccuracies with sales.  

Solution: Using an AP Software That Lives & Breathes The Hospitality Industry

The above five common (but major) problems in hotel accounting can end up costing countless manual hours, data errors, and ultimately — profits lost.

And the longer those issues go unsolved — the more the costs compound over time.

But the good news?

These issues can all be resolved with AP automation software like Ottimate.

Info sourced from Ottimate user data that states, "Automation reduces the time employees spend on accounts payable by 80%."

Ottimate helps you automate your invoice management, spend management, and vendor pay so you can spend less time manually processing data.

Golder Hospitality saved $24,000/year by switching to Ottimate — all while removing GMs from the AP process and processing invoices more efficiently.

Want to see what Ottimate can do for you? Request a demo today!

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