Do you get frustrated looking at your financial reports and not seeing meaningful data? Maybe you’re having trouble managing your taxes because you don’t know how to do your own accounting. Perhaps you feel like all of the financial decisions are handed down to the accountant, giving them control over where your business will go. In reality, it doesn’t have to be that way. You can learn accounting yourself so that you can make more informed business decisions — just in time for tax season!
It’s a common misconception in the hospitality accounting world accounting world, but some people believe that accounting is synonymous with numbers. It’s true that numbers are an important part of the job, but there is so much more to it than that.
Accountants also have a lot to do with money, as they are often responsible for balancing your budget and making sure cash flows in and out smoothly. They can also give you tips on how to save money and help you understand tax laws if you’re just starting out. That’s why it might be time to stop thinking of accountants as people who only crunch numbers all day long!
In this blog post, I will discuss nine common accounting myths most hotel businesses still subscribe to today and debunk them one-by-one. First, let’s take a look at the most common financial statements.
It’s not unusual for you as a business owner to get lost in your accounting reports. You can easily spend hours trying to decipher every single line item for each month, and still not notice what’s happening in your business if you don’t pay attention to these financial statements. Below are the most common reports generated by hotel accounting software that will help you make better decisions:
The balance sheet is where you can determine whether your hotel is making money or not. If a hotel is losing money, then it isn’t making enough profits so it must close down or reduce hours of service. If a hotel is making money, then it is healthy and running.
The Balance Sheet is one of the most important financial statements because it shows your business’ health. It’s very easy to understand and doesn’t require much explanation. However, you might run into trouble if you don’t know about all the different terminology associated with a Balance Sheet report. Here is a breakdown of what each line item means:
Assets: This includes anything that belongs to your hotel from land, to equipment and inventories, to cash and bank accounts, to anything else that you own.
Liabilities: This includes any type of debt that you have to your creditors. You might not be able to afford these debts if your hotel runs into financial trouble.
Equity: This is similar to a business loan, where a bank or business partner will lend money to you. If you’ve never had an equity line item before, this is where it goes.
Book Value: This is the price that your assets are worth, which is different from market value because it’s based on book value. Your book value can greatly differ from your market value because it won’t include all the expenses and maintenance costs.
Market Value: This is fairly similar to a loan, where you’re paying back your owners for the use of their money. If you’re borrowing more than you should be, then this is where it goes.
Net Worth: This number shows how much equity (money to cover liabilities and assets) that you have after all debts have been paid off and if there are any loans outstanding to creditors.
This net worth number is used by most financial institutions when determining your credit rating because they look at it to see whether you can pay back your loans. If you can’t pay back your loans, it’s very likely that you won’t be able to do business with them in the future.
A Balance Sheet is a great way to determine whether your hotel is making or losing money each month. If your debts are higher than your assets, then there isn’t enough money to cover assets and liabilities. If you don’t pay off this debt, then this could lead to financial trouble later on because of the high interest rate on these debts. You need to strive for an asset turnover ratio of 1:1 or greater.
The income statement details how much money you booked in revenue last year and also shows how much money you spent on that bookings. While the income statement is important, it’s also important to know what your expenses were because it can reveal any problems that might be financially draining your business. You can learn more about the income statement from this post .
Cash Flow Statement
This statement shows all the cash flow into your hotel, including payments for the previous period and all payments for purchases for this period. You need to watch out for large payments or no cash flow if you see negative amounts on your cash flow statements like these below.
This report is a great way to determine how much money is getting spent by your hotel and exactly what kinds of things it is buying. It’s a critical report to keep track of so you know where your money goes.
This section will help you make better decisions on how much to budget for certain things because if you’re budgeting for the wrong things, then you might find yourself in trouble later with losing money. Here are some examples of common budget items that can make or break your budget: advertising, rental cars, staying open past normal hours, insurances and taxes.