Operating review

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Operating review

An operational review is an in-depth look at the big picture, summarizing the financial effects of your management choices: the costs, revenues and results.
In the administration of Emerald Forest Hotel, as we use it, no VAT Value Added Tax is visible. That is, not in the revenues, neither on the cost side. Furthermore, there is no record of the liquidity, balance sheets (opening nor end of the year) nor an investment overview. We consider the revenues and the costs to be without any VAT, and all revenues and costs to be paid at the date they occurred.

All Revenues

• Rooms revenues comprise the average (sales) prices the hotel management decided to choose, times the number of booked rooms (occupancy rate).
  
• F&B revenues: all food and beverages are considered to be incurred by these hotel guests: so the higher the occupancy rate, the more revenues the hotel gets from food and beverages.
  
• Banqueting and other revenues are a separated revenue unit in the hotel. The sales prices of banqueting arrangements in the past, varied from a minimum of € 25 to a maximum of € 30 per person. On the Banqueting page, you can find some more information, pictures, and videos on banqueting. The 'other revenues' in this group are additional sales, such as rental bikes, upgrades, cancellation fees e.g. Altogether, a bit more than 8% of the total revenues.
  
  

Revenues overview year 0 and example of the coming four years.
We focus on the year 0: the moment you take over.

Underneath you'll find an overview which gives some more insights into the revenue structure, as far as information is available in the hotel's administration. This all reflects the year before you take over, the year 0 will be your starting position, the other years just give you an indication of what might happen. You are going to decide on that yourselves.

Revenues Year 0	Source	Amount	Percentage	Sub total
Rooms	Rooms revenues weekend	€ 704,340	24.61%
	Rooms revenues weekdays	€ 1,244,880	43.49%	68.10%
Food and beverage	F&B revenues weekend	€ 266,080	9.29%
	F&B revenues weekdays	€ 414,960	14.49%	23.78%
Banqueting and other revenues	Banqueting and other revenues	€ 231,636	8.09%	8.09%
Total revenues		€ 2,861,896	100%	100%

All costs

The situation below is just an example of the projections of costs for the coming four years. Again, the situations as you take over is the history (coloured gray) the rest are predictions.

Costs overview during four years.
We focus on year 0 now.

Underneath you'll find an overview which gives further insights into the cost structure as far as information is available in the Bergman's administration. This all reflects the situation as you take over, this will be your starting position. Especially the Cost on Management Team Decisions are missing in the relevant year 0. The four test year are just a basic testing in what this could bring. For now, in year 0, as you take over, these are all zero. These management team decisions is what has been lacking, the last few years: you cannot do without anymore.

Costs in year 0	Source	Amount	Percentage	Sub total
Costs: fixed	Depreciation costs of existing assets	€ 525,187	34.64%
	Fixed staff costs	€ 550,271	36.29%
	Costs of premises	€ 390,473	25.75%
	Insurance & interest costs	€  50,012	03.29%
Total fixed costs		€ 1,515,943	100%	62.36%
Costs: variable	Variable staff costs	€ 355,170	38.95%
	Laundry costs	€ 118,390	12.94%
	Cleaning costs	€ 236,780	25.88%
	F&B purchase costs	€ 204,312	22.33%
Total variable costs		€ 914,652	100%	37.63%
Costs: Management Team Decisions	Marketing costs	€ 0	00.00%
	Staff development costs	€ 0	00.00%
	Extra depreciation costs	€ 0	00.00%
	Market research costs	€ 0	00.00%
	Other costs	€ 0	00.00%
Total management team decisions costs		€ 0	100%	00.00%
Total all costs		€ 2,430,595		100%

More info on costs:

• the fixed costs have stayed the same during all four years, the fixed depreciation costs are one of them.
• the variable costs depend on the occupancy rate like laundry: the more rooms occupied the more laundry.
• the Costs Management Team Decisions, will depend on the Year 1-2-3-4 decisions made by the new management team.

Net profit

Of course, the net profit per year is very interesting. The total costs will be deducted from the total revenues. If there is a bonus (something which turned out much better than expected) or a fine (tax e.g.) this is added or deducted from the profit leading to the net profit.

Net profit as you take over in grey headed 'year 0'.
We focus on this year 0 now.

In this example on taking over:
- Total revenues were € 2,861,896
- Total costs € 2,430,595
- Net profit € 436,301

The operating reviews show the profit of any individual year and the total of the net profit (all years added up). Again, in the example a number of predictions for additional costs in the future have been made. More on this on the page Net profit.

Key metrics

Some key metrics and ratios on the operations of the hotel in this section.

Key metrics of year 0 as the new management team takes over.
We focus on this year 0 now.

More on this on the page Key metrics.

Analysing

So the net profit on taking over, seems to be 15.21% of the revenues, a good and interesting result. Though, the management did not make enough investments over the recent years, so the depreciation costs have been kind of low. There is no problem with liquidity at all.
Furthermore, the Bergmans did not really consider themselves to be staff, so there hardly have been any wages for them in the staff costs, which distorts the numbers. Their income mainly originated from the net profit which they, partly, took out of the company, being the entrepreneurs.

More numbers

Check basic set-up of costs groups in hotels to have some reference on the numbers.
Of course, any situation is different, any time frame (think of the Covid period), the owners ship, the state (quality) of the premises etc. The file, though, this might give some ideas from a calculative perspective.

→ Go! Following the Introduction to the Hotel? Step 10/10 is the page Staff

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Emerald Forest Hotel offering an emerald hotel experience! | Run your own hotel in this management simulation.