Hospitality Financial Leadership – Balancing Daily Revenue and Settlements

Hospitality is a form of retail. Every day we have to balance our income with our payments, just like you would if you owned a store. Or for that matter any business that has sales every day and customers pay for their purchases at the time of the sale.

But (and it’s a big but) the hotel world and the daily balance is different. That’s what it’s all about, why we’re different, and what you need to do to protect your assets. In this case, you need to be able to balance the day’s receipts and keep your ledger books clean and neat and, more importantly, what we in the industry like to call to clean.

To understand what needs to be done, look at what is happening inside the hospitality industry as this directly affects the accounting approach.

To oppose the hotel to a store: A store is one-dimensional. The only dimension is that a sale equals a payment. If someone buys a sweater, you credit the sale and the taxes collected and debit their payment method. Do that a thousand times in a day and that’s pretty much the end of the story.

In the hotel world, things get risky because it’s three-dimensional

  • A dimension performs the transactions as in the example above. Maybe it’s a guest buying lunch and paying cash. Simple and neat, one and done, just like the sweater.
  • the second dimension is the guest signs the meal in his room and they stay for a few days. The money for the sweater is replaced by a charge on the “guest ledger”. This is a common charges tab that is kept for the guest throughout their stay.
  • the third dimension this can also happen if the guest leaves the hotel and, because he has credit, receives a bill. Meanwhile, in dimensions two and three, daily work must be balanced, including sub-books and recognition of all income.

For the second and third dimensions, this is where the sub-ledgers come in. If the guest charges for breakfast in the room, the credit is for the sale and the corresponding debit is charged to the guest register. The guest register is the running balance of what house guests owe the hotel. The guest register is a form of credential.

Then, if the guest has what is called “city ledger” approval at the end of their stay, and they check out, the guest ledger is credited and the “city ledger” is debited. This means that an invoice is sent for payment. It is also what some rightly call a claim. These sub-ledgers live in detail in the property management system and should be linked to the general ledger checksum. This is the point where most people can lose it, at least for the first few times.

Not only do you need to account for cash and credit card sales and settlements as a normal retail operation does on a daily basis, but you also need to be able to balance the guest register and the city register with totals from the property management system as well as with the general ledger.

If you are unaware of this extra balance that needs to be done on a daily basis, things can quickly spiral out of control and you may never be aware of what is really going on.

Here’s an example of what can and often does happen if you don’t comb through every day:

The customer comes to pay and there is a problem with his account. Maybe they had a service issue like cold water or a noisy room, or maybe their lunch didn’t go well. They complain and demand resolution (sound familiar?). Reception has the option to check this room with a balance and not process a payment immediately or in fact ever. This balance will stay there until someone does something about it. A responsible person should review the Guest Registry Details Report “daily” to ensure this is not happening.

Another aspect that can also complicate things is the need to balance the sub-ledger with the general ledger and this needs to be done on a daily basis. The problem is that not everyone publishes transactions daily. Some do this monthly by posting a larger entry with the 31 days included. If this is the approach, it can still work, but you need to make sure that you check the balance of the sub-ledgers at the GL daily. To do this, capture the net change and follow the opening balance plus the net change to calculate the theoretical ledger balance. Then compare that to the detailed guest ledger report from the property management system.

For many hotels, this daily process and daily balance is lacking. If you compare your detailed guest ledger report to your general ledger checksum and they don’t match, then you have a problem that needs to be fixed. Somehow you need to fix it (probably by taking a hit to your P&L).

So, don’t overlook this super important process. Ensuring the balance of your business is a daily exercise. Never miss a day!

David Lund
The hotel financial coach
David Lund

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