A cash flow statement is a financial report that is put together for your business that shows the difference between how much money you made and how much money you needed to make. It also shows your sources of income, how much money is coming from each source and what it takes to generate this income.
There are many reasons why you should read the financial statements of your hotel. Some of these reasons are listed below as possible benefits to your business and life.
- The cash flow statement is the financial report for your hotel that shows how much money you made, how much money you need to make, and where the gap exists between the two.
- Your cash flow statement can be used to evaluate your hotel’s performance over different periods of time and then compare it to industry averages in order to determine whether or not you are on track with other hotels in your area as well as nationally.
- You will be able to see a trend in your profits over time when using this report as well as watch for increased or decreased expenses so that you can adjust accordingly if necessary.
- This report shows that in order to be successful, your hotel needs to have a steady cash flow.
- In the event that you are hired by a new owner of a hotel, you will be able to give them a clear understanding of how well the prior business was operating or if it needed improvement.
- The cash flow statement will also show you if it is best for your business to be open during certain times of the year and if it needs to be open on holidays as well as what price ranges might work better at certain times of the year in order to cater more towards tourists than others.
- You will be able to see the amount of gross and net income from your business overall as well as find out what other expenses there may be.
- Using your cash flow statement will help you better understand how much revenue you receive from different sources and how much of it can be attributed to specific ones so that you can budget accordingly.
Using a Cash Flow Statement in Your Business
Now that you know why the Cash Flow Statement is important, you need to know how to use it in order to succeed in the future.
Understanding the Numbers
When reading your cash flow statement, there are some terms that you need to understand before moving forward. These terms are outlined below.
The cash flow statement can be used to evaluate your performance over different periods of time as well as compare them to the industry averages so that you have a better perspective on whether or not your hotel was performing well in comparison. This statement will tell you if you are on track with other hotels in your area as well as nationally when looking at trends.
Cash flow is the value of the money coming into a business as a result of its operations during a specified period of time. This statement shows how well your business is doing and at what times it might need improvement.
Net income is the number you get after expenses have been deducted from total revenue in order to determine the hotel’s profit margin. It is also used to analyse how much money your hotel makes in relation to the amount that it needs to make. This statement shows you if you are on track with other hotels in your area as well as nationally when looking at trends.
Net receipts are the total amount that your hotel makes after accounting for all of the guests who have entered and left your hotel during a period of time.
A net loss is the difference between your total revenue and your total expenses that yields a negative figure.
Now that you know what these terms mean, it is time to review how to use them in relation to your business to make decisions on how it should be run in order for you to succeed.
- Pay Attention to the Trend of Your Cash Flow
As time goes on and your business grows, you need to make sure that your cash flow is increasing as well, which can be tracked using a hotel accounting software. In order for your business to succeed in the long run, it needs to have a steady cash flow. You will be able to see this trend when using this statement as well as watch for increased or decreased expenses so that you can adjust accordingly if necessary.
- Watch Out for Short-Term Trends
There are times when your business can see an increase in revenue but not a steady amount of net income. This is typically because there are small expenses that have been incurred during this time period that did not exist before or because they were not considered in the previous period’s statement.
- Consider Opening and Closing Times
When deciding how to operate your business, you will want to first look at what is best for you as a business and then find out what people in your area are willing to pay for what you have to offer. If it looks like people will be willing to pay more for the same product or service that you sell during a certain time of year, then it would be best for your hotel to be open at this time of year. If it looks like there is not much demand for a certain time of year, then it would be best not to open during this time period.
- Check Your Income Throughout the Year
When reviewing your financial statements from the previous year, you need to be able to compare them to this year’s and determine whether or not your numbers are going up, staying the same, and possibly going down. You can make sure that you are on track with how much money you will make over the year by looking at the days between receipts and expenses. If you see an increase in total revenue, then your business is doing well overall, but if you see an increase in expenses as well, then it might be a good idea to review how many rooms that your hotel is selling at on each day as well as what type of revenue they are bringing in so that adjustments can be made accordingly.
- Use it to Determine the Best Working Hours
If your cash flow statement shows that your business is doing really well on Wednesday and Thursday and not so well on Friday or Saturday, then it would be best to close during these hours so that you are not wasting time trying to bring in more revenue that simply is not there. If you notice that you need to be open during a certain time of day due to demand or because of certain events, then you need to see if there are ways to bring in more money even though this may require you to be open for more hours than usual.
- Take Note of Highlighted Items
Any item on the statement with a dollar amount next to it should be considered by the owner of a hotel. There are some businesses that offer a discount to people who pay in cash, so this would be considered a highlighted item. If there are any other specific things that seem like they would do well in your area, then you may want to consider offering them.
- Pay Attention to the Industry
When comparing your cash flow statement with other industry averages, you need to keep in mind that these numbers are from businesses that have been open for years and have had time to grow their businesses. You will be able to see what kind of trends the industries has followed over the years so that you know what might be expected from your hotel as it grows and matures as well.
There are certain people in your area that are always willing to pay more than the average price for a product or service. This is why it is important that you have a high turnover rate. If there are consumers who are willing to pay more, then they will be more likely to do so and they will create a demand for your services that may not have existed if you had not offered them the opportunity to do this.
- Record Sales Data
You should keep a record of the sales data from each day so you can see what people actually bought, how much they paid for it, and how many times that product sold per day or week during a given period of time. It can be done by using a cloud-based hotel accounting software. This information will help you to determine what products are doing well and what items need to be adjusted in order for the business to do well.
- Check Your Expenses
You should also be keeping track of your expenses so that you can figure out how much money you need to make each day for a month or a year in order to break even. You will want to compare your expenses with what was spent during the previous period of time as well as how much you made from sales during this time period in order to determine whether or not your expenses are increasing per month, week, or year, which means that you are losing money.
- Compare This Statement to the Previous One
It is important to compare your statement from last year to this one. If you notice that there have been small increases in expenses and smaller decreases in sales, then you will want to work with the people running this business so that the numbers are adjusted accordingly.
- Keep Track of Your Costs As well, it is important to keep track of your costs so that you can determine what products or services are increasing per month as well as what kind of changes have been made so that adjustments can be made accordingly.
As a hotel owner, you will want to keep track of all of these numbers so that you can make the best possible decisions for your business. Keep in mind that there are going to be times when things are not going as planned and you may want to consider closing down for a period of time in order for this business or other businesses that you own to grow and prosper even more.