Getting into a project, taking over a business, reviewing your business model, inevitably involves measuring and costing your business. Although tedious, the costed business plan is crucial in a project stage.
In this article, I offer you some models and tools to present your business plan in a concise way. The figures in themselves that I present are not important, it is the way of constructing them that prevails. Hypotheses are always put forward but they must always be discussed, questioned or even challenged to move in the right direction.
In the table below, I present to you a classic Profit & Loss Statement of a property over 2 years showing :
- the construction of turnover and the main indicators.
- the summary of expenses by operating department, their percentage to understand the weight of each department in the general profitability of the company.
- profit by revenue center and as a percentage of revenue generated.
- expenditure on functional services, administrative departments (Management, Finance, IT, Human Resources, Security) Sales and Marketing department (Sales, Marketing, Communication), Maintenance department (Maintenance, maintenance contracts). The cost of energy (Utilities).
- the operating profit of the company called GOP (Gross Operating Profit), RBE (Gross Operating Profit) which measures the percentage of the turnover of the operational profitability of the company.
- other charges such as insurance, taxes, depreciation of investments made, fees in the event of a management mandate or franchise.
- The company’s bottom line.
To build your business plan, you go through different stages to set the assumptions. I present to you below, an example of a 10-year business plan to quantify the evolution of a project and how its financial results are expected. This type of document is often requested by an investor, a bank, its owner to see the financial consistency of a project.
Other sections are detailed below to understand the indicators of the financial business plan.
Breakdown of income including accommodation with indicators such as occupancy rate (OR), days of operation, available rooms, displayed price and average price sold, volumes of rooms sold.
Detail of the calculation of catering income with indicators such as the number of customers, calculated as a “collection rate” in relation to hotel or external customers, the average expenditure on food and drink. These calculations are ideally done by point of sale in order to provide precise details of each service.
The costs are also explained in detail according to the direct items (related to the activity generated) and indirect such as fixed operating costs.
One of the most important items to detail are personnel costs, often one of the most important expenses in our service professions. A detail by service or department will present the planned organization chart and the expected costs. A fixed part and a variable part, depending on the season, is to be integrated in relation to the construction of the turnover and according to the services.
Finally, the summary dashboard by department presents the operating results and ratios.
The business plan thus determined will be supplemented by the cash flow plan, working capital requirements, planned investments detailed per year justifying the construction of the operating account.
The business plan is the overall financial picture of the project, of the company. The Gross Operating Income is determined by subtracting from the estimated turnover the operating costs usually observed in the hotel industry for a similar establishment, by major items (Housekeeping – Food&Beverage – Other Income (Leisure, Spa,…) – Administration – Marketing – Maintenance – Energy) according to the “Uniform System of Accounts for the Lodging Industry”. To establish the provisional operating accounts, we base ourselves on the turnover estimated by the Marketing Findings method (Market study, estimated clientele by client segment, by season) for the hotel, the F&B department, other and Spa. GOP is defined as the difference between the revenue of operational departments and operating expenses.