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No Show is about the business of travel: hotels, tourism, technology, changing consumer tastes, the conference industry, and what you actually get for $50 worth of resort fees.
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USALI 101: How The Accounting Standard Guides The Hotel Business
CoralTree Hospitality's Arlene Ramirez and HotStats' Tanya Venegas help us untangle and understand the Uniform System of Accounts for the Lodging Industry (USALI), an essential tool that guides financial management and reporting across hotels. How it started, why hotels use it, and how it's staying up-to-date.
https://usali.hftp.org/
https://www.hftp.org/
https://www.hotstats.com/
https://www.coraltreehospitality.com/
Hi everybody, it's no Show. I'm Matt Brown, joined as always by my co-host, jeff Borman. Today, we attempt the impossible. We are going to talk about the sexiest part of travel the definitions and creation accounting standards. We are going to decode statements like this quote the Global Finance Committee. Gfc was formed by HFTP and AHLA to update and maintain the USALI based on USGAAP, with consideration of IFRS. Oh yes, america, buckle up. We are talking today about the Uniform System of Account for the Lodging Industry. He's Sally, whose purpose is to lead and advance the hospitality profession by providing a forum for continuous leaning and knowledge sharing.
Speaker 1:That sounds so nice, but again, what does it mean? And to help us determine what it means, we have two very special guests. We have Arlene Ramirez and Tanya Venekas. But it means we have two very special guests. We have Arlene Ramirez and Tanya Vanekas. They're going to come in and help us decode and decipher all of these, all these words, all these acronyms. And Tanya and Arlene. Welcome to no Show. First, let's just get this. Let's start with the basics. Arlene, we'll start with you. Who are you and what do you do?
Speaker 2:Well, thank you so much for having us on. We appreciate the opportunity to educate more people about the uniform system of accounts. I am currently a regional vice president of finance for Coral Tree Hospitality. Prior to that, I was running a company called Ascend that I started, which we focus on developing courses to educate the hospitality industry on various things, you Sally being one of them, working with HFTP lots of acronyms here. I'm a past global president of HFTP, which is Hospitality, finance and Technology Professionals, which is a global organization tasked with being a source and resource for the industry on topics such as the Uniform System of Accounts, and they are the owner of the Uniform System of Accounts now. Prior to that, I was a professor at the University of Houston, teaching accounting, finance, development courses, project management. Tanya and I actually worked at the University of Houston together. I hope that tells you a little bit about me.
Speaker 1:Absolutely Tanya how about you Give us your story?
Speaker 3:Great. So again, thank you for having us on the show today. My current position I work with HotStats. We're a global P&L benchmarking company, so we do operational benchmarking and we provide market reporting to the industry and we collect full P&L data and that's the reason we're really plugged into the uniform systems from major brands, all their managed portfolios, third-party management companies we work with asset managers and owners, and my role there is the chief experience officer, so I bridge the gap between working with the customers and being able to help them interpret the information that we provide, and also to our development team, being able to help with the technology development to deliver that information and stay ahead of the game when it comes to the reporting that everybody needs.
Speaker 1:USALI is the foundation for the entire industry, or so Jeff tells me. The language that I think everyone speaks and, like learning a language, people rarely get to ask why the rules are what they are, how they came to be. Let's just have a baseline here for you, sally, for people who may not know what it is and what is it exactly and why do hotels need it. And if we want to kind of chop those up, maybe Arlene if you want to kind of say what USALI is and a little bit of its history, and then Tanya if you want to get into kind of more of why the hotels all need it and use it.
Speaker 2:Yes, several hotels in New York got together and decided, that you know, to better manage their operations, be able to see if they were all doing things you know, compare themselves in a way, and something that Tanya's organization does is allow for comparisons. They provide data that allows you to compare yourself with others, allows you to compare yourself with others. They decided to develop a uniform system, a way that everyone recorded, so that you could do apples to apples comparisons. So, definitions what do you call a room rate? How do you record a room rate? How?
