Finance
LECTURE 1
How do restaurants, hotels make money?
Restaurants:
-Selling food & beverages as many as possible, right prices, as many as possible guests in the restaurant
-As a restaurateur 1/3 of the money you make you need for the stuff to buy (this is called cost of food and
beverages sold) another 1/3 of the money you make you need to spend it on your staff (training, salary, sick pay)
and 1/3 is left for other expenses
Hotels (lodging industry):
-2/3, 75% of the revenue is from the rooms (largest department so most of the revenue)
-¼ is from food and beverages
-45% of your revenue you need for your staff
Biggest moneymaker is rooms
Why?
There are hardly any related expenses when you are selling a room (only check-in, check-out and cleaning
this is only around €15 and you can sell the room for €100 so there is a lot of money left profit)
Revenue The total money you get for whatever you are selling, so how many products or services you have sold
x the price you ask
Profit Expenses you take them from your revenue and the amount you have left is your profit
Owners of Michelin star restaurants charge much more for table, because:
-Foodcost are higher
-Higher cost for labor (training, degree, skills)
-Seat turnover is one (people are sitting there for hours so you need to get a lot of money out them)
How do hotelchains make money?
- Management agreement
- Franchise
- Lease
300 rooms large hotel
When there is less occupancy in the hotel, the investors owners are hurting and not the brand
Perishability good Revenue you could have gotten, you miss it (rooms is the most perishable product)
,Intercontinental hotel groups Largest chain operation in the world
Wyndham hotel groups Has the most properties
A common measure of activity for lodging operations is paid occupancy percentage
Paid occupancy percentage What percentage of rooms available for sale are actually sold
Paid occupancy % = number of rooms sold : number of rooms available
Transient hotels are primarily for business people. So Monday through Thursday 100% occupancy and in the
weekends less, like 30%
Package a bundle, interesting way to create demand for your hotel. So in a period with low demand you can
create packages so you attract people. Don’t do this in periods with high demand otherwise you make loss
CHAPTER 1 MEASURING PERFORMANCE + LECTURE 2
Basically, there are 2 ways to look at any business from a financial perspective
1. What a business owns and owes (money it may have borrowed and needs to pay back over time) at a
certain moment in time (balance sheet)
2. Filming to track the activities and results (financial performance) of a business over time (it’s a report,
hospitality firms do this on a daily basis, they like to track the performance of their business day in,
day out)
There are different names for that financial report
- Income statement or profit and loss account If the report goes about a performance is a past
period (yesterday, last month, etc.)
- Operating budget If the report is about the expected results in a future period
USALI Uniform System of Account for the Lodging Industry
Figure 1 Income statement USALI
Income (loss) Net revenue – cost of sales –
payroll – other expenses
, USALI IS A 3 PART INCOME STATEMENT
Section 1 Shows all department revenues such as rooms, food & beverage, spa, miscellaneous income (rent
received from a retailer operating a shop within the hotel)
Section 2 Operating expenses
Section 3 Management fees and non-operating income and expenses
A budget A financial plan
EXPENSES
It’s all about “Use”, it will be on the income statement for the time you USE it not when you paid for it
Expenses A cost that is ‘’paid’’ in returning for something value such as labor
EXAMPLES OF EXPENSES
Selling: ingredients (cost of sales)
Having inventories: Rent, interest, risk (risk of unwanted use: fire, theft, waste losses)
Using labor: salaries
Using fixed assets: rent/lease, depreciation, maintenance & repairs
Using 3rd party services: outsourcing (housekeeping for example)
Using other people’s money: Interest (rente)
Taxes: Real estate, permits
If you put revenue and expenses in one statement and subtract de expenses from revenue you have the profit
Revenue and expenses are on an income statement and they reflect the businesses successes in terms of value
gained or lost
2 important accounting principles
1. Recognition principle The cash will be received later, but the business can “recognize” it
Example: There is a wedding party on June 15, the restaurant provides the party with food and
beverages but the weds need to pay for it of course. The owner of the restaurant includes the
revenue on his income statement in that specific month (JUNE) even if they get the payment in
July or August.
2. Matching principle Directs a company to report an expense on its income statement in the
period in which the revenues are earned
Examples
What if a hotel guests checks out (February), you send her the bill and she pays a month later? When is the
revenue recognized?
In February, the action takes place in February, neverminded that the money came in in March
What if a hotel buys a notebook in February? How does this end up as an expense in the income statement?
, Nothing, because you have exchanged money in the bank for an equipment. Buying a laptop is not an expense
Explanation: The laptop is going to down in value because every month it takes a little bit of value because you
use it. At the end of 3/4/5 years the laptop doesn’t have value anymore. You spread out the cost of the laptop
over a few years. In February there is no laptop value lost, but in March, April, etc. you have to take value off,
this is called depreciation
What if the hotel makes a loan payment in February?
In February we make a loan payment to the bank, you paying somebody back, you don’t lose money so it will
not come on the income statement
Explanation: Interest is the price you pay for someone body else’s money. This is an expense; the hotel has to
pay for having borrowed the money because you pay a little more back. You borrow €10 from someone and
the next day you pay someone back €11, this is an expense.
Http://hotelnewsnow.com/artices/6217/Hotel-Industry-Terms-to-Know 1
EXERCISE
You sold 4850 worstenbroodjes, €1,50 each
You bought 5000 worstenboodjes, €1,00 each
Calculate profit
1. 4850 x 1,50 = €7275 (this is your revenue)
2. What is the cost lost from selling 4850 worstenbroodjes
3. 4850 x 1,00 = €4850 (cost loss)
4. Profit = 7275 – 4850 = €2425
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IMPORTANT SITE FOR ACCOUNTING TERMS
