Hotels are not mere service businesses. A room, food and beverage, events, spa services, partnerships, and commissions are all single properties, and each can have a pricing model, cost structure, and margin profile.
The hospitality industry standards show that the room revenue makes approximately 60% -70% of the total hotel income, and food, beverage, and ancillary services form the other 30%-40% with much narrower margins (Business Dojo). This kind of financial fragmentation will need hospitality-specific accounting systems to manage.
Hotels do not stop after the day has ended, like most businesses, transactions are continuous 24 hours a day, and also most hotels have a heavy impact on bookings and variable demand.
According to the industry data, direct costs in labor use up to 30-%45% of operations, and occupancy levels may change radically according to the season, local events, and the economic environment (LinkedIn). A slight difference in daily rates or cost leakage per department can have a significant impact on the profitability of the year.
Hotel accounting is there to cope with this complexity in an accurate manner. It combines real-time revenue monitoring, departmental cost management, payroll management, vendor reconciliations, and cash flow management into one financial system.
In the absence of specialized hotel accounting practices, financial information is disintegrated, decision-making becomes sluggish, and profit loss may remain unidentified until it is too late. Hotel accounting is not a support activity in the industry where the margins are slim, competition is tough, and compliance is also stringent. Hotel accounting is a control system.
This article dissects the concept of hotel accounting, its differences with business accounting in general, and the importance of this accounting in the preservation of the financial stability and sustainability of future growth in the hospitality industry (Site Minder).
What is Hotel Accounting?
A specialist area of accounting dubbed “hotel accounting” was created to address the particular financial needs of the hospitality sector. Unlike traditional businesses, hotels have an evolving spectrum of difficulties, such as fluctuating occupancy rates and variations in demand throughout the year (Site Minder). Their finance systems must, therefore, be robust and flexible.
Let’s look at some major ways hotel accounting adds value to the business.
Hotel Bookkeeping:
Hotel bookkeeping is not an easy task. Thousands of regular transactions are happening, from bulk purchases of inventory to employee payroll. These transactions need to be accurately recorded and compiled in financial statements (Sage). Hence, a hotel bookkeeping specialist is essential for the task.
Hotel bookkeeping is special because the specialists are trained to work under heavy workloads and in a high-pressure setting. Especially in the holiday season, hotels can see thousands of people checking in and checking out.
A lot of billing, invoicing, and bookkeeping is needed to keep track of it all. While accounting software does much to alleviate the problem. AI and automation are pretty much a requirement. But a human touch is still needed at the end of the day to maintain financial control and keep everything.
Revenue Management
This is an essential aspect of hotel accounting. Hotels sell an experience, not a real product. The total money made comes from conference spaces, food and beverage sales, hotel rates, and other ancillary services (Sage).
Hotel accountants are responsible for precisely monitoring and evaluating these various sources of income to maximize total revenue and enhance pricing tactics.
Cash Flow Management
Cash flow management is another main feature of hotel accounting. There are thousands, if not millions, of dollars worth of transactions happening regularly in the hotel business landscape. That’s why tight control of cash flow is of paramount importance. Hotel accounting specialists are trained to manage vast accounting loads.
With the help of software and automation, they can easily not only manage and maintain positive cash flow but also introduce several process efficiencies that can reduce expenses and improve cash flow.
Cost control
Hotels operate on relatively thin net profit margins compared to other industries. They are simultaneously expected to provide a very high experience standard to compete. This situation puts them in quite a tough spot (Sage).
Effective cost-control measures are essential if one wishes to be successful as a hotel owner. Hotel accounting specialists are the only real solution in this case. They are well-versed in industry methods to cut costs without sacrificing the experience provided.
Budgeting and Financial Planning
Budgeting and financial planning are critical to hotel success. Poor budgeting can lead to unexpected shortages, and insufficient planning can leave your business woefully unprepared to capitalize on opportunities.
Fortunately, thanks to the now common practice of booking a hotel in advance, most hotels today can avoid budgeting and financial planning mishaps. Nowadays, people book their hotels months, if not a year in advance, for various reasons (Sage). This gives the hotel an immense advantage, handing over an entire year’s future foresight on a platter.
With all of this future data, a hotel accounting specialist can easily crunch the numbers and give detailed financial planning advice. This helps in planning back-end functions such as maintenance and expansion. It also gives the upper echelon of management a solid financial roadmap for reference in decision-making.
While there are certainly cancellations and such that happen between booking and guest arrival, these can be accounted for within the margin of error. Hotels are among the few cases where budgeting and financial planning can be leveraged to achieve incredible gains, thanks to the solid future consumer data available.
Live Financial Visibility and Decision Making:
Financial information in the hotel industry becomes useless as soon as it gets outdated. Pricing strategies, staffing, procurement, and promotional policies tend to change on a day-to-day basis or even hourly, depending on the occupancy trends and demand indicators. The old-fashioned accounting techniques, which are based on the monthly or quarterly reporting, are just too slow in this setting.
Hotel accounting systems are tailored to offer real-time (near real-time) of departments. Hotel accounting allows the management to identify the changes in revenue per available room (RevPAR), average daily rate (ADR), departmental margins, and cash flow (Prostay).
By combining property management systems (PMS), point-of-sale (POS) systems, and payroll systems. This is visibility that enables operators to spot the areas of underperformance early, react to cost overruns on the spot, and exploit high-demand periods without wasting a moment.
The impact is measurable. Hotels with continued attention to daily financial performance are in a better position to maximize labour scheduling, minimize waste in food and beverage services, and dynamically change pricing strategies (Prostay).
