Net profit
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What is net profit?
Net profit consists of the income (revenue)made in the four revenue groups:
- Room rentals
- Food and beverage
- Banqueting
- Other revenues
Minus the total of the three cost groups: fixed, variable and Team decisions. All this is indicated in the Operating review.
We only speak of net profit, not of margin, gross profit, or other concepts. Interested in this: check different income and profit concepts explained.
We do not look at any corporate tax at all.
There is a special group called fines and bonuses which directly influences the results as well.
What remains is the net profit. More info is on the Operating review page. As you take over, the profit is good, in fact too good. This is because the managers spent as little as possible in the last few years. This has driven up the net profit, but now there is a real lag in maintenance and visitors are getting dissatisfied with the fact that the hotel is outdated.
No taxes
In the data we have of the hotel, there is no information on taxes or VAT (value added tax).
You also do not have to worry about liquidity, only about the net profit. So, there is no profit before or after tax. The regulation on taxes and VAT differs from country to country. Of course, in the end, the Emerald Forest Hotel will need to meet legal requirements. Though for now, we need to work with the data and numbers available.
Very high net profit
The history of the hotel shows € 2,861,896 in revenue and € 431,301 in net profit, for the prior year. This means the profit was 15% of the revenue, which is extremely high. How come?
- The historical data are pre-Coronavirus.
- The hotel barely invested in the last few years. The Bergman family was cannibalizing the venue, one could say.
- The family never worked with Vertical Search Engines, nor with Affiliate programs and Aggregators, nor with platforms like Bookings, TimetoMomo - Moonback or Hotels.com. Of course, this means no commissions (up to 20%!) had to be paid. But theses days, it is impossible to work without any of these.
- Also hardly any expenditures were made on marketing, staff development, market research or other cost groups. Upon taking over, you can and should work especially on these cost groups via decisions 6-10.
Find some ratios, benchmarks, information and explanations on small hotels on this page.
Net profit and your operating review
In the game, it is only about the operating review of the hotel, i.e., the profit or loss the hotel makes in a year. The realised profit in a year will be fully reserved and can't be used to finance investments or to cover the costs of the next year(s). In your Team File you will find the profit on the 'Results' tab, rows 69 and 70 and an indicator on the same page as your operating review of each year. To make the development in your profit visible, your net profit (or loss) year by year is summed up.
Your hotel's total profit over the years is shown in the Results tab in the 'Key Metrics' section as 'Total net profit (total of the years)'.
You cannot spend nor invest this. You are bound by the limitations of the Yearly decisions.
Though, do not worry about the hotel's 'finances' for realising and 'paying' for new plans or costs to be incurred. In any year, you can spend a total amount of € 1,350,000 (the sum of all possible costs) allowed, which is far beyond realistic costs, looking at a hotel of this size. So, to speak in economic terms, liquidity is no issue; do not worry how costs are paid for / financed, just be sure to show results.
Historical costs
As suggested, your hotel should probably 'activate' the aforementioned six cost groups (decisions 6 through 10) to keep the company healthy and valuable to customers.
Compensating for these additional costs or rather benefiting from them, can only be done in a few ways:
- More revenues by choosing higher prices, so a higher profit per sold product.
- More revenues by achieving a higher occupancy-rate, so more sales.
- Incur fewer costs per room as you have a higher occupancy rate.
- Incur costs, hoping that by making them, dissimilar costs are brought down (for instance, in using ICT, fewer staff are needed).
None of the fixed costs can be influenced at all. The variable costs will automatically be calculated according to your occupancy rate.
There are also pages on the revenues per room: RevPOR and RevPAR.
To get a basic idea of what the average profit is per room or per occupied room, we use a ratio called Revenue per room.
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