Speaker 2:is that calculated so that if you did want to see how your competitors were doing, or how you were doing compared to your competitors, that you knew you were talking the same language, that you called the front desk clerk the same thing that everybody else called the front desk clerk a guest supply, we knew what it was.
Speaker 2:So that started and that morphed and it grew as the hotels became more prominent, bigger, they started adding more hotels and then chains started coming into play, like Hilton, and therefore this was the New York City hotel accountants group that developed this, and then HFTP, which used to be called something else, but we'll keep HFTP for now.
Speaker 2:Hospitality financial technology professionals was very involved, working with this group, along with the American Hotel Lodging Association. So eventually what happened was a finance committee within the American Hotel Lodging Association, along with the New York City Accounting Group. They continued to develop these standards and as things change in the industry, new versions of the standard happen. So, for example, when the current version that we're on, the 11th edition was released, technology was more prevalent in hotels, but prior versions didn't really acknowledge technology because hotels were sort of the last players into getting into technology because it's expensive and some owners didn't see how that was going to help them generate revenues. So as it became more popular to have technology to do things instead of manually adding things up, there was more influx, more options and it wasn't being accounted for. It was basically all over the place.
Speaker 2:So in the 11th edition they decided to create a department just to show the cost of technology. Because it was becoming such a big expense, we needed to manage it and so basically, what the uniform system is is sort of the language of accounting, and accounting has many languages. You mentioned GAAP GAAP, so that's generally accepted accounting principles. The uniform system of accounts uses and draws on GAAP, but it is not GAAP. So GAAP is what companies have to report for in financial reporting.
Speaker 2:So if you're a company that trades publicly or basically any organization, if you're going to get a loan or anything like that, you need to have financial statements that are formatted and generally accepted accounting principles. The difference between USALI and GAAP is that you can't really manage your operation using GAAP. It doesn't provide you the level of detail or the things that are unique to your industry, because not every industry has chefs or housekeepers or valets or what have you. So what the uniform system of accounts does is organizes things in a way that you can understand how your business is running, and it provides a lot of detail and explanation. So if you're new to the industry, you can pick up the use sadly read through it and understand what the contents of each department is.
Speaker 2:Many hotels are managed, they're not owned by the people who run them. For the most part, they're owned by somebody else and they hire a management company. It could be a Hilton, a Marriott or a Coral Tree Hospitality. Where I work right now, we manage hotels for owners and so they usually have a management agreement, and in the management agreements one of the things that's stipulated is we want you to be able to provide us financials in a format that we can use, obviously to compare with others, and the use sadly becomes something that is now in management agreements for the most part, that require management companies to report in that format.
Speaker 1:Tanya, let's say I'm a hotel and I don't want to use you, sally. Do I have that option, or is this kind of an agreement in the industry that if you're going to be any kind of player in the hotel space, you use the system?
Speaker 3:That's a very good question. Space, you use the system. That's a very good question. Actually, there's no enforcement body that says that you have to utilize the uniform systems and actually the customers that we work with on a regular basis there are a great deal of them that are not USALI compliant and one of the things that we are focused on is getting the word out and educating people, like on this podcast today, on what is the uniform systems and what are the benefits of being able to utilize that reporting.
Speaker 3:Arlene touched on many of them. Really, it's being able to have that standardized reporting across properties so that you can look at or over time periods, so you can benchmark your financials based on this month against last year, or you can go out and again do competitive benchmarking. Which is one of the key things that we focus on at Hot Stats is being able to look at your performance against others in the industry. So looking at that line by line, whether it's revenues, expenses, labor costs Arlene mentioned front desk housekeeping labor is one that comes up often and making sure that that's all recorded and standardized. And the other bit of it is this is utilized when you're going to sell your property.