Real-time financial insight is no luxury in an industry where profitability can be gained by a small improvement in efficiency, and hence, competitive ability is facilitated by smart hotel accounting.
Why Hotel Accounting Matters?
Hotel accounting is all about managing a hotel’s bookkeeping, accounting, and finances. Hotel accounting operates on the same principles as regular business accounting. But some distinctions make it unique and important (Host Hotels).
For one, hotels are much more complex than other hospitality industries. Hotels collaborate with tens, if not hundreds, of vendors and business partners to function daily. For example, a hotel must maintain business relations with the retail sector quite heavily to receive a constant flow of essential inventory.
From soda to soap, hotels must buy it in bulk and stock up their rooms. On top of this, many hotels need to collaborate with tour agencies and offer rooms and other tour perks to secure occupants. Just imagine the sheer number of daily transactions to make even a small hotel tick.
According to IBISWorld, even when a hotel can be called a “small” hotel, the typical staffing requirements, on average, come out to 18 staff members. Now, consider the hotel accounting workload from tracking and managing the payroll for that many employees.
In the case of a 3–5-star hotel, the number of employees scales up to around 8-20 per 10 rooms. Effectively, a hundred-room hotel needs upwards of eighty staff members just to keep it running.
24/7 Service:
Another peculiarity of the hotel business is that it is a 24-hour running service. Unlike a restaurant or bar with the luxury of setting hours, hotels must operate at all times. The entire point of a hotel is to give people a temporary place to stay while away from home.
Hotel owners can’t just turn the power off and leave for the night. This 24-hour operation generates even more financial work, besides everything we have mentioned.
We also need to mention that the accounting workload is multiplied if a hotel has multiple branches. Plus, an added complexity is thrown in with revenue and cash flow management required for various hotels to ensure each one operates efficiently.
Hotel Accounting Outsourcing: Best Practices and Strategic Benefits:
Due to the increased complexities in hotel operations, outsourced hotel accounting is becoming the preferred strategic option, not a cost-reduction item, by many of these owners and operators (NetSuite). Under proper management, outsourcing provides greater financial management, superior talent, and enhanced scalability, without the fixed cost of having a bulky in-house department.
Tips for Successful Outsourcing of Hotel Accounting:
Select Hospitality-Specific Expertise:
Hotel accounting is a very specialized process. When outsourcing, consider providing to those who have direct experience in the accounting of the hospitality industry.
Such as having familiarity with PMS systems, POS systems, occupancy-based revenue models, and departmental reporting. Ordinary accounting firms are not usually in a position to have the ability to operate and understand the way hotel finances work.
Clear Reporting Structures on Demand:
Approximately, the reports that should be provided by outsourced teams are standardized, timely reports, such as the daily revenue summaries, weekly cash flow updates, and monthly financial statements. Transparency that is brought about by clear reporting enables the management to make informed decisions without delays.
Ensuring High Internal Control:
Accountability is not lost with outsourcing. Have an internal contact point to go through reports, pay, and track performance. This is a hybrid strategy that guarantees that the control is in the hands of the hotel management and the execution is done externally.
Focus on Data Security and Compliance:
Hotels deal with financial and guests’ information, which is sensitive. Monitor the data protection procedures of your outsourcing partner by making sure that they operate on secure systems and that they adhere to the financial and tax regulations. There should be confidentiality agreements and access controls.
Begin with Basic Capabilities, and Expand:
Most of the hotels start with outsourcing bookkeeping services, payroll services, or accounts payable, and then they proceed to budgeting, financial analysis, and reporting. This gradual process lessens the risk and will enable a smoother integration.
Reasons Why Outsourcing Hotel Accounting Is A Preferred Option:
Acquiring and recruiting skilled hotel accountants is costly and getting harder. Hospitality accountants are in high demand with high salaries, and any turnover can be a derailment of a continuous flow of financial results. Outsourcing offers direct access to experienced specialists with no delays in the recruitment processes and no long-term payroll investments.
Scalability is also provided in outsourced accounting. Accounting capacity can also be expanded during peak seasons or during times of expansion without necessarily having to hire more personnel. On the other hand, the expenses can be cut down when things are slower-paced- something that an in-house team would not easily accommodate.
Above all, outsourcing enables hotel owners and managers to concentrate on what directly increases revenue, which is guest experience, occupancy, and branding. Having the financial activities managed by experts allows the hotel to gain a superior understanding, enhanced cost management, and improved financial reporting at a fraction of the overall cost they would have to bear had they maintained an internal accounting department.
Outsourcing hotel accounting is not only effective in an industry that is characterized by thin margins and constant existing pressure to operate, but also a strategic benefit to an organization when done with the right partner.
Expertise Accelerated’s Outsourced Hotel Accounting Services:
With so much cumbersome hotel accounting, nothing short of a team of accountants is sufficient long-term. This is why hotel management is one of the trickiest jobs in the hospitality industry. It makes hotel accounting one of the most sought-after accounting services.
However, procuring a competent team of hotel bookkeeping and accounting specialists is quite a challenge. Industry experience is at a premium nowadays, and hotel owners need deep pockets to afford such services. Or not.
With EA’s outsourced hotel accounting services, hotel owners can sigh in relief. Whether big or small, EA can link you up with some of the most capable remote professionals in the world. With access to the global talent pool through EA, hotel owners need not be forced to hire the cheapest local option. With up to 60% guaranteed payroll savings, not to mention amazing cost-efficient gold-standard hotel accounting, EA is the accounting solution you need.