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Hospitality Financial Leadership: Using Expense Checkbooks

The Hotel Financial Coach ·18 September 2018
I can vividly remember, as a young lad, my dad sitting at the kitchen table paying the monthly bills by check and then updating his checkbook. I remember asking him why he entered the details on the page at the back of the checkbook. He said very clearly, "So we don't spend more than we have and in the bank. If I don't keep track, we will run out of money and I'll end up bouncing a check!"In hospitality, we are all much better off when we use the checkbook system to manage our expenses so we don't run out, and so we don't overspend. The only difference between my dad and your department's expenses is you do not really run out of money like he could, you just go over your budget or forecast. This usually results in some frustration, perhaps even a nasty email or two. The great thing about this situation is it easily can be rectified with a little work on your part. Having and using a checkbook is a great way to get and stay on top of your departmental expenses. Do this and your star is shining.Contrary to common belief a useful and accurate checkbook does not require a computer system and, in many cases, it is much easier to use one without all the hoopla that an online environment creates. All you need is a piece of paper, or better still your trusty Excel sheet.The basic idea about a checkbook is to tell the user what the final position is with your line-by-line expenses and exactly where you are on that path. Specifically, what have you ordered (approved and ordered purchases orders), what has been received (what goods that were received that have invoices or packing slips that were signed and sent to accounts payable), and, finally, what was received that did not have an invoice or packing slip (items that need to be accrued at month end, items that need to be added to the expenses).That's it--a short list--it should look like this:The checkbook must be organized so you have a different list (page) for each general ledger account you are responsible for, e.g., guest supplies, cleaning supplies, paper goods, etc.The first thing to do is make a separate page for each account and put a title on it. Next, populate each sheet with the items you will need to order. Here is where most people tune out, but not you. If you are not sure what to write for the items you need to order then do the following: Write down the items you think you need and as the month starts and you order additional items, write those down on the correct page. If you do this, your list by account will come together very quickly. When you make an order, be sure to write the dollar amount in the "ordered" column. Tip: Add the quantity to the items column with the description. This will be a great help next month.Once the order has been placed, the next step is to simply wait for the items to arrive. When they do you enter the dollar amount in the "arrived" column. Normally, items arrive with an invoice or packing slip. Make sure you see this and sign it, and I also recommend you make a photocopy for your records. The signed slip will either go to the receiving department or it will be your job to get it to the accounts payable person. When this happens you write the amount of the goods received into the "invoice signed" column. If you do this for all the items you order and do the same for any services you order, you have a full checkbook of the items ordered, received and approved for payment.The last step is to accrue any items received that did not have an invoice or a packing slip. All you are doing with the accrual is telling the accounting department that these goods or services were received in the current month and no invoice was received. Using this information, the accounting department will bring these expenses into the current accounting period.Now that you have one month under your belt you are away to the races. You now have a base for all your expense lines. You now know where things go--into which account--and how much you spent. From this point forward, each month you add to your knowledge and accuracy. Do not worry about missing items especially in the beginning, just start and pull your list together.This is the hardest part--the beginning. Remember the golden rule about budgeting and forecasting: The only thing we know for sure is the number we come up with is wrong. That is right. Your forecast will never be perfect. It is always going to be a work in progress but knowing what you ordered, what has come in and what you have signed off on is career gold. You will very quickly organize your departmental expenses and make a name for yourself with the people who can tell the world in your hotel that you have your "$%#@" together.This is what you want, not the chaos that comes from not knowing what is in your expenses. Do not be the one who misses this opportunity to shine.

