For many years, advances in business technology and applications in the hospitality industry have typically centered on revenue-generating systems. The focus has been on property-related applications such as property management (PMS), point-of-sale (POS) or spa systems. Additionally, reservation systems to revenue management systems (RMS) have been targeted to aid in the drive to increase average daily rate (ADR) and revenues.
 
We’ve also seen an increase in business intelligence reporting tools and inventory management applications. However, there’s been little effort to target financial reporting systems and efficiencies created by managing the back end of the business.
 
In an effort to overcome system shortcomings, many operations spend vast resources on unsafe, outdated processes. Properties cobble together systems to track numbers from night audits to general ledgers, and eventually to back-end reports. Operations relies on daily reports to unearth key operational triggers. In-depth financial statements come on a monthly basis with no interim or daily reporting options.
 
That won’t cut it in today’s competitive environment. Property managers must make key decisions based on real-time information. They can’t afford to wait a month or more for financial statements or analysis. To stay competitive, hoteliers must be able to make informed decisions with accurate, detailed up-to-the-moment information. The business that gives both sides of the house equal attention will have the edge.  
 
One could argue that for many years there were no significant changes to financial system applications, however, in today’s competitive environment you have to play both offense and defense in order to stay in the game. Too often you see a focus on integration and streamlining of front-end (FoH) systems while on the back office (BoH)side things are neglected. Hotels are still working with manual Excel worksheets and workarounds to piecemeal the accounting and financial reporting requirements. The unfortunate side effect is that hotel staffs tend to expend tremendous resources on outdated processes and workarounds that lack data integrity in an effort to overcome the shortcomings in their systems.
 
That’s where the selection and implementation of an effective hospitality-focused enterprise resource planning (ERP) system can really make a difference in an operation by providing effective information to make informed decisions.
 
What’s Changed?
Many popular systems are still available and have evolved over time. Some were purchased by large companies like Microsoft, Oracle, Infor, Epicor and Sage. The acquisitions have their pros and cons.
 
On a positive note, some offer many more functions. Others can be integrated with specialized third-party apps with extra capabilities. More robust products help hoteliers improve efficiencies, create real-time reports and streamline the information flow.

On the downside, many products have lost their identity because their companies’ offerings are so broad. Also, those extra bells and whistles come at a cost. You’ll pay more in implementation fees and for long-term support.
 
What’s Available?
Cloud-based vs. Premised-based Solutions. Many newer systems are cloud-based apps engineered from the ground up. Users connect via an internet browser. Their newer architecture and features are appealing, but there are skeptics. Concerns revolve around data security and the fear of sensitive financial data exposure as a result of a breach or hack. While some older systems offer cloud-based or hosted options, many companies feel more comfortable with premise-based solutions hosted at a facility of their choosing.

With this in mind, let’s look at some of the key financial system applications and focus on hospitality requirements. Proponents of cloud-based offerings highlight the following key advantages:
 
Opex vs. Capex. Newer cloud-based options focus on an opex model. Outside of initial setup fees and training, the upfront expenditures are waived in favor of a subscription-based, pay-as-you-go model. That means no outlays for servers, and in many cases upfront license fees. These systems and applications are updated on a regular basis, often quarterly. There’s lower total cost of ownership (TCO) and a rapid ROI when the system is implemented. Premised-based solutions claim a lower operational cost after initial setup and license fees. That means less impact on the bottom line.
 
Security. Given the numerous data breaches in recent years and the sensitivity of financial performance information, it’s no surprise that safety is a major concern. The list below provides security features to investigate.
 
Scalability. It is important that a system can accommodate company growth. Look for a system that lets you:

•  Add additional properties and users.
•  Run consolidation reporting features.
•  Make intercompany transactions.
•  Create ownership reports.
•  Modify and expand the chart of accounts.
•  Support a larger number of users concurrently entering and modifying financial transactions.
•  Collapse multiple charts of accounts into one and store them in a single database.
•  Use segments to capture additional details at the transactional level and aggregate or slice and dice the numbers.
•  Create a strong audit trail. 

