The Summary Operating Statement (SOS) is a central feature of the Uniform System of Accounts for the Lodging Industry (USALI), providing a comprehensive overview of a property’s financial performance. The SOS is carefully structured into distinct sections, each offering insights into specific aspects of a hotel’s operations. This article explores these sections and highlights their importance in financial management and reporting.
Structure of the SOS
The Summary Operating Statement is divided into several key sections, each serving a unique purpose in presenting the financial health of a lodging property:
1. Operating Revenue
Operating Revenue captures the income generated from various hotel operations. USALI defines four primary categories:
- Rooms Revenue: Income derived from guest room rentals, which typically forms the core of a hotel’s revenue.
- Food and Beverage Revenue: Includes revenue from dining services, bars, catering, and room service.
- Other Operated Departments: Encompasses income from ancillary services like spas, parking, golf courses, or retail outlets.
- Miscellaneous Income: Revenue from sources such as space rentals, commissions, or interest income.
- Total Operating Revenue is calculated by summing these categories and serves as the foundation for determining percentages for each revenue source.
2. Departmental Expenses
These expenses are directly tied to revenue-generating activities and are grouped into categories such as:
- Cost of Sales: Costs related to goods sold, such as food and beverage ingredients or retail inventory.
- Labor Costs and Related Expenses: Includes wages, benefits, and associated taxes for departmental staff.
- Other Expenses: Operational costs unique to the department, such as supplies or equipment maintenance.
- Total Departmental Expenses represents the sum of all departmental costs, with percentages calculated relative to their associated revenues.
3. Total Departmental Profit
This figure is derived by subtracting Total Departmental Expenses from Total Operating Revenue. It reflects the profitability of the property’s core revenue-generating departments and is a critical indicator of operational efficiency.
4. Undistributed Operating Expenses
These expenses apply to the overall property and cannot be attributed to specific departments. USALI categorizes them into:
- Administrative and General: Costs for management, legal services, and office operations.
- Information and Telecommunications Systems: Technology-related expenses, including software and hardware.
- Sales and Marketing: Advertising, promotions, and sales team salaries.
- Property Operations and Maintenance: Repairs, engineering, and upkeep costs.
- Utilities: Costs for electricity, water, gas, and other utilities.
- Total Undistributed Expenses is calculated by summing these categories, with percentages based on Total Operating Revenue.
5. Gross Operating Profit (GOP)
Gross Operating Profit is a vital metric in hospitality financial reporting, calculated by subtracting Total Undistributed Expenses from Total Departmental Profit. It represents the property’s operational profitability before deducting management fees and other non-operating expenses.
6. Management Fees
These fees are paid to management companies for overseeing the property’s operations. Management fees are typically calculated as a percentage of Total Operating Revenue and are deducted from GOP to determine the property’s operating income.
7. Income Before Non-Operating Income and Expenses
This figure results from subtracting Management Fees from Gross Operating Profit. It highlights the income generated purely from operations before accounting for external or non-operational factors.
8. Non-Operating Income and Expenses
These items reflect costs and revenues unrelated to daily operations, including:
- Rent: Lease payments for property or equipment.
- Property and Other Taxes: Taxes levied on the property.
- Insurance: Premiums for property and liability coverage.
- Other Non-Operating Expenses: Miscellaneous items such as legal settlements.
- Non-Operating Income: Includes interest income or gains from asset sales.
- Total Non-Operating Income and Expenses is the net result of these components.
9. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
EBITDA is calculated by subtracting Total Non-Operating Income and Expenses from Income Before Non-Operating Income and Expenses. This metric is widely used to evaluate a property’s profitability and operational performance.
10. Replacement Reserve
Many hotels set aside a portion of revenue into a Replacement Reserve to fund future capital expenditures, such as replacing furniture, fixtures, and equipment (FF&E) or making significant property improvements. This reserve ensures the property remains competitive and well-maintained.
11. Net Income
Net Income represents the property’s bottom line. For owners, it is derived by further deducting interest, depreciation, amortization, and income taxes from EBITDA. Net Income is a critical measure of the property’s overall financial health.
Why the SOS is Essential
The structured layout of the Summary Operating Statement ensures that all stakeholders—from owners to operators—can gain clear insights into a property’s financial performance. By dividing revenue and expenses into distinct categories, the SOS provides:
- Transparency: Clear visibility into all operational and non-operational aspects of the business.
- Benchmarking: A basis for comparing performance across properties and industry standards.
- Decision-Making Tools: Essential data for strategic planning and resource allocation.
Conclusion
The Summary Operating Statement in USALI is more than just an accounting framework; it is a strategic tool that empowers hoteliers to analyze performance, allocate resources efficiently, and make informed decisions. By adopting and adhering to the principles of USALI, hospitality professionals can ensure consistent and transparent reporting, fostering trust and collaboration among all stakeholders.