Speaker 3:People are looking for you Sally compliant reporting so that they can standardize it and see what your performance is over time. So there's lots of different benefits to utilizing it. There is no enforcement body that's saying you have to use it. And to tack on to what Arlene said, the uniform systems really wasn't considered a global standard until the 11th edition really looked at the GAP and the IFRS side of things and they continue to look at globalizing the terminology it was really US-centric where we were talking about benefits. It was like FICA, futa and all of our benefits information and government standards there where they're making it more general going forward. So it's looked at from different areas of the world.
Speaker 1:Jeff, you deal with acquisitions and sales of hotels all the time Is USALI data. Is that a requirement when you look at any kind of transaction with a hotel?
Speaker 4:Yeah, it's strange enough. We take it for granted and I think that's part of what got us to this conversation today is that when we compare financials from one hotel to the other to value what we think a sale or a purchase you know should be, we really take for granted that everyone's reporting in the exact same way, that the way we read these figures are the way we understand them to be coming out of this conversation and thinking about this, it's a question I need to start asking Are you actually compliant? And when we buy a hotel or sell a hotel that has a major brand attached, I think we could probably continue to keep taking it for granted, but we do buy and sell independent hotels and that's something I need to look into a little bit deeper. I mean, I think one of the things, one of the questions I have for you is who makes these decisions right, and this is there's a large taking for grantedness that we've talked about, but these decisions are obviously well debated, right, and who debates these and what's that process like?
Speaker 1:Jeff and I have been speculating that this is perhaps a shadowy cabal like a star chamber that meets in secret like some kind of secret court. They're up in some mountain lodge somewhere and they're just cracking out. Yeah, exactly, they're just cracking out the rules and it's like who knows, who knows, don't question, don't question.
Speaker 4:I picture the lobby of like the John Wick Hotel.
Speaker 1:Sure yeah, exactly, oh, wow.
Speaker 3:They all walk in the room and they've got the boxing gloves on. You know they're ready.
Speaker 1:I think some of the I think that laugh was a little too on the nose actually. It sounds like we maybe hit too close to home here.
Speaker 2:Well, tommy and I are actually not on the committee. We definitely know a lot of the players that are on the committee, but it is through the American Hotel Lodging Association Finance Committee and with HFTP. Hftp also has some representatives there, but all of the names are published in the book. So if you were to look at the 11th edition, you'll see all of the names of the individuals and it's a combination of hotel asset managers, chains, some of the senior financial individuals with the chains, with some of the private larger organizations, other hotel management companies there are, I believe, in this committee that's doing the 12th edition. I think there's three educators and there's a couple of consultants as well. So it's a very diverse group.
Speaker 2:I believe in the 11th edition they added some asset managers to the group because of course, they see a lot of things when they're looking at the financials right.
Speaker 2:So, like Jeff mentioned, when he's buying and selling hotels as an asset manager, you're helping the ownership right to maximize the value of the property.
Speaker 2:So they are very well versed in the financials and there are certain things that they want to see in certain locations of the financials right Because they're interested also to pay a fair fee to those who manage, but they also want to pay as little as possible as anyone does in business.
Speaker 2:Right, we want to make a lot and pay a little, so they have some input as to how they wanted certain things categorized. So in this version, as Tanya mentioned, one of the big discussions was how do you make this global? Because one of the things that happened when HFTP actually bought the USALI was they began to spread the word right across the world, because that's one of the things that they have been involved in is is trying to become more global, and they they started with doing conferences in Dubai and in Asia, so they really one of the things that they wanted to show the world is hey look, there's a system that we can all report on, and they've translated it, I think, in Mandarin, and they're working on a couple of other languages to translate the current 11th edition.
Speaker 2:It is a very knowledgeable group and they look at it from every scenario, not just from the owner perspective, but from the big hotel company management company perspective, and also with your educators. You're looking at theories. There's also some accounting firms in there. There's also some accounting firms in there. I know HotStats had a representative, cbre had a representative. So it's a very, very diverse group that can have different perspectives and say, yeah, that makes sense. So you have operators, you have data and analysts, you have educators, consultants, owner reps. So it's a. You know, I have not sat in any of those meetings so I can't tell you if it's like the John Wick hotel.
