Part 2: GOP Is More Than a Political Party
In the first post of this series, we introduced the concept of the Uniform System of Accounting for Hotels and then looked at Operating Revenue and Departmental Expenses. We now turn to Undistributed Expenses.
Not the only expenses
The next items after Total Departmental Income are collectively listed as Undistributed Expenses. These are the other expenses directly associated with operations of the hotel but have no corresponding revenue. As of the 11th edition revisions to the Uniform System effective January 1, 2015, Undistributed Expenses are broken down into 5 departments:
- Administrative & General
- Information & Telecomm Services
- Sales & Marketing
- Property Operations & Maintenance
Administrative & General is the total expenses associated with general management, accounting, and human resources functions for the hotel. Among the items included in this department are the cost of labor for the hotel General Manager, Night Auditors given their true function to support accounting, and any accounting personnel who work at the hotel; credit card commissions; and operating supplies used within the department.
Information & Telecomm Services is the newest Undistributed Expense and it was created to reflect the fact that items previously associated with revenue, i.e., in-room telephones, are now generally expense centers given the prevalence of guests using personal cell phones. Also included in this department is the cost of hotel Internet and costs associated with the hotel’s property management system (PMS). For larger properties that may have dedicated IT personnel on site, the cost of labor for those team members would also be reflected in this department
Sales & Marketing includes the cost of labor for sales and marketing team members, collateral and other materials used for selling the hotel, and travel associated with outside sales calls. Also included in this department is the cost of franchise fees, i.e., the fees charged by the brand (Hilton, Marriott, IHG, Hyatt, etc.) including the franchise or license fee, brand marketing fees, and the costs associated with brand loyalty programs (Hilton Honors, Marriott Bonvoy, IHG Rewards Club, World of Hyatt, etc.).
Property Operations & Maintenance is an aggregate of all costs associated with running the physical plant including maintenance labor, supplies, and contract services that may be necessary to run the hotel. The cost of waste removal and recycling is also included in this department.
Utilities is the actual utility bills for the hotel including electricity, gas, water, and sewer charges.
All 5 of these items are aggregated into Total Undistributed Expenses and the amount resulting from Total Departmental Income less Total Undistributed Expenses is called Gross Operating Profit (GOP). GOP is an important metric as it is a direct reflection of the effectiveness of operations on property. All of the revenues and expenses above GOP can be controlled on property and as such, it can be viewed as the operator’s scorecard.
The last post in this series will focus on additional expenses not controlled on property and how to use the hotel financial statement to calculate asset value.