Hospitality Financial Leadership - The Morning Meeting

The Hotel Financial Coach ·11 September 2018
The morning meeting is a mainstay in almost every hotel. All the key department managers and leaders gather, usually in the front office or sometimes an in-house meeting room, to devour the day's business at hand. It is a great way to distribute last minute information and highlight important changes to groups and business volumes.However, most morning meetings miss the most important pieces of information. The most valuable nuggets are stepped over and not seen or exposed for what they are.A rundown of the following is a typical morning meeting:1. Previous day's occupancy, rate, and RevPAR.2. Anticipated occupancy, rate, and RevPAR for tonight.3. VIP arrivals and departures.4. Previous day's security and safety report.5. Restaurant summary: yesterday and today, covers, issues.6. Housekeeping sick calls for today, rooms out of order.7. Banquet activity yesterday and today, special needs.8. Maintenance report, noting special activity, getting rooms back.9. Guest complaints and compliments received, follow up.10. Rooms pickup report for the previous day.11. Labor summary with variances to plan.12. Human resources update with a highlight on training.All of this is usually good pertinent information, vital facts that department heads need to get on with their day. So what's missing?What's missing is a review of the business strategy and how the execution of that strategy is unfolding. Here is the dynamite, no...Wait for it.... What's missi ng is what each department head needs to do today, tomorrow and next week so we can right the ship. Each manager in that room holds their piece of the business and they need to know whether the vessel is on track to make its forecast revenues or not and, most importantly, what they need to do so their part of the enterprise flows.A 1.2.3 strategy for managing the finances needs to be clearly understood and acted upon by each member of the team who manages a work schedule or orders their department's supplies.First. What exactly are the monthly forecast business volumes, rooms revenue, food and beverage revenue, other revenues? What is my department payroll productivity target for the month? What are the detailed zero-based expenses for my department? It's not too much to expect that each one of your key managers knows these facts because this information is just as important as guest service execution and colleague engagement. Expectation is the wrong word, they have all agreed to know and manage these business facts. The key part of the execution of the leaders knowing their numbers: They put the numbers together for their area. Developing a management team that knows the business strategy and plays the "business of hotels" daily is Step 1.Second. Everyone must know the latest score. Where exactly are we with our business volumes? It's like the last month of the baseball season, Folks. Is my team going to make it? That's the level of focus. This is tricky and it requires insight, experience, and a steady hand. In many hotels, pick up in the month-for-month is substantial. Depending on the month, the market and the weather, along with 100 other factors, determine the end result. Every day your leadership needs to get the latest pickup on rooms, conference services, outlets and other sales. Where are we--what is the prediction for the month-end result? Waiting for the 15th of the month to take our pulse and see how things look on the revenue front is a dangerous practice. You need to be on top of the revenue picture from day one and every day after that. Nothing is more important to your business success than having your managers understand than, the latest projected revenues by department for the entire month at hand. Are we going to make it?Third. What to do when the ship needs to turn. This is where 90 percent of hotels are completely lost. If occupancy is soft and my room revenue is going to be short compared to my budget, what moves do my teammates make to manage the flow thru? If my rate is down to forecast, what expenses can be managed so I can affect the costs this month positively. If my banquet or restaurant volumes are not going to come together as planned, I need my managers to do their part. This is where we go back to steps 1 and 2. If I have trained my managers well and we have done a good job with our "distant early warning" system to help the m understand the revenue picture, then I have a chance. If my managers know their staffing guidelines and follow them to the letter--daily--they will still have a good shot at making the productivity target for their individual area. If I have a team of leaders who all know what is in their expense lines--in detail--then they will know what to put the breaks on and how to turn the ship.It is not rocket science, it is just attention to the details and making sure all my sailors do their part. As the GM or the Director of Finance, I cannot turn the ship with some late calls for man overboard. My crew needs to know their part of the ship inside out and they need to know how the wind is blowing. If a storm is coming, they need to do their part. If the seas are calm and it is smooth sailing, they need not trim the sails.Your morning meeting is your daily view into the latest forecast for the month and it is also the critical point where your managers need to know the play they can run to win the game. Throwing your hands up in the air and believing there is "really" nothing we can do, it is too late, is just poor management.Execute the 1.2.3 strategy in your hotel and watch the collective abilities of your management team grow.If you would like a copy of any of the following send me an email at* Incentive Plan Template* EFTE and Productivity Exercise* Hotel Financial Policy Manual - Inventory of "Sections"* Hotel Financial Coach "Services Sheet"* A White Paper - Creating a Hotel Policy Manual* F&B Productivity Spreadsheet* Rooms Productivity Spreadsheet* Financial Leadership Recipe F TAR W* A White Paper - A Six Month Workshop and Coaching Assignment* Hotel Financial Coach - "Speaking Sheet"* Flow Thru Cheat Sheet - Enhanced
Article by David Lund

Hospitality Financial Leadership - Igniting Your Financials by Putting Hours of Work in Your P&L