Speaker 2:But I'm sure there were heated discussions about different things that came up, because everybody has their own point of view.
Speaker 3:No, well, I was going to say I mean, the process started back in 2019 on this edition, so it's been going on for a while and really they break it into committees that are looking at the different schedules. So there'll be somebody looking at F&B, somebody a committee looking at rooms, and there's lots of back and forth, as Arlene said, between the different groups because they all have different perspectives from the brand side and the managed side.
Speaker 1:Okay. So whenever you have any kind of financial evaluations, I think part and parcel of that is there's pressure to make those financial evaluations look good. How does you, sally, stay independent? I know you've got it sounds like you've got a lot of interlocking committees and you have a lot of diverse voices, but I always wonder about that. You know, like, when there's so much money at stake, when it comes to sales of hotels or performance via quarter, like how does, how does you, sally, kind of keep an independent lens on all of it?
Speaker 2:Well, I would say, because, again, it's really based on on gap Right.
Speaker 2:So not all of it is gap on on gap right.
Speaker 2:So not all of it is gap, but an ifrs, which is um international financial reporting standards, which is very similar to gap. You know it's um that one of them like, if you were to look at gap, the book is like about. You know, these books are like ifrs are a little bit more like you kind of sort of interpret it on your own um, they they the foundation, there's a lot of that in there, but they're not 100%, because there's some things that we do in hospitality just because of the way the operation runs. But I think it's organized in a way that it can tell someone who's doing a valuation on the property fairly what a property generates. I think where you get into the more heated discussions are like the type of expenses that are able to be controlled by whoever's operating the hotel versus costs that are out of their control, and I think a lot of times those are the questions where they spend a lot more time as to where that is located, like who has control and where should that show up.
Speaker 4:What's an example of that where USALI governs what would otherwise have the potential to go into a really I don't know what's right an opaque territory. They would play around with somebody outside Like what is an example of where governance by you, sally, has kept hotel management from misleading others?
Speaker 2:Well, in the 11th edition they added the non-income, non-operating income and expense section and one of the things that was put in there was the income section. So, for example, let's say you have space in your hotel and you're leasing it out, the owner is dealing with it, but it's in the hotel. In the past some of those revenues would have shown up in income for the hotel at the top line and management companies operators. Their fees are usually based on the top line how much revenue you can generate. So the argument with the 11th edition was why am I paying you fees? I always give my students an explanation like this let's say you're a New York hotel and they want to put a billboard on your hotel, right, so that billboard? Let's say that Sony's paying you $10 million a year just to put that billboard on your hotel. Well, you as the hotel operator have nothing to do with that billboard. You're not cleaning it, you're not managing it, but it's on the building. So prior to the 11th edition that could be classified as revenue in the top line and a management company could have taken revenue from that.
Speaker 2:When the 11th edition came out, it stipulated look, that's really not your revenue.
Speaker 2:I mean you may be getting the money, because maybe you talked to the person you said and you checked with the owner and they said, yeah, sure, put it up, but it goes somewhere else to show those who are operating. This is not part of what this hotel does on a day-to-day basis. So if you're valuing it based on this $10 million they received, that could only happen for one year, because the Sony may decide your building's not the right building, we're going somewhere else, but in that given year it would look like that hotel performed just out of this world, and the next year it looks like they're in the dumps, right. So some of that could be misleading. So those are the types of things that they look at and say, okay, what truly is the operation? What is the operation doing versus things that you know? Yeah, they're part of the hotel, but they're not necessarily part of what I would want to say is going to be in perpetuity how they operate or how they can generate revenues in the future.
Speaker 4:I would imagine, then, that you Sally's experts end up in court. Quite a bit Right, just in the purchase, the buying and selling of very expensive buildings, buyers could be misled, and I would imagine that you Sally ends up trying to decode for an arbiter, probably unlikely to be like a jury. Right, hey, this owner or this manager did not follow code and misled the valuation of an asset something like that. Does USALI end up in court helping decide where management and ownership have gone in different directions?
