Operating review

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All results

The annual results (operating review) of your hotel, will be created automatically by the accountant at the end of each year. You just have to analyse the results, you do not have to calculate them yourselves. Of course, when making decisions and incurring costs, you will make some assumptions and calculations predicting occupancy and profit. After each year ends, they will be ready for you via your secret Team File link.

The results presented there will be divided into three parts:

• Section Operating review, found on the operating review page with all your revenues and costs resulting in your net profit (or loss). We'll dive into this now.
• Your personal key metrics.
• Market research, if your team decides to pay for this in advance.

Operating review

An operational review is an in-depth look at the big picture, summarizing the financial effects of your management choices: costs, revenue and results.
The results in this overview will be made automatically depending on

• your evaluations by your coach (so the quality of your arguments)
• your competitors
• your decisions

The occupancy rate is the crucial element in all this. The total overview will be visible in your Team File after each year
In the administration of Emerald Forest Hotel, as we use it, no VAT Value Added Tax is applicable. 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; there is no debtors or creditors.

Revenue

The hotel distinguishes three main types of revenue.

• Room 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 beverage are considered to be incurred by these hotel guests, so the higher the occupancy rate, the more revenue the hotel gets from food and beverage.
  
• Banqueting and other revenues are a separate revenue unit in the hotel. Previous sales prices of banqueting arrangements, varied from a minimum of € 25 to a maximum of € 30 per person. On the Banqueting page, you can find more information, pictures, and videos on banqueting. The 'other revenues' in this group are additional sales, such as bike rental, upgrades, cancellation fees, etc. Altogether, this is a bit more than 8% of the total revenues.
  
  

Outside of the Emerald Forest Hotel

Below you'll find an overview which gives 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, and the other years just give you an indication of what might happen. The operating review will be created for you, by the accountant: It will be visible (in due time) on the results tab in your Team File.

Revenu structure
Revenue Year 1	Revenue source	Amount	Perc.	Sub total
Rooms	Rooms weekend	€ 704,340	24.61%
	Rooms weekdays	€ 1,244,880	43.49%	68.10%
Food & beverage	F&B weekend	€ 266,080	9.29%
	F&B weekdays	€ 414,960	14.49%	23.78%
Banqueting & other revenue		€ 231,636	8.09%	8.09%
Total revenue		€ 2,861,896	100%	100%

All costs

The situation below is just an example of the cost projections for the coming four years. Again, the situation when you take over is the year 0: You cannot influence the costs and prices of year 0.

Costs overview during the starting year 0 and example of the next four consecutive years.
We will focus on year 0 now.

Below 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 reflects the situation as you take over, and will be your starting position. Note that the cost of Management Team Decisions are missing in the relevant year 0. The four years in the example give an impression how these decisions could influence the operating review. For now, in year 0, as you take over, the costs: Management Team Decisions are all zero. These decisions are, what has been lacking the last few years: You cannot do without any longer.

Revenu structure
Costs in year 0	Source	Amount	Perc.	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%

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. You can not influence them and they are calculated automatically. The logic is also explained in your Team File when you do a mouse-over of the cost group.
• the variable costs depend on the occupancy rate; for example laundry; the more rooms occupied the more laundry there is. They are automatically influenced by the occupancy rate and calculated automatically. The logic is also explained in your Team File when you do a mouse-over of the cost group.
• the Costs Management Team Decisions, will depend on the Year 1-2-3-4 decisions made by the new Management Team. So, this is totally up to your Team, within boundaries to prevent you from doing very illogical things

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 (e.g., tax), this is added or deducted from the profit leading to the net profit.

Net profit as you take over in grey 'year 0' column, plus examples in the following years; year 4 is not completed.
We will focus on year 0 now.

In this example, upon taking over:
- Total revenue was € 2,873,406
- Total cost was € 2,434,417
- Fine € 50,000
- Net profit € 388,989

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

Key metrics

Some key metrics and ratios for hotel operations:

Key metrics of year 0 as the new Management Team takes over.
We will focus on year 0 now.

More on this on the Key metrics page, as well as on the ratios and benchmarks pages.

Analysis

So the net profit upon taking over, in the example above, seems to be 15.07% of the revenue, with 84.93% being costs. This seems to be a good and interesting result, but it is up to you to put this in (a real) perspective of the industry. Because management did not make enough investments over the recent years, depreciation costs have been rather low. There is no problem with liquidity at all.
Furthermore, the Bergmans did not really consider themselves to be staff, so there have been hardly 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 ownership, the state (quality) of the premises etc. The file, though, might give some ideas from a calculation perspective.

Past

When your assignment is managing one of the new establishments, these will be the benchmarks you start with, and you refer to. So, you will start in your new venue, as a point of reference, with all the same set-up of costs and decisions as in the past. At the time you take your own decisions, you can roll out your new ideas, and concepts in full.

→ Go! Following the Introduction to the Hotel? Step 10/10 is the page Staff page, click here.

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