A hotel or motel is an expensive business to purchase or operate. Most people considering purchasing this type of business or those who need to update or expand the business will need to have financing to do so. Good credit and a good business plan are the basic necessities you will need. This type of business usually requires millions of dollars and so you will want to find reputable sources for your financing. To build a good business plan you will need to have a basic understanding of some key financial terms.
Receivables is cash that is owed to a business from its customers. Receivables will be an essential element that a lending institution will assess in deciding how well a hotel or motel is being managed.
Balance sheet is a financial accounting term that is the summary of a business's assets, liabilities and equity. Every hotel and motel should have a balance sheet that a lending institution can analyze.
Break-even analysis is the examination and determination of when the total revenue in a business received equals the total costs of operating the business. It determines when a business will be profitable. Break-even analysis is usually completed when someone is considering buying a hotel or motel and is required for financing this type of acquisition.
Cash flow refers to the transfer of cash out of or into a business. It is an important measurement of how well a hotel or motel is functioning from a financial perspective.
A sales forecast is a prediction of how much income will be generated from a service or product for a specific timeframe. A sales forecast helps a business owner prepare a budget for their business and is essential for any hotel or motel owner attempting to get financing.
Profit and loss
A profit and loss statement, also referred to as an income statement is, put very simply, revenue minus the costs of operating a business. The costs of running the business include expenses such as operating, taxes, interest and the cost of goods sold. If you are considering financing for your hotel or motel you will need to prepare a business plan and your estimation of your profit and loss of the business is an essential element.