Speaker 3:So with the USALI it's definitely like we said, as an industry standard. So when those types of things come up and they do have expert witnesses that come in they will utilize that as their base for the analysis. And I know when I've talked to people at brokerages or anybody that's interested in buying or selling an asset, they are going back to that and actually standardizing the P&Ls to make sure that they know what they're getting into and things aren't being moved around. And to Arlene's point, what we focus on and what we are working with between the third-party operators the brands, the asset managers, owners everybody is looking at GOP margins, so that's another acronym there gross operating profit percentage. So that is the controllable numbers and what the general managers and the directors of finance and the guys at the property are being held accountable for, those things that they can make a difference in.
Speaker 3:One of the things that was somewhat opaque in the past is the brands have fees that they charge back to the properties and there was a bundling of fees and the properties were like I don't know what all is going in there. What percentage is going to what? And that's one of the things in the 12th edition that they are demystifying is that the brands and the third-party operators have to see where those fees are going. What is it being utilized on? Is it being put towards reservations costs, or is it HR and payroll systems, or is it IT systems, so they can break it down within their P&L and look at what percentage is going to each department and those costs. So that's one of the things that is new to the 12th edition, and being able to show the detail in that breakdown.
Speaker 4:What are the most hotly contested items right now being put in front of you, Sal?
Speaker 2:I guess you could say everything Sal.
Speaker 3:I would say I mean the one that I just mentioned is the new schedule on mandatory brand and operator costs. I think was one of the biggest ones and again, arlene and I aren't sitting in those rooms, able to look at what's going on, what is the property doing when it comes to sustainability, and being able to not only measure the costs of those items and how you're tracking that, but also the usage side of things you know, looking at kilowatt hours and the consumption data there and being able to try that, because it's one of the key things that's really high on the list of anybody in the industry right now. When you're looking at booking groups, they want to know what is your carbon footprint, what are you doing, and that's one of the key things that they're deciding on when they're booking places.
Speaker 4:One of the things that I think we started to talk about in our emails before this was all inclusive, right. I mean, that's something that I think a lot of businesses, brands owners have stayed away from, because it's such a black box. It all gets mixed in. You pay a rate one week, all your money's collected. We have no idea how it's allocated. We have no idea how costs are allocated. Did you actually make money on that guest and everybody goes? I don't know. So I'm not gonna buy the hotel or manage it. I don't want anything to do with it.
Speaker 3:So that's from our standpoint is we're getting lots of requests for reporting on all inclusives, whether it's the brands looking into it, third party operators, owners, asset managers everybody is very hungry for the details and reporting when it comes to all inclusive, and what we're finding is again that inconsistency and the need for standardization. So in the 12th edition they actually have new schedules specifically for all-inclusives where, as you were saying, jeff, they're not breaking the detail out, they're just booking that revenue and what are the costs associated with it. So they have the revenue package revenue is what they're looking at on one end of it, but then non-package revenue. So anything that's added on to that being able to separate out food and beverage as a cost department it's not a revenue department in the reporting, it's just recording the expenses and entertainment is another key one that is a big item for all inclusives and being able to track those expenses separately on the reporting.
Speaker 4:I have heard through the years that a driving reason why hotel restaurants don't make money right there are in many cases a loss leader, especially in places like New York City. Especially in places like New York City, part of the reason, I've heard, is because of the accounting, that the restaurant has to carry the cost of a hotel right, that the labor, the bit like so much of the fixed cost of a hotel, gets allocated to a restaurant and that doesn't happen to a restaurant that's independent, just paying rent. Is that true?
