An introduction to hotel accounting

In the hospitality industry, hotel accounting is about tracking your cash flow across all areas of your property. It ensures all financial aspects of your hotel business are kept up to date and provides valuable reporting and forecasting tools to help hoteliers make smart, data-driven decisions. 

In this article, we explore the basics of hotel accounting, including the intricacies unique to the hospitality industry, types of financial statements, leading solutions, and best practices.

Hotel accounting versus general business accounting 

When we talk about general business accounting, areas of overlap tend to emerge with hotel accounting. However, accounting in the hotel industry has its own nuances to consider, especially when it comes to the financial management of vendor contracts, compliance, and dynamic pricing. 

Arming yourself with the knowledge to tackle these unique aspects of hotel accounting better equips you to understand and manage your hotel’s financial reporting and ensures long-term profitability and growth.

Here are a few essential things to consider when it comes to accounting in the hotel industry.

Multiple revenue streams and expenses

Your hotel is not a one-trick pony. Guests in 2024 are looking for so much more than a place to rest their heads after a day out. Whatever the reason for their stay, your hotel’s amenities are a vital part of your guest offerings. 

Features like restaurants and bars, spas and activity rentals, gift shop purchases, and add-ons provide greater cost benefits to your hotel. Understanding how to efficiently manage and process multiple revenue streams and expenses and how these lead to overall profitability unlocks growth potential.

Dynamic pricing 

Gone are the days of a ‘set it and forget’ mentality for hotel owners when establishing room rates. Dynamic pricing is yet another important nuance to bear in mind for accounting in the hotel industry.

This tactic is not new – we see dynamic pricing applied to ride-share apps like Uber and Lyft all the time. It’s about adjusting your rates to take into account fluctuating factors like local demand and market conditions. By being flexible with your pricing, you can maximize your revenue per available room (RevPAR, for short) and occupancy rates. While dynamic pricing brings many benefits, it presents challenges when budgeting, forecasting, and billing rooms. 

24/7 transactions

The global hotel industry continues to expand, with guests across all time zones choosing you as their stay of choice. Guests book, arrive, and checkout at various times, making it difficult to settle accounts for the day, week, month, and year. Accounting teams must be uber-organized (and utilize technology) to keep track of everything happening across the property.

Complex payroll

Your employees represent the uniqueness of your hotel operations with varying schedules and working hours. Another layer of complexity is added to payroll for hotel accounting when factoring in not only full-time and part-time workers but also circumstances where employees might be required to work longer hours.

Considering labor costs for employees working special events or weddings, alongside holiday hours, and the complex payroll systems that might need to come with it, are equally important.

Vendor contracts

Food and liquor suppliers, technicians, and maintenance specialists are all critical to your hotel running smoothly. Ensure your hotel accounting also continues to run smoothly by taking into consideration vendor contracts.

Vendor contracts define the terms and conditions of your business transaction and outline goods and services rendered as well as potential delivery costs. Having vendor contracts in place is crucial to ensuring you and your vendor are in agreement about the services provided.

Compliance 

With multiple revenue streams comes the need to maintain compliance while also staying up to date with regulatory practices and changes to industry standards. For instance, your liquor license, government reporting, and health and safety protocols.

Maintaining an audit trail and ensuring your hotel accounting meets industry standards leads to much smoother processes in the event of financial audits. 

Managerial accounting

As part of your hotel management duties, you’ll likely have some decision-making to do regarding the financial well-being of your property. Managerial accounting helps with this by creating statements and reports related to the financial performance of your hotel. These reports help management make informed decisions and provide insights into performance for investors.

Types of financial statements 

Below, we’ve outlined four different types of financial statements. Understanding the purpose of these documents and what to look for in terms of trends, deficits, and more allows you to make informed decisions and satisfy shareholder requirements. 

Chart of accounts

Your chart of accounts provides a breakdown of all input and output categories. By tracking and maintaining your chart of accounts, you get a bird’s eye view of all accounts where funds flow in and out. Typically, your chart of accounts will include asset accounts (anything you own), liability accounts (short-term liabilities or payments like loans), income accounts (sorted by income type like room nights and ancillary services), and expense accounts (money you’ve spent including wages or renovations). 

Balance sheet

If your chart of accounts is a novel, your balance sheet is a page of the novel – it provides a snapshot of your hotel’s financial health up to a given time period. A balance sheet can be a good determinant of your hotel’s capital efficiency (how efficiently you’re spending money to grow revenue).

Profit and Loss

Your income statement, more commonly known as your profits and losses (P&L for short), shows your revenue, costs, and expenses over a period of time. 

