Lodging and Foodservice Financial Red Flags
Identifying financial problems now will head off disaster later
By James Downey Adjunct Professor of Hospitality Management, Lynn University | March 11, 2018
Lodging and foodservice managers looking for ways to stem the tide of a less than robust financial future for 2018 and beyond can look no further than the wealth of financial information contained in the balance sheet and the income statement. These two documents are a road map to economic and financial prosperity if you know what to look for within the vast sea of financial data they display. Below are five red flags to look for when examining these statements provided you fish in the right places and reel in the problems they can cause.
First, we will examine the problems that may occur with the balance sheet.
The Balance Sheet
This document compares the operations assets, liabilities and equity. Short term asset and liability positions along with long term asset and liability positions are measured against what is left over for the owners in the form of equity. This statement is merely a snapshot of the facilities financial position at a specific period of time in the year. Numbers on it are estimates at best. However, there are three "red flag" areas that can be examined to keep you out of the financial fish tank:
- Allowance for Doubtful Accounts
- Credit Card Receivables Collection Period
- Debt to Equity Ratio
Red Flag # 1: Allowance for Doubtful Accounts
Managers need to examine the allowance for doubtful accounts section of the accounts receivable portion of the balance sheet since it contains the amount of money not collected for products and services rendered. This represents a short term credit obligation which can get away from you if you don't hold it in check. Converting accounts receivables to cash quickly keeps the operation liquid or cash infused rather than cash strapped.