The Hotel Financial Coach · 4 September 2018
In hospitality, we all know that payroll is by far the largest expense and therefore it has the biggest negative impact on profitability. Turn this around and know that finding ways to be more efficient with payroll can have a big impact on labor costs and a positive impact on your hotel's bottom line.In hospitality, we all know that payroll is by far the largest expense and therefore it has the biggest negative impact on profitability. Turn this around and know that finding ways to be more efficient with payroll can have a big impact on labor costs and a positive impact on your hotel's bottom line. If you don't have hours of work in your monthly P&L, you are missing a massive opportunity to better understand payroll and productivity leading to ways to manage your business better. You know what they say, you can't manage what you can't measure. Putting hours of labor into your financial statements is just good housekeeping. It is the start of getting your focus on what you can control, which is the number of hours of worked or, more simply stated, the schedule. There is only one number that will always increase in your hotel, and it is not the RevPAR or the average room rate. It is the average rate of pay. You have little control over the rate of pay. On the flip side, you have 100 percent control over the schedule. This is where you need to focus your efforts and putting the hours of work statistics into your monthly P&L is not difficult. Once it is done you will have a baseline for your productivity. A place to start, knowing that improving the productivity will lead to higher profits. In almost every operation the hours of work are already tracked and totaled on a per pay period basis. This is how your employees get paid. Hours of work are entered into the payroll system and they are multiplied by the wage for each position. Same goes for any salaried positions. So, the total hours of work are already at your fingertips. If you pay your staff every week or every two weeks, there is one small stumbling block you need to overcome. You will need to do a monthly accrual for both the dollars of payroll and the hours and in turn, reverse the previous month's accrual. You may already be doing this. If you pay monthly or semi-monthly, there is no need for an accrual. Payroll breakdown In your current financial statement, you will want to review and make sure the payroll is organized so a breakdown is possible. If you have a rooms and F&B operation, you will want to have five different buckets for payroll. If you have a larger operation you will want to consider the complete layout that is covered in the 11th edition for the uniformed system of accounts for hotels. For this article, I'm sticking with five as this will work for any operation, especially a smaller one. The five buckets are housekeeping, front office, F&B service, kitchens and all other. We also want to be able to subtotal: (Housekeeping + Front Office = Rooms total) and (F&B Service + Kitchens = F&B total) By grouping the payroll hours and dollars into the five buckets we can begin to see our operation in a different light. Matching the payroll dollars with the hours in these areas produces the total and average hourly costs in these areas. Matching the room revenues with the rooms payroll and the expenses produces a rooms profit. Do the same with the F&B dollars and hours and we now have an F&B profit. Use the third payroll group to create the separation for all other payroll. I have numbered the buckets one through five on the statement to show you the setup. In addition, also separate the cash wages from the auxiliary pay and benefits. This gives you the ability to see the average wage costs as well as the other payroll costs. I'm not sure what you think but this layout gives me a ton more information about my operation. This is information you already have--it is just presented differently. A little playing around under the hood of your business and you can produce the same quality information that is going to help you make better decisions about your hotel. Your new statements now look something like this:***** Insert photo 2 hereInformation is king. Now the fun starts. How can we inspire and innovate with our team to find ways to improve our productivity? In hotel and food service business there are a 1000 ways to be more efficient and the opposite is also true. Now you have a tool that let's you measure your results, and with your leadership, this moves to focus and improvement. Collect, measure, report, innovate, repeat.If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comIncentive Plan TemplateEFTE and Productivity ExerciseHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"A White Paper - Creating a Hotel Policy ManualF&B Productivity SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WA White Paper - A Six Month Workshop and Coaching AssignmentHotel Financial Coach - "Speaking Sheet"Flow Thru Cheat Sheet - EnhancedVisit my website today for a copy of my FREE guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotel Call or write today and arrange for a complimentary discussion on howyou can create more profits in your hotel.Do you need a dynamic speaker with a unique and creative financial message for your next hospitality event?Are you thinking about your management team and what to engage them with this year? Consider a full or half day hospitality financial leadership workshop.Give the coach a call and let's get going!Contact David at (415) 696-9593.Email:

Hospitality Financial Leadership - Who Inspired You?

