• Katie Paolino

How to get your team to pay attention to the Income Statement.

Throughout the month data is flowing into your accounting system from multiple places. Different systems. Different team members.

Many people are going to let it sit wherever it lands and never question it, but that is a mistake.

Mistakes are going to be made. Systems are going to have errors and humans are going to make errors. And if you don’t have a process for identifying and moving misplaced items, your financials aren’t going to be reflective of the actual operations any more.

That makes them useless! Now if that’s already the case, they may already be useless, but it doesn’t have to stay that way.

Imagine if your team had a simple process in place to notice when something wasn’t in the right place. Imagine that at the end of each month the income statement reflected exactly how the hotel performed that month, and you could trust it. Then you could actually make adjustments to tweak that performance.

Then your hotel would actually start to improve based on your leadership and guidance. Sounds pretty amazing huh?

This week we’re talking about reclasses.

A reclass just means to reclassify (or move) an expense from one account to another.

So here are 3 tips to setup a monthly reclass process:

1. Make sure the person who codes the invoices, coding the bank activity, and giving direction on payroll coding has knowledge of the budget. They need to be involved in budgeting and they need to be responsible for coding.

2. Make sure that person has access to the Income Statement, the Trailing 12 and the GL detail so they can drill down on the accounts and see exactly what has gone astray when something looks out of whack.

On the income statement, they’ll be able to compare actual activity to the budget so notice if something is way bigger or smaller than expected. On the Trailing 12 Income Statement, they’ll be able to see trends from month to month, so they can recognize what is bigger or smaller than expected. This is a really helpful report. If your team is not already using it, watch the video on the trailing 12 HERE.

Now the GL detail is where the team is going to actually see specific entries to reclass. This is why I recommend giving managers access to the accounting system, because if they just review the Income Statement in PDF and a number looks odd, they won’t have the answers at their fingertips. BUT, if they run the report in the system, they will likely be able to click on the suspicious number and immediately be able to see that an invoice was coded incorrectly, or something is missing from the daily report or payroll was miscoded.

Being able to instantly see the details of what needs to be moved is going to greatly increase the chances that it will be reclassed and corrected before the final Income Statement is produced.

3. Give them a timeline for letting the accountant know what needs to be moved and a process for making those changes.

In our office, we ask managers to fill out a reclass template for all of their changes at the end of the month. It includes their full chart of accounts so they can easily find the accounts that items need to be moved to.

They can send us that template before preliminary financials are sent out OR they can send those changes to their staff accountant after reviewing the preliminary financials. Getting in that rhythm of reviewing though, gets them intimately familiar with the financial statements, with the accounting system, with their GL codes. So many pieces of the puzzle that gets the operations team engaged in the financial process and understanding what is feeding to the bottom line.

Those 3 items again are:

1. Make sure the person coding understands the budget.

2. Make sure the person coding has access to the accounting system.

3. Make sure there is a reclass process in place at the end of each month.

So your tip for the week is to create a team process for reviewing GL activity and reclassing anything that isn’t in the right spot so that you financial statements are a true reflection of the operations each month. Then you can make informed decisions for the hotel, and everyone on the team is involved in helping the team win!

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