Many operators are looking for an all-in-one hospitality-specific system that offers both front and back-of-house functionality and is seamlessly integrated. Advantages can be seen when all financial transactions flow effortlessly from the initial sale to the financial statements in real time and with an audit trail. Some systems are customizable while others are built on an ERP platform. Agilysys Visual One is an example of a comprehensive solution with a custom accounting module. The module isn’t feature rich, but it lets financial transactions flow directly from other modules like PMS, POS and spa.  
 
Other systems built on the ERP platform include Cenium, which uses Microsoft’s Dynamics NAV, and Indra, which is built on the SAP foundation. Users receive an undivided view of information and end-to-end process support, as well as front and back-of-house information are kept on the same platform with integration between modules. These systems conduct strategic data analysis and provide customized options, although the general consensus is that this raises the cost of implementation and overall support. However, manufacturers say this ultimately minimizes maintenance costs and efforts.
 
Financial Reporting Options
Financial reporting is a key requirement, so you’ll find systems targeting different industries and business models. Multiproperty organizations have sophisticated functional requirements and reporting needs. These organizations want robust, scalable systems that can handle large transactional volumes, and may require centralized accounting features and consolidated reporting capabilities.

Large-scale resorts offer a wide range of amenities like golf and spa, often with memberships that have specific reporting requirements. Some require hospitality-focused applications that integrate with many operational modules. Others want an all-in-one solution with a built-in back office accounting module.
 
Mid-scale hotels require robust, scalable systems, and the best choices are typically mid-range applications that allow the import/export of financial information from the PMS, POS and other modules. Budget or limited-service hotels typically focus on the bottom line and they’ll opt for moderately priced back office solutions.
 
Making the Choice
In the end, it comes down to a mix of features, functionality and budget. Outside of these key factors, issues like ease of use, training and support should be taken into account.
 
When managed effectively, procurement can have a large impact on a property’s performance. Not only do these systems benefit purchasing departments, they can streamline ordering and approval process by allowing tighter controls on what gets ordered and when. Other tools can help manage budgets and departmental spends. Many financial systems work with third-party integrated procurement systems to facilitate the purchasing process. Let's focus on a few functions.
 
Workflow Management. Users can manage a department’s spend by controlling product approval and order amounts before the order is created. These systems create customized roles between departments to maintain that proper controls are established for procurement. Setup can be based on the corporate level and roll down to physical locations, management, departments or even individuals. Routing, budgeting and payment are all key features for these systems.
 
Capex Features. Associating the procurement information with the tracking of a fixed asset and its anticipated depreciation is extremely beneficial. Systems that can tie the procurement of a fixed asset to a fixed asset module and allow for the appropriate automated journal entries for depreciation can really help to streamline these requirements.
 
Purchase Requisitions. Operators typically require detailed explanations of what is being purchased including an itemized list and commentary for capex expenditures during the approval process. When this is tied to the budget or auto-populates to the “checkbook” these features streamline the overall approval process.
 
Managing the procurement process. Very often the true benefit of a good procurement system comes from streamlining both the procurement and payment processes. The integration of the procurement system into the AP system can simplify the entire process. Drill-down features allow users to access invoices that are posted against the purchase orders.
 
A key feature is the generation of receiving documents for approved purchases. Receiving invoices electronically from integrated suppliers and sending them directly to the AP system dramatically streamlines the payment process. By matching up the products ordered, invoiced and quantities received, accounts payable can manage the overall payments process and account for cash flow requirements and appropriate payment releases. 
 
The effective use of a document imaging system is also a key feature. Not only does this minimize and manage the amount of paperwork involved in the procurement process, but it is key to the full invoice automation process and the ability to route documents to personnel for approvals and managing.
 
Inventory Systems. Many organizations use inventory systems to manage food, liquor and retail inventories. Not only do these systems provide essential control levels managing the products on hand, but they can be used to trigger automatic reorder requisitions when pre-determined par levels drop below a designated threshold. By integrating inventory systems with the associated POS systems, the inventory levels are updated in real time and managers can be assured that their key product orders are processed in a timely manner.
 
Key benefits of an effective procurement system can be highlighted.
 
Improved collaboration with suppliers. By using an electronic ordering system with your suppliers, hotels can negotiate improved financial terms, faster delivery times and reduce potential over ordering of products by establishing just-in-time inventory levels.
 
Standardized workflow process. By setting up an effective and efficient ordering process the hotel can establish standard operating procedures for ordering products and services, and ensure that these systems work and flow back to the reporting systems. Efficiencies can be tracked, measured and reported.
 