The Hotel Financial Coach ·20 August 2018
Who inspired you - Who was the one person in your career you would have done anything for? Be you for a moment and re-live the experience you had when your career really took off. That place in your past that had you really growing and learning your craft at a rapid rate. You had someone in your world that was an inspiration, a bright light to follow. Some would call this person a mentor or a guide or adviser or a guru. This person took it upon themselves to help you find your way. And how exactly did they do this, what was their method or system to help you? "Show me a successful individual and I'll show you someone who had real positive influences in his or her life. I don't care what you do for a living--if you do it well I'm sure there was someone cheering you on or showing the way. A mentor." -- Denzel Washington In the financial leader's world this mentorship is a big deal and it is also a great way to learn how to delegate. When I was in learning and growing mode I had several mentors. Basically they were those ahead of me who would show me how to do something that I did not know how to do. I recall one summer when my boss told me he was taking a month off and going on a big trip and while he was gone I was in charge--it was budget season! I would be responsible for the office, all the staff and their work, as well as my work. On top of all of that I needed to prepare next year's budget for a 500-room hotel! Was he insane? How could he take a month off and dump all this on me? That was my original reaction. I thought, There is no way I can do all of this and prepare the budget as well. I had never prepared a budget before. This was a big problem. Or so I thought. "I don't have a problem with delegation. I love to delegate. I am either lazy enough, or busy enough, or trusting enough, or congenial enough, that the notion leaving tasks in someone else's lap doesn't just sound wise to me, it sounds attractive. John OrtbergWhat was I to do to make this work?Well, this is what happened. I had a good friend who was the executive chef in the same hotel. He was English and he had a wicked sense of humor. We would often meet at the end of the work day in his office for a cold beer. That's right he had a fridge in his office and enough suppliers dropping by a gift now and then so he always had beer. On that day when I learned my boss was leaving on his big trip and leaving me all the work including the budget, I told my friend over a beer that I was pretty sure I was being dumped on and taken advantage of. He laughed and said, "I guess you're really screwed now!" We laughed. He then said something I will never forget, "Michael and Ian are not stupid. They would not leave this with you if you were not ready." I thought about what he said and it occurred to me that this was a BIG opportunity. Learning how to pull all the information together for the budget and presenting and editing every piece with our General Manager was an amazing experience. I learned so much. The way he thought about each area and how far he could stretch that manager's numbers. How he put all the pieces together, with my help to create a story that made so much sense, chapter by chapter. If I was not left with the mess, I never would have learned what he taught me. Well, the month went by and when my boss returned the budget was done. Now it was time to present it to the corporate folks. I assumed that meant he would be on a plane in a couple of weeks to present the budget himself. Well, to my complete surprise, about a week after his return he came to me with an amazing offer. He asked, "How would you like to go to Vancouver and present the budget?" WOW, that was not even on my radar. So, off we went--the General Manager and me--to present the budget to the corporate team, including the president of the company and several other very senior executives. What an opportunity for me to shine. I bought a new suit and, boy, I was excited. The people I met in that board room on that day opened many doors for me and my career all because my boss delegated and believed in me. Who are you believing in and who are you helping? Delegation for your nation. It's the answer.If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comIncentive Plan TemplateEFTE and Productivity ExerciseHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"A White Paper - Creating a Hotel Policy ManualF&B Productivity SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WA White Paper - A Six Month Workshop and Coaching AssignmentHotel Financial Coach - "Speaking Sheet"Flow Thru Cheat Sheet - EnhancedVisit my website today for a copy of my FREE guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotel Call or write today and arrange for a complimentary discussion on how you can create more profits in your hotel.Do you need a dynamic speaker with a unique and creative financial message for your next hospitality event?Are you thinking about your management team and what to engage them with this year? Consider a full or half day hospitality financial leadership workshop.Give the coach a call and let's get going!Contact David at (415) 696-9593.Email:

Hospitality Financial leadership - Why Your average Joe Should never Use an OTA - and... Why He Will Never Stop Using Them!