Speaker 2:Not really the way. There's no overhead associated like allocated out. I think the challenge with restaurants in hotels is that, unlike a standalone restaurant where you could decide I'm only opening for dinner, you know, if you're in a hotel that has a certain standard of service, your restaurant has to be open for breakfast, lunch and dinner, because that makes you that level of hotel Right. So I think what's happening, though, in hotels is that the food and beverage offerings are starting to morph and be a little bit more unique and more entrepreneurial in format. So you see the grab and go option sometimes. So if say, maybe your occupancy is low, maybe you don't have a full breakfast, but there is an option for the guests to do something. But when you're looking at full service luxury, you have to have those restaurants open.
Speaker 2:But I think we're seeing hotel restaurants becoming more profitable because they're changing their dynamic and they're not that standard buffet with eggs and whatever. They're doing different things to keep the guests in-house. Some of them are partnering with celebrity chefs so that people stay in the hotel, or when they're building the hotel, they decide look, this market is not. People are not going to stay here. Like you said, New York.
Speaker 3:From what we're seeing is, I mean, food and beverage is a focus area Most people. They've got their, their rooms operations really set. But how can I maximize the revenues and the profitability in every department in my operation? So, looking at rooms, looking at food and beverage separately, and how is that trending? And even from the brand side, the brands looking at, as Arlene said, some of the food and beverage offerings are mandated by the brand. You must have breakfast, lunch and dinner at your property. So what is the trend for those food and beverage operations within the brands and how can they assist their operators and their owners to maximize profitability? What are they doing with, maybe, procurement programs and looking at the cost of the food that the properties are purchasing and being able to help negotiate those things all the way down to again looking at labor costs. How are they impacting that and how is that tracking? So being able to look line by line and being able to increase those incremental revenues and profitability for each department.
Speaker 1:It's time for the mystery question. We've gone deep on. You, sally, and you two can go deep on hotel statistics all day long. What is something, tanya and Arlene, that people would be surprised you know a lot about? It can't be about hotels. It's got to be about something obscure, something strange, something else. And it's like wow, tanya really knows a lot about Lord of the Rings Like a lot. Or Arlene really knows a lot about surfing like surfing history. Or Arlene really knows a lot about surfing like surfing history. What is?
Speaker 2:something that you two can go deep on. Oh my goodness.
Speaker 3:That's so interesting. You know recently and I guess it's not really entirely surprising is I really enjoy math I know it sounds crazy and learning about math and I've been helping my daughter with pre-calculus and it's all coming back after all of these years and she's like you are just the most weird person I've ever met, mom, because you get excited during math. But all that set aside, that's really serious. But I think Marvel's my family. We are all huge Marvel's fans. We've watched the movies through and through many, many times and knowing all the different characters and it's just one of those things that's connected myself and my kids and something that we can have a common thread across the family.
Speaker 2:So so I. So my daughter is a junior in college now, but so when she was and I only have one child, tanya has multiple, so she's not missing hers yet. Yes, she's got one who's going to be graduating soon.
Speaker 2:But, so I was trying to figure out what I was going to keep myself super busy with so I wouldn't miss my daughter. So I decided to do a doctoral degree in instructional systems design and technology. So and my daughter says I'm a total nerd because you know like I'm, I'm doing my, I'm done with all my coursework, but I would be like checking the grades like every day after I submitted something, just to what did I get? What did I? And my, my daughter was like you're such a geek, you know the grades, but part of that is learning with technology, right?
Speaker 2:So some of the things that I've I've been spending a lot of time on is is all of this AI stuff and I have like this collection of every AI kind of thing. I have found people send me um, like how to do research voices outline, I mean just anything you can imagine that you can put together.
Speaker 2:So I have this huge collection of that and then one of the things I've really focused on now is trying to find the best voice and avatar thing that looks real. You know that doesn't. Again, it doesn't. It can't cost me a lot of money, so it has to be a cheap, real looking and I've cloned my voice a couple of times. It doesn't sound too bad. So that's kind of the geeky side of me. It has nothing to do with accounting, I just find it fascinating.
Speaker 1:Thank you so much for taking time today and diving into you, sally, and we are just pleased as punch that you were able to join us. Thank you thank you thank you so much.