The hospitality industry has faced a relentless set of challenges over the last 18 months. In 2024 the industry faced significant financial pressure due to rising operational costs. UK businesses across all sectors have had to adjust to the new economic realities arising from increases to payroll as a result of the uplift in employer national insurance contributions and increases in the National Living Wage. The need to develop financial literacy in hospitality to navigate these challenges has never been more important. The question is, how can hospitality managers equip themselves with the skills and knowledge needed to unlock hidden value and thrive in such challenging times?
These days having the skills to interpret the business monthly management accounts and in particular the profit and loss account is key – but is this sufficient? Most hospitality businesses – hotels, restaurants and caterers, produce monthly accounts with ratios based on the guidelines of the Uniform System of Accounts for the Lodging Industry (USALI) with the latest version, the twelfth edition, being the most recent update to reporting requirements.
Interpreting and acting on the monthly results requires an in-depth knowledge of the products and services being sold. Marginal costs, otherwise known as variable costs or standard costs, are the direct costs of selling the product or service and can comprise of material cost (cost of sales), payroll and related costs, and other expenses. This is a good place to start as each product or service sold needs to create sufficient contribution in total to cover the fixed costs of the operation. Take for example, the sale of a hotel bedroom. The variable costs are the costs to prepare the rooms for each new occupant of the room – the cost of cleaning the room, the laundry, the guest amenities and so on. A commercial mindset is needed to manage the marginal or standard cost of selling the room and achieving the best-selling price to maximise the contribution to GOP. We can summarise with the following formula:
Selling price – variable costs = contribution to the fixed costs or gross operating profit (GOP).
Once all the fixed costs of the operation have been covered the extra contribution from each product sale becomes GOP. Whilst GOP is not the final level of profit in the P&L, it does represent the level of profit that the operational team can impact on and improve. An improvement in GOP will almost always lead to improved Earnings before Interest, Taxation, Depreciation and Amortisation (EBITDA) which is a key measure for investors.
Having established the contribution from each product and service it is then key to manage the sales mix to optimise the profitability. It is essential to understand what we want to sell more of, and how this will impact on profitability.
If you are looking to equip yourself with the knowledge and skills to manage your finances or to prepare for a senior leadership role where knowledge of managerial finance will be essential, there is no better time to sign up to our upcoming course – Finance for Non-Financial Managers in Hospitality. This course is delivered online over two half days with finance4hospitality founder, Debra Adams. Debra is a well-known expert in the field, having delivered numerous courses to both independent operations and multi-international chains.
During the course participants will gain the know how to:
- Interpret the monthly hotel and departmental profit and loss account
- Prepare profit, cash and asset budgets
- Prepare and use forecasts for revenue and costs to optimise the use of assets and profitability
- Price products and services to achieve Gross Operating Profit targets
- Calculate the breakeven point for a new concept and make decisions
- Reduce wastage and monitor the impact
- Control, monitor and manage payroll costs more effectively
- Effectively utilise key performance indicators in hospitality
The two half days are combined with a one month subscription to the online finance4hospitality academy providing resources and self-paced learning to enhance knowledge and commercial skills. This course enhanced by our online content, will develop financial literacy in hospitality and provide the opportunity for participants to actively engage in business decision making.
Don’t take our word for it – here is what our clients say:
“Debra Adams is simply amazing at helping non-financial managers to not only understand, but actively engage with, the commercial and financial aspects of their operation. She has a wealth of in-depth knowledge of both operational and strategic finance, specifically in the hospitality industry where margins are tight and cash flow imperative. Knowing the content is one thing, but knowing how to teach others is what Debra excels at, with her years of experiences as a professional lecturer, trainer, coach and teacher.
For over 10 years, she has been my go-to person for training any group of managers at all levels to explore and understand the financial story of their business. She is an invaluable member of our delivery team for the Award-winning Master Innholders Aspiring Leaders Diploma and the MIDAS series.”
Dr Hilary Cooke, Founder at Merlin Business Consultancy Ltd
For more information and to sign up visit our events pages.
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