You can use your profit and loss statement to identify areas for financial improvement and adjust accordingly. It also highlights your bottom line – if your hotel earned more than it spent throughout a given financial period.

Cash flow

Lastly, your cash flow statement tracks the flow of your cash. Given guests traditionally settle their hotel costs at the end of their stay, your cash flow can provide detailed insights to help manage your accounts receivable, ensuring you have enough reserves until the end of a guest’s stay and payment is verified from their bank account.

5 best practices for hotel accounting

Now that you have an understanding of the unique features of hotel accounting, as well as different types of financial statements, we’ll turn our attention to five of the best accounting principles, specifically for hospitality accounting, to secure you and your property’s financial position.

1. Utilize integrated software

Still holding onto your old-school paper trail for tracking night audits, revenue management, and payment processing? Reduce errors and manual busywork by implementing accounting software.

Software often provides a unified dashboard to track cash flow, handy automation tools that monitor expense reports in real-time as well as identify trends in your business and forecast future budgeting.

By integrating your accounting software with your property management system (PMS), revenue management system, POS system, and payment system, you can easily track revenue and expenses, manage accounts payable and receivable, and generate financial reports. 

2. Implement proper payment processing

Implementing proper payment processes not only keeps cash flowing to your business but ensures your guests’ transactions and financial information, like credit card numbers, remain secure.

Payment methods like credit cards, Apple Pay, and Google Pay, enable guests to pay in any number of ways while also reducing finance-related risks like fraud and hotel chargebacks.

Investing in an integrated payment system can help hoteliers significantly reduce reconciliation time, eliminate delays in posting charges, and prevent costly manual errors, making it much easier to conduct accounting processes. 

3. Establish procedures to identify fraud

While our tech-driven world leads to operationally thriving hotels, this also means an increased risk of fraudulent activities and financial transactions.

Maintaining records of confirmation indicating your cancellation policy, alongside signed sales receipts, helps to minimize financial loss. This information is also vital in the event you need to dispute a refund request. 

4. Maintain an audit trail

Accounting software can assist with keeping your audit trail up to date while also identifying areas that require your attention. Hotel audit reports can help you paint a picture of your income statement for your day-to-day operations, including transactions, revenue, occupancy, and guest reservations. 

An audit trail also holds you accountable for being transparent in your bookkeeping about your hotel financial records and daily activities.

5. Enact effective revenue management strategies

Revenue management software analyzes real-time data and provides pricing suggestions, an especially important feature regardless of the size and complexity of your hotel – from small businesses to larger hotel chains. The right software can help speed up the decision-making process and make it easier to track key metrics. 

Hotel accounting software

Accounting solutions are crucial if you hope to delight your guests while taking into account the nuances of hotel accounting. It provides you with a real-time snapshot of your hotel’s current financial performance, in addition to cash flow forecasts for future quarters.

4 leading accounting software systems

If you’re considering integrating accounting system software as part of your hotel’s lineup of tools, we’ve included four of the best hotel accounting software options below, as well as what you can expect from each.

M3 

Cloud-based M3 pledges itself as the financial platform built by hoteliers for hoteliers. M3’s Accounting Core software offers you straightforward modules to help streamline your accounting functions while also offering tech-driven insights to help drive financial performance. 

Quickbooks

Quickbooks provides access to hotel finance dashboards anytime, anywhere, with views of your sales by customer, product, and location via detailed reports. The software’s extensive app library also provides additional functionality benefits to your lineup of hotel tools, including inventory management, payroll, and eCommerce.

Xero

Easy to integrate with your existing point-of-sales system and apps, Xero might become the new hero of your hotel accounting. Xero’s unified digital dashboard lets you monitor the performance analytics of your hotel’s finances, as well as provides real-time cash flow projections, profit and loss statements as well as balance sheets.

Sage

Sage meets hoteliers in the middle, letting you view accounting information by individual location, region, and other metrics so you can accurately measure your hotel’s financial performance.

Integrating your accounting software

When your existing tech stack is integrated with accounting software, especially integrations like a property management system (PMS), your entire suite of tools is able to run efficiently, using the same data set, making it much easier to make informed decisions. 

With Cloudbeds’ unified platform, lodging businesses have an award-winning PMS, channel manager, and booking engine all in one, with the ability to easily integrate industry-leading accounting software for a seamless, automated tech stack.  

Final thoughts

Hotel accounting software ensures all financial aspects of your hotel business are kept up to date while providing valuable reporting and forecasting to help you make smart, data-driven decisions. By understanding the unique intricacies and best practices of hotel accounting, you optimize financial operations and get more time back to create a winning guest experience.