Eliminate or reduce unaccounted spending. Streamlining the process and ensuring that all transactions are tracked from the initial purchase order to the invoice payment will make all parties accountable for expenditures
 
Improved cash flow. One of the biggest challenges for many CFOs and directors of finance is the management of cash flow. Having more reliable information and improved control over the anticipated purchase commitments will allow them to better manage their cash resources and provide improved leverage on suppliers for prompt payment of invoices.

Increased efficiency. An automated procurement process reduces the resource requirements involved in the purchasing process, resulting in a reduction in labor costs and or the allocation of these resources to other areas of the business for improved services.
 
Compliance. The streamlining of this process will also help in the efforts with requirements such as Sarbanes-Oxley Compliance.
 
Budgeting and Forecasting. The budgeting process for most hotels and resorts is typically robust and indepth, and requires a tremendous amount of preparation. For many organizations, the process starts in August and is in full swing all the way until November. The budget typically extends to all departments, and in many cases they are dependent on the sales and occupancy performance of the property. For this reason many hotels and resorts revert to custom Excel-based workbooks to facilitate this process, as the traditional accounting system might not accommodate their needs and requirements. This is where a number of the hospitality-focused systems have an advantage. These systems understand the process and offer solutions tailored to the hotel industry.
 
For those systems that do not offer a custom budget and forecast application, they can offer Excel-based import and export features for information transmission in either Excel or CSV formats.
 
Reporting. If there is one area that draws the attention of senior management, corporate offices, ownership groups and other stakeholders, it’s the area of reporting. There are many different types of reports that are required or generated, and while there are the standard types of industry-formatted reports, typically every organization has its own preferred reports or desired formatting. For this reason many of the industry solutions offer custom writing features that allow for ad hoc reporting or custom reports. While a number of the hospitality-focused systems provide a selection from pre-developed or generated reports, other systems require that these be developed from scratch through the use of the report writer.
 
Outside of the ability to run reports, hotels and resorts look to automating the production and running of these reports for a periodic reoccuring schedule of weekly, monthly or daily basis, and create these reports in both Excel or as a PDF. Excel is important so that the staff can analyze or modify the reports for specific needs and requirements.
 
Users also want to drill down into the reports to analyze the numbers and expand on areas of interest – especially as they relate to specific invoices or revenue activity. Additionally the drill-down feature should allow for access to attachments such as scanned images or invoices, etc. There are even some requirements to allow drill-down capability to budgets and forecasts – assuming this information is contained within the system. Most of these features require direct access into the financial system itself in order to allow for this functionality.
 
One requirement for the financial statements is to be provided in traditional format with columns for actual vs. budget and last year. These reports are typically needed monthly, quarterly and annually. Customization for the daily operational reports should include daily revenue reports and daily flash reports. Other key areas of reporting include historical reporting at both the consolidated and departmental levels, forecast reporting that provides the ability to compare actual results from a particular month to forecasts for the same month, and ownership reporting that provides for the automatic reporting of ownership capital contributions and distributions on a periodic, month-to-date and year-to-date basis.
 
Another key area of focus, labor reporting is one of the largest expenditures for a hotel or resort. As such, these systems can provide alerts to managers to help control and manage this cost. In some instances there are third-party applications that provide reporting for certain departments, such as food and beverage reporting and analytics.
 
Depending on the entity, requirements for labor reporting will include things such as occupied rooms from the prior night, reports on full-time employees (FTE), variance to the Labor Standards reporting, spa treatment staff, and labor based on the number of covers.
 
Compliance. Location and type of organization may bring certain compliance reporting requirements. It’s important that the system adhere to these compliance requirements as well.
 
USALI Compliance. The Uniform System of Accounts for the Lodging Industry establishes standardized formats and account classifications to guide individuals in the preparation and presentation of financial statements for lodging operations. The USALI serves as the industry standard for reporting hotel revenues and expenses, and historically has focused on presenting information in accordance with the Generally Accepted Accounting Principles (GAAP). Released in 2014, the most recent 11th edition included a number of changes to the way hotels and resorts should report revenues and expenses on their financial statements. While operators and owners are not required to adhere to the USALI guidelines, it is a recommended practice within the industry to follow these reporting recommendations.
 