The Hotel Financial Coach ·15 August 2018
With two large shortcomings, I can't see why the average person who has a basic understanding of how the travel world works would ever use an online travel agency. In making this statement it occurs to me that--obviously--most people don't know the basics. If they did know the two things I'm going to talk about here, the OTA world would be dead on its feet. The real question is why hoteliers do not get together and create a presence in the online world and inform people so many more customers can make a favorable decision. Then hotels, in turn, could increase their own traffic and reduce commission costs. This is the $64,000 question for all times in our industry: How can hotels and airlines get consumers to book their needs on their site and not on an OTA? The number one thing the Average Joe needs to know about booking a flight, airline ticket, car or anything else at an online travel agency is the fact that they are not customers of the hotel or airline. They are customers of the OTA. As such, any problems the customer might encounter with that flight or hotel room stay are not met or dealt with in the same manner as a client who books through the hotel or airline's booking system.Here are stark realities of this factAs a customer of the OTA when there are problems with flights being overbooked you can bet your grandmother's knitting needles that you are going to be on the short list of people to get the kind of trip adjustment we are all too familiar with these days. As we all also know, hotels need to overbook to end up full. Who do we bump in the middle of the night when our math did not work? Not the loyal customer, that is for sure. We pick the reservations with the lowest potential negative impact profile and many times that means an OTA reservation. I think we get the picture here. I am not saying the OTAs do not care when there is a "problem." I am saying they do not have the same ability to remedy the problem as the hotel or airline does. The second thing every Joe needs to know, at least the North American Average Joe, is the price is the same at BLANK hotel or BLANK airline as it is on the OTA because of a little-known agreement called "rate parity." Little known outside our industry, rate parity simply put means the final pricing has to be the same on originating businesses' booking platforms as it is on the literally thousands of OTAs. Do not believe me, just do a search across multiple OTAs for a specific flight or hotel room on a specific date and see. I always tell people: Use the OTA to do the research, routes, flight times, pricing, hotels in the location you are looking for--then book it on the brand, hotel or airline platform. You will get the same price and, in many cases, get a little extra something, especially if you are a member of that brand or airline's loyalty program. With these two ugly facts and a public relations campaign, the hotel and airline industry could turn the OTA world on its head, quite literally. So why, I ask, don't they do it? You cannot go anywhere in the hotel news world and not hear about the supposed war on the OTAs. Hotels and brand owners are all crying foul. If it is a war the hotels are waging against the OTAs, then they are not sending many soldiers or missiles and certainly no warships. The reason why the war is not really a fight is that hotels are chicken. They are afraid to be singled out and dropped by the OTAs. They are also worried about competition regulations and any whispers of price fixing. I think the big hotel brands must be careful with how they try to tackle the OTAs. They don't want to be seen as trying to interfere with the competition. I also think they are hiding out behind the lodging association that they largely fund, which some say has had success limiting home sharing services. You can't fight when you are running away. Hotels are not aligned in any large enough or meaningful way even with massive consolidation to fight the OTAs. But, if they were, and, if they really went at it, they could. OTAs take advantage of the fact that the hotel world is unorganized and incapable of a unified position. The old practice of playing hotels against the other as rates drop is still the nightmare that keeps revenue managers, directors of sales, GMs and owners up at night. OTAs drive more business to hotels than any other channel and hotels know this as well about that business: it's free. Yes, there are commissions, but no one complains when the business saves the day or the month's financial results. So why then do we hear so much negative press regarding the OTAs? I say it is largely a negative campaign, not unlike election ads. Negative advertorial. Back to the other part of this piece and the reason why Joe will not and never should stop using his OTAs. One simple fact. Joe can find all his options in one convenient place. He can literally find all the obvious options for his travel needs in one search that not only yields what he is looking for but also several options and features he may not have considered.Here is an example of an OTA positiveI just did a search on Expedia for a three-night stay in the City by the Bay in late September. My simple search reveals a whopping 510 accommodation options. It is all there: The Ritz and Westin at $1,299 and $1,454 a night all the way down to the I won't mention the name hotel in the mission for $103. My search also turns up some interesting options I had not considered. First, it shows me I can enjoy San Francisco and stay at the airport or further down the peninsula for a 75 percent reduction in room pricing. I even see home sharing and vacation rental options. They have it all: good inventory, great pictures and descriptions of rooms, the hotel and their services. Some OTAs even have a rewards program that is actually worthwhile! With an OTA I can also book my air travel and ground transportation all in one place, with as many as 35 currencies and languages and seemingly more trustworthy reviews. This is an incredibly powerful tool. For Joe, he is more than willing to trade this convenience for the largely useless customer loyalty program and a little parity. I say OTAs provide an incredibly valuable service for the Average Joe.For a complimentary copy of my guidebook on creating a finically engaged team in your hotel head over to my website, and don't forget to email me for some of my free spreadsheets.

