Why Does Your Hotel Needs an Accountant Specializing in Hospitality?

Every business has unique financial and business requirements and challenges. While the basic accounting is the same, the three financial statements of profit and loss, cash flow, and balance sheet, certain elements need industry expertise, which can only be achieved by working in the field. One such industry is the hospitality industry, which has unique needs for managing sales tax, inventory, cash, and payroll. This industry has heavy volumes of cash transactions, several revenue streams, seasonality, and high expenses, which make real-time income tracking, budgeting, forecasting, and dynamic financial management a necessity for survival.

A hospitality accountant is well-versed in the industry’s intricacies and can provide a range of services, from day-to-day financial management to strategic planning, budgeting, and forecasting.

What are the Unique Challenges of Hospitality Financial Accounting

The hospitality industry has three unique types of businesses: accommodation, restaurants, and entertainment. All three have different business models, financial challenges, compliance, tax laws, and licensing requirements.

Financial Accounting for Accommodation in Hotels/Motels

• Revenue: Accommodation is the most profitable component of the hotel operation. It includes room charges, ​Telephone/fax/internet, Mini-bar, and Room service. A hotel owner seeks to boost average revenue per room by offering paid services, including in-room dining, mini-bar, pay-per-view television, and telephone services. An accountant adds up all these income sources to arrive at the revenue from the room.
• Expenses – consumables: The room occupancy has the cost of consumables, such as soap, shampoo, mouthwash, shoe brushes, toilet paper, tissues, a morning newspaper, and stationery. The hotel keeps a fixed budget for consumables per room night and deducts them from room revenue. Here, the accounting is slightly different. A reserve is maintained for consumables, and the actual cost is deducted from the reserve; the balance of the reserve is added to the income. This helps reduce the burden of calculating consumables per room.
• Expenses – shrinkage: It is common for linens and sometimes bigger items to disappearfrom the room with the passage of time. Hotels maintain a shrinkage reserve for such inventory costs.  They perform a daily check of the room inventory when the room service goes to clean the room, replacing missing items and deducting the cost from the shrinkage reserve, which is then added to the room’s operational expenses.
• Sales Taxes: Every jurisdiction has different taxes on accommodation charges. Some jurisdictions impose a specific hotel tax, others apply regular retail sales tax, and some impose municipal tax. The accountant sets up the room invoice format that complies with tax laws.

The Role of Hospitality Accountant: Hotels run 24/7, which creates unique revenue recognition and time-tracking issues. They have seasonal occupancy trends that necessitate financial planning to ensure seasonal profits balance off-season losses, thereby balancing annual profitability.

A skilled hospitality accountant will help set up accounting software that will automate the tracking of revenue and expenses. The accountant can also prepare key performance indicators such as occupancy rate, revenue/cost per room, fixed and variable costs, to help you with day-to-day financial management. They will analyze the financial statements to quantify seasonality and manage revenue and expenses.

Financial Accounting for Restaurants

The hospitality industry also includes revenue from meeting rooms, restaurants, and catering.

• Revenue: The restaurant business works as a retail sale of food and drinks. They deal with a high volume of cash transactions, which need strong record-keeping and internal controls.
• Inventory: Restaurants require strong inventory management, given the perishable nature of goods and the fluctuating costs of food and beverages. An accountant uses financial statements to forecast the guest count, reduce wastage and cost while maintaining quality.
• Expense – Breakage: Just as a hotel maintains a shrinkage reserve, a restaurant holds a breakage reserve, where they allocate a budget to replace cutlery and tools that break in day-to-day operations. The accountant deducts the actual breakage cost from the reserve and adds back the balance of the reserve to the income. 
• Taxes: Restaurants deal with gratuity reporting and meals and entertainment tax deductions, which makes tax reporting a challenge.

How a Hospitality Accountant Helps: Restaurants handle substantial amounts of cash, necessitating effective cash management and control. A hospitality accountant can help you set up internal controls and daily reconciliation of billing and the cash register. The accountant will also help set up menu pricing by considering significant fluctuations in inventory costs to manage day-to-day operations.

Revenue From Entertainment

The hospitality industry also offers a lobby bar and nightclub facilities for the entertainment of guests. This has a unique set of tax laws and regulations that keep evolving.

A hospitality accountant consolidates the accounts of all three businesses to give a comprehensive financial overview of the overall business.

How Can an Accountant Specializing in Hospitality Help Your Business

The hospitality industry requires industry experience in handling large volumes of cash transactions and managing inventory. While a general accountant can help you prepare financial statements and file taxes, a specialized hospitality accountant can bring more value with a better understanding of the industry.

• Business financing: A skilled accountant can help you prepare a business accounting chart, as per the business’s unique operations and needs. They will identify and report key performance metrics to help you track daily data and make informed financial decisions. The accountant can help you benchmark your performance with industry standards and modify the chart to accommodate business changes and growth.
• Managing Revenue and Expenses: Hospitality accountants identify and track different sources of income, such as room rates, meal sales, and other service charges, and help you optimize them. They also track expenses, monitor outflows, and minimize costs where possible. This daily management of revenue and expenses helps control cash flow and streamline operations.
• Managing Payroll, Taxes, and Compliance: The industry is labour-intensive and has to comply with labour laws. Moreover, some provinces offer tax benefits to companies that hire veterans or serve locally sourced food. The hospitality accountant can help you manage payroll, deduct taxes, comply with labour laws, and take advantage of the special tax benefits.
• Identify Cost-Saving Opportunities: The accountant helps you remove redundancies and streamline operations to improve operating efficiencies. They also help you take advantage of various tax deductions and credits your business is eligible for, thereby reducing tax liability. Inventory management and supplier negotiations can be more efficient when mixed with the accountant’s expertise.
• Budgeting and Forecasting: Since the hospitality accountant prepares the financial statements, they know the figures and gaps. This helps them suggest a more practical budget based on past expenses. They analyze trends, seasonality, and do scenario analysis to prepare a more accurate forecast of revenue, expenses, and inventory. A data-driven forecast helps business owners make informed decisions and reduce wastage. 

Contact KSSP Partners LLP in Markham to Help You Provide Accounting Services for Your Hospitality Business

Please consult a professional accountant to determine your accounting needs, whether it is preparing books of accounts, managing inventory or payroll, setting up a reporting system, or assisting with budgeting and forecasting. To learn more about how KSSP Partners LLP can provide you with the best hospitality accounting and bookkeeping expertise, contact us online or by telephone at 289-554-5997.