How to Prepare a Hotel Monthly Financial Review

There is a difference between reporting the results and reviewing them. Reporting is producing the statements: it is finished when the numbers are correct. Reviewing is explaining what the period means and what should happen next, and it is finished when the reader knows something they did not know before.

A monthly financial review is the second of these. Its audience is a general manager, an executive committee, an owner or an asset manager, and most of them will not read the full statements. What they read is the review, so it needs to work as a piece of writing as well as a set of schedules.

This article sets out a structure that holds up in front of that audience, section by section. Figures throughout are invented for a fictional property, the Harbor View Hotel.

Before you start writing

Three things need to be true before the review is worth starting.

The numbers are final. Reviewing figures that are still moving means writing the review twice, and it undermines the credibility of everything in it.

The commentary has arrived. The department heads know why their numbers moved. If you write the review before their comments come in, you are guessing, and the guess will be repeated back to you in the meeting.

You have the comparatives. Budget and prior year at minimum, and forecast where one exists. A number on its own carries no information. The comparison is the content.

The executive summary

Written last, placed first, and for many readers the only part read in full. It should fit on one page and answer four questions.

1. How did the period finish? Total revenue and profit against budget and prior year, in one or two sentences.
2. What drove it? The two or three items that actually explain the result, not a list of everything that moved.
3. What has changed looking forward? Any revision to the forecast and why.
4. What needs a decision? Anything requiring management attention this month.

The discipline is selection. A summary that lists twelve variances has not summarized anything. If three items explain most of the result, name those three and let the schedules carry the rest.

Revenue performance

Revenue is reviewed by source, not as a single figure, because the reasons behind each source differ and so do the responses.

For each revenue stream, the review should show the actual, the budget, the prior year and the variance to each, and then explain the variance in terms of its drivers rather than its total. Rooms revenue splits into volume and rate. Food and beverage splits into outlet and banquet, and each of those into covers and average check. Other operating departments each need their own driver.

Segment mix deserves separate attention in any month where it moved materially. A shift from group to transient, or from corporate to leisure, changes the shape of the business in ways a revenue total conceals: booking windows, cancellation behavior, on-property spend and rate potential all move with it.

Occupancy, ADR and RevPAR

These three measures are the backbone of the rooms discussion, and each answers a different question.

• Occupancy tells you about volume: how much of the inventory sold.
• ADR tells you about rate: what the rooms sold for on average.
• RevPAR combines the two and tells you how the asset performed overall.

RevPAR alone is not enough for a review, because two very different months produce the same RevPAR. High occupancy at a low rate and lower occupancy at a strong rate look identical on that one line and demand opposite responses. Always show all three.

It is also worth stating plainly which of the two drivers moved. Occupancy gains carry variable cost with them, in housekeeping, laundry, guest supplies and commissions. Rate gains largely do not. A month that beat budget on rate is a better month than one that beat it on volume by the same amount, and the review should say so rather than leave the reader to work it out.

Food and beverage

Food and beverage needs to be split before it can be explained, because outlet and banquet behave differently. Outlet revenue moves gradually with covers and average check. Banquet moves in blocks, and a single event can create a variance no operational decision would have changed.

The review should cover:

• Covers and average check for each outlet, against budget and prior year.
• Banquet revenue by event count and average event value.
• Food cost percentage and beverage cost percentage, with the cause of any movement.
• Labor cost as a percentage of departmental revenue.
• Departmental profit margin.

A cost percentage that moves needs its cause identified: a supplier price increase, a menu change, waste, a shift in the mix between outlets, or an inventory adjustment. These have entirely different implications and only one of them reverses on its own.

Spa, retail and other departments

Smaller departments deserve proportionate space, but they should not be omitted. They are frequently where a trend becomes visible earliest, and they are often where an underperforming cost structure sits unexamined for months.

For spa, treatment volume, average treatment value, therapist utilization and retail attachment are the usual measures. For retail, revenue per occupied room and margin. In both cases, the useful question is whether the department is converting the guests already in the building, which is a different question from whether it hit its revenue budget.

Payroll

Payroll is usually the largest controllable cost and deserves its own section rather than being spread across departmental commentary.

The essential principle is to express payroll relative to volume. Total payroll dollars above budget is not a finding on its own, because the business volume may also have been above budget. Hours per occupied room, labor as a percentage of departmental revenue, and cost per occupied room turn the figure into something that can be assessed.

Separate the causes: volume, vacancy, absence cover, productivity, rate changes and calendar effects. Each has a different implication and a different response, and lumping them together as "payroll was over" hides all of it.

Departmental and undistributed expenses

Departmental expenses should be reviewed against their driver rather than against budget alone. Cost per occupied room is the most useful measure for the rooms department; cost as a percentage of departmental revenue works for most others.

Undistributed expenses, meaning administrative and general, sales and marketing, property operations and maintenance, and utilities, are reviewed differently. Most are fixed or semi-fixed, so the questions are about timing, contracts and one-off items rather than about volume. Utilities are the exception and are worth reviewing against consumption where the data exists, since a rate change and a consumption change call for different responses.

Forecast changes

This is the section that turns a historical document into a useful one, and it is the section most often left out.

Every material variance should be classified and carried forward:

• Timing. State the period the offset lands in and the amount. No change to the full year.
• Permanent. Adjust every remaining period it affects and state the full-year effect.
• Indicator. A variance that suggests a trend but is not yet confirmed. Say what you are watching and when you will know.

The review should end this section with an explicit statement of whether the full-year outlook has changed, and by how much. Leaving it implied invites the question in the meeting anyway.

Risks and opportunities

Short, specific and forward-looking. A risk is something that could make future results worse, an opportunity something that could make them better, and both need to be actionable rather than atmospheric.

"Market conditions are uncertain" is not a risk anyone can act on. "The two housekeeping vacancies remain unfilled beyond July, extending overtime at roughly $3,000 a month" is. Where possible, size the item and give it a date by which you will know more.

Questions for management

Ending with two or three specific questions changes the character of the meeting. It moves the review from a presentation to a discussion, and it puts the decisions that need making in front of the people who can make them.

Good questions are specific, decision-oriented and attached to a number:

• Should the vacant housekeeping positions be filled with agency cover in the interim, at roughly $2,000 more per month than overtime?
• The protein supplier increase is permanent at about $1,700 a month. Do we tender the contract or adjust menu pricing?
• Transient demand exceeded plan for the second consecutive month. Should the rate strategy for the shoulder season be revisited before the booking window closes?

Presenting it

Some practical points that make the difference between a review that is read and one that is filed.

Keep the structure identical every month. Readers learn where to look, and a stable structure makes preparation faster too.

Round sensibly. Whole dollars in a management summary imply a precision that does not exist and make figures harder to compare at a glance.

Do not rely on color alone. Reviews get printed in black and white and read by people with color vision deficiency. Use a symbol or a word alongside any color-coding.

Lead each section with the conclusion. State what happened, then support it. A reader who stops after the first sentence of each section should still come away with the right picture.

Say when something is not yet known. "The cause is still being investigated, and I will confirm by the fifteenth" is a stronger position than a speculative explanation, and it is remembered as such.

This article describes general practice. It is not accounting, tax, audit or legal advice, and it does not replace your own professional judgment or your company's procedures. Every example uses invented figures for a fictional property. Read the disclaimer.