Hospitality Financial Leadership - Light Bulb Moments

The Hotel Financial Coach · 7 August 2018
The ones that stand out the most for me are the ones that I experienced from my father. Growing up I was not what you would call a high achiever. My grades in school were not great by any measure. I had friends and my social network was solid. I had a girlfriend in junior high school and that was probably what saved me from being somewhat of a delinquent. I was always curious about the things you were not supposed to do.I always thought my dad was somehow disappointed in me and my behavior and choices. Two light bulbs I experienced through my dad. The first one came when I graduated from high school. It was early June and I think it was the very day I graduated. My parents came to the school for the ceremony and the proverbial pictures. It was a happy time and I was finally free from this thing called school where it was fun to play but the learning I had little interest in. That afternoon at home we had a BBQ, nothing special, just some hamburgers, and my father told me what he had done. Re-wind the clock three years and I didn't pass grade 9 and was held back a year. At the time, it was a big embarrassment for me. All my friends went on to grade 10--high school--which was in the same building just up one floor. My girlfriend and I were now in the same grade and there were not many of us, maybe 22, in grade 9. Well, being held back worked a little and my grades the following year were a fair bit better.The following year I was in high school and, lo and behold, two of my counterparts had failed to get the minimum of three credits and they were where I was in grade 10. In the high school I attended you needed 15 credits to graduate from grade 12. Six classes per year and you needed to pass an average of five to make it. After two years in high school I had 12 credits and in the final year I took only five classes and dropped one in the final semester and graduated with 16 credits alongside my cohort buddies.What my dad told me that afternoon was shocking to say the least. He could never have told me and I would not have known what he did. But, when he told me, I was not at all sure how to react. His good friend and fellow member of the Lions Club was the principle of our school. My dad asked his friend to hold me back in grade 9. His friend did exactly what my dad asked. So how does an 18-year-old kid react to the fact that his father took a year out of his life? My thoughts at the time were that I did not care, I was done and that was four years ago. I honestly did not mind and in the back of my mind I had a light bulb turn on: My dad cared enough about me to orchestrate this and that meant he loved me.The second light bulb happened a little earlier in grade 11. I was working at the drug store after school and on Saturdays and the job was great. Stocking the shelves, running the till and a bit of housekeeping. It was Saturday afternoon and the phone rang and it was my mother. She never called. She said, "Your father has had an accident and I need you to drive me to St. John."My mother didn't get her driving license until she was 63. I left work and went home. We drove to St. John which was 60 miles away and I learned that my dad had had a heart attack in the woods about 20 miles from home. He was hunting deer with a friend and he had spent a couple of hours on the ground partially conscious before his friend got some other men to carry my dad out of the woods. They then took him to a nearby hospital which could not deal with his case. They then transported him from St. John to the regional hospital and the cardiac care unit. I got to see my dad that night and he was in critical condition. He was in the hospital for the next four weeks recovering. At home, my two older brothers were both away studying and my sister, who is 12 years younger than me, was at home. My dad did not go back to work for six months. His recovery was slow and overnight I became the man of the house. My mother relied on me for day-to-day things that dad would have done. This new role gave me a purpose and responsibility that I unconsciously gravitated toward. Let's just say it helped make a man out of me.The next light bulb I cannot remember when it happened but it was sometime in my late teens and again it was at the hand of my father. I do not remember the circumstance but I do remember the message. He said to me, "Son, as your father I must tell you that I do not know anyone in this world that will help you be successful in life. No one I know will give you a job, I don't know people like that. If you're going to make it in this world you're going to have to do it on your own."This was a major light bulb and I appreciated it even in the moment. I appreciated it because at that point in my life I was more than a little confused about how one gets ahead and is successful in life. All around me it seemed that my friends were getting ahead because their parents had connections or their family had influence. That was kind of the way it was in my hometown, or at least that is the way it seemed at the time.I look back on that moment and have done so many times since, and his words have given me the strength to go after things in life that have brought me so much: A career, love and a family. With my three daughters who are all in their twenties now, all finished university and on their own, I translated what my dad told me into my message to them. I have repeated this a few times. I say, "There isn't anything you can't accomplish in this life if you willing to work for it."I love the fact that my dad had the courage to tell me what he told me. I did not look at it like he was copping out on me, and I easily could have. I took it to mean that he thought I could make it on my own.We always have a choice in life to believe the story. Good or bad--we make up the story.Also, delivering my first workshop was a light bulb but it was more along the lines of "How can I bring this new-found process and educational element into my company and my world?"The next big light bulb was when my last boss dissed my idea of wanting to take the workshop I was teaching outside of our region."Why would you want to do that?" he asked. I knew in that moment it was all about him--not about me or my idea. I knew in that moment that I needed to move on. I had outgrown my role, and the company, or at least his view of it, no longer supported my vision of what could be, of what was possible with this financial leadership training. I was also confused in that moment. Was I being selfish about what I wanted vs. his version?Six short months later I left my day job and the security of 30-plus years of working for the same hotel company. On my own to explore the world of being an entrepreneur and creating a business.Like my dad said, "Son, if you are going to make anything of yourself, you are going to need to do it on your own."What was your light bulb?For a complimentary copy of my guidebook on creating a finically engaged team in your hotel head over to my website, and don't forget to email me for some of my free spreadsheets.