Sarbanes-Oxley (Also known as the Public Company Accounting Reform and Investor Protection Act)

Business Intelligence Tools and Reporting. A number of third-party business intelligence (BI) tools let you pull information out of most front and back office systems to analyze key business performance criteria. These systems are capable of reporting on specific departmental metrics on an ad hoc or monthly basis. They can provide for strategic variance analysis with adjusting parameters such as over/under percentages or set dollar amounts. Examples of these systems include Datavision, Aptech Execuvue, Solver’s BI360, Adaptive Insights and Cognos.
 
These tools provide information on fixed assets and their associated depreciation schedules. Users can obtain detailed reporting on fixed asset disposals, fixed asset transfers, depreciation, construction in process (CIP), detailed and summary reporting on depreciation expense and accumulated depreciation, detailed and summary reporting of CIP with final accounts on go-live and property tax reporting requirements.
 
Integration. A key requirement for any financial system is the ability to integrate (or accept a data export or import) with the other key hospitality front office applications. Integration can occur in a variety of levels, including with the PMS, POS, spa, membership, activities, golf, retail (POS), retail inventory and F&B inventory.
 
Data security requirements mandate that you look for a product that can integrate with other two-factor authentication solutions. Integration can take place in a number of ways, but typically involves import and export capabilities and real-time one-way interface or two-way real-time interface.
 
Many hospitality-specific applications are built to work with existing systems or will create an integration if it isn’t already available. Other products offer open application interfaces (APIs) that you can use to build the required integration.
 
Other common integrations are also important to assess and these might include HR and payroll, with ADP or other known payroll providers (including time and attendance apps), or business intelligence applications like those noted previously.
 
Financial controls and automation apps. Some provide dashboard apps to manage key tasks. Many offer third-party apps that provide extra functions like account and bank reconciliation or task management. These apps have tools that automate and standardize the once labor-intensive reconciliation process. Allowing accounting and financial staff to streamline accounting workflows and produce financial and regulatory reports in a timely manner also improves accuracy and compliance auditability.
 
Business intelligence tools and dashboards. Many systems come with built-in BI tools or dashboards. Others offer comprehensive third-party applications with more features. Many hospitality companies use industry-specific applications like those from Datavision or Aptech to provide critical business intelligence tools. Others choose more generic applications such as BI 360.
 
Challenges You’ll Face
 Moving to a new financial system can be challenging. Your accounting and financial staff may already be operating at full capacity with little time to get ready for a new system deployment. A decision also has to be made whether to transfer legacy data to the new system or keep the existing system operational for a period of time.
 
There is always the challenge of time. Staff will have to be trained on the new product, and you may have to create (and implement) new standard operating policies and procedures.
 
There is also the issue of interfacing to the key operational systems and the development of financial reports – often from scratch.

Without getting too detailed, one can already see that this can be a challenging undertaking, and one which requires a great deal of planning with all involved. 
 
In a Nutshell
A poll of more than 60 hospitality CIOs last year identified improved financial performance in their top five focus areas. Most industry personnel see front-of-house revenue generation as the simplest way to improve financial performance, but few are focused on managing processes and expenditures. However, a one-time choice of the most effective applications and tools can streamline processes and reduce expenditures, which  ultimately benefits the bottom line.
 
Investing in improved back office systems can be challenging and time consuming, but these systems can make business more efficient and profitable. Moving to a new financial ERP system is a big decision and not an easy one. Similar to installing a new PMS, it involves planning and commitment to ensure success. 
 
But despite many challenges, the pros certainly outweigh the cons. Once in place, these systems offer improved spending controls, better management tools and data integrity. Properties will eliminate error-riddled Excel worksheets and time-consuming manual workarounds. With real-time reporting and, in many cases, tighter security options, staff is enabled with tools to manage budgets and resources to empower them to take a more proactive approach to managing their departments, while at the same time boosting financial and operational performance.
 
While most organizations are focused on revenue generation to achieve their goal of improved financial performance, the smart money is focused on controlling costs and creating efficiencies through effective financial and operational management.
 
Jeremy Rock is the president of RockIT Group, a consulting firm specializing in new development and refurbishment projects. He can be reached at JRock@RockITgroup.com.