Hospitality Financial - Flower Power

The Hotel Financial Coach ·31 July 2018
Here's one of my favorite episodes as Regional Operations AnalystDuring one of our early discussions my new boss told me that he would use me to solve problems. I thought that was an interesting way of looking at what I did. I was pretty sure I would be comparing lots of ratios and statistics. He had a different idea and he was the boss so we played the game his way. He mentioned that regular visits to the hotels to review their performance and look for opportunities to improve profitability would be part of my responsibilities. Travel has always been interesting to me so I liked the sound of that. Most of the GMs in the region were bigger than life. At least that is what they thought. I do not mean that in a mean way, it was just that these executives had a lot of power and hundreds of people working for them. They managed buildings full of bars, restaurants and beautifully decorated rooms and suites. This usually meant there were lots of opportunities for trouble. They were kings of their castles. They all had the run of their houses unless the big dog was around. The big dog was my boss and he knew a thing or two about what really went on in his hotels. One of the first things we did was a tour of the region. We visited each hotel and spent a good half day going through their P&Ls line by line. My boss was a master at asking just the right questions about their numbers, variances, increases--things that just did not add up. During one such review he stumbled onto something he thought was completely unbelievable. The hotel was doing well financially, but seasonality in the hotel business is always a challenge and something jumped out at him. We were reviewing the maintenance section and one number really got his attention. It was the "grounds and landscaping" line. It was a big number and we were only looking at the February statement. He asked, "What are we spending so much money on, what exactly is in this line item of expense?" The GM and property controller were dancing on this one. You can always tell when you have a live one because the tone of the discussion changes from an informed answer to a "well - um" response. I think the YTD February expense was $15k on budget of $8k and last year actuals of $10k. So, it stood out. My boss asked what was in the expense this year that was so much more than last year. Silence. The GM then asked the controller to go get the general ledger. Now, I know what you're thinking, a GM asking for a copy of the GL? My boss said it could not be that complicated. With that we had a short break, then the report was produced. Most GMs would not know how to read a GL let alone ask for one. In short order, we saw that the expense was predominantly made up of payroll entries. "Why is payroll in an expense line?" he asked. The response, "Well (hesitation, stumble, fumble - then it came), we're growing our own flowers and that's the payroll to run the greenhouse and the staff are the summer gardeners that we like to keep year-round so we grow our own flowers." You could have heard a pin drop. Then my boss started to laugh. Then he said, "In 30 years I have never heard of a hotel that grows its own flowers." The GM responded that it was indeed unique and he also asserted that it was an efficient operation, and keeping the staff year-round with work to do was an added bonus. My boss chuckled a bit more and we moved on. That night at dinner my boss had more than one good joke about the flowers. Back at home base the next week I sent my boss the notes from our review. He phoned me and asked me to come to his office. He thanked me for the report asked, "Are you ready for your first assignment?" "Sure, what do you have in mind?" I answered. He smiled like he was ready to share a juicy secret. "I want you to go back to that hotel and take a magnifying glass to that greenhouse and flower boy's operation. There is no way on God's green earth that growing your own flowers in an 80-year-old greenhouse in the Rockies in the dead of winter makes any financial sense. With that he told me to plan my visit for the following week and to think about what I would look at in my review. He also told me that he would take care of letting the GM know I was coming and that he was to allow me complete and "unfettered access" to anything I needed to see. Wow, this was going to be fun. By the way, I do not know the first thing about running a greenhouse or growing flowers. I was excited and a little apprehensive. I knew I was walking into a powder keg that was ready to blow up in my face. The following week I made my way to the hotel and started my visit with a trip to the accounting office to see my colleague the controller. He was a good friend and he informed me that the GM was just a little upset and concerned about my visit. It was not long before the GM was in the doorway of the controller's office. He shut the door and took a seat. Then he explained the importance of the greenhouse staff and operation. He asked what I would be looking at. I told him that I was not entirely sure because I had never reviewed a greenhouse operation before. I told him I thought I would start with interviewing the staff and, by the way, who do they report to? With this the GM blew a gasket. In next few minutes I got to experience why this guy had the nickname that he did. He went up and down both sides of me and the boss too. I kept my cool and assured him I was there to help and not to create any problems. You know the saying: We are here from corporate and we want to help. With the pleasantries out of the way, I went to work. I met the staff and was given a compete tour of the facilities including the apartments on the second floor of the end building attached to the greenhouse. The building was quite large and the thing that was most interesting was the lack of flowers. I expected to see flowers everywhere but not so. It was too early to plant the flowers that would eventually make their way into the ground in late spring. Interesting, I thought, no flowers but we were spending money. Most of the expenses made sense and I also understood the strategy with keeping the staff occupied in the winter to ensure they were there the following summer. I reviewed the previous 14 months of general ledger data and organized the payroll costs and raw expenses. In addition, I reviewed the energy costs which is another story because they made their own steam onsite for the entire property. I do not have the exact cost anymore, but the total amount to run the greenhouse and grow the flowers for the property was just north of $50K net. The analysis showed the payroll and direct expenses in total - less what it would cost to buy all the flowers in the spring (like every other hotel does). Suffice it to say my boss was pleased with my little study and with this in hand he personally saw to it that the flower boy's days of growing his own were done. The flip side of this was the real kicker. It seems the GM and my boss agreed to use the greenhouse for something else. Go figure. I think it was the GM's idea all along. It's funny how things work out sometimes. The following year the hotel submitted a capital request to renovate the greenhouse. The request was approved and a year later the greenhouse welcomed its first paying overnight guests. The hotel now had four new luxury cabins, aptly called The Greenhouse.So, what was a "dud" turns out to be a "star." Go figure. Life in the hotel business

Hospitality Financial Leadership - Educating Our Leaders is the Highest Form of Service

The Hotel Financial Coach ·25 July 2018
By creating my hospitality financial leadership workshops, I learned 3 very valuable lessons. The third lesson was by far the most powerful and transformative for me and my way of seeing the role I was playing as a financial leader.The first lesson I learned from creating and delivering financial leadership training was the students really liked the learning, the subject matter and the material. They all responded very positively to the workshops and the subject matter. From this revelation I realized that the students could now see that this "financial piece" that every touts as the hard and confusing part of hospitality, was indeed not so difficult. Its very accessible and with the proper instruction, tools and some attention the hospitality financial piece can be taught to anyone and once a leader sees the opportunity to learn and advance their personal prosperity they are literally all over it. They realize that the financial piece is the missing link in their careers and without these skills they will not make the cut. This in and of itself is powerful, but there is more.The second valuable lesson is the immediate and measurable return on investment we all saw with financial leadership training. As a financial professional, in my career when I was presented with purchase orders and requests for funding for leadership training in my hotels I would always ask, "When am I getting my money back?". I would always receive the same deer in the headlights look and the typical answer, "well you know its good and the leaders will all benefit". I know training is almost always good and worthwhile, but you should be able to put your finger on some results, to justify the cost. That's just common sense but inevitably that never happened. With financial leadership training you can ask your managers to tell you what they are doing differently, what new ideas have they brought to their department. What savings have they uncovered. They will tell you, because this is different training. I know of hotels that ask each leader each month to tell them where they found in savings to the previous forecast. When people have the tools and the understanding they are more than happy to show you what they have accomplished. I have a separate blog on how to turn $250 into a million in asset value. Check it out for the ROI details. third and by far the most impactful lesson for me in all this hospitality financial leadership work is the realization that education is the highest form of service. Allow me to explain.Before I embarked on this path of creating and delivering workshops to teach our leaders about the financial business of hotels I was just another controller trying to get a clean month end, a good forecast and a monthly commentary that made some sense. Getting the other non-financial leaders to participate in these endeavors was like pulling teeth. I was diligent in sending out the monthly schedule, the reminders, the update at the weekly department head meeting, a sermon or two at the executive committee meeting and countless 1-1 chats with other managers. But alas none of this worked. What changed the game completely was the workshop. By educating and helping the other leaders understand the financial piece they were more than willing to reciprocate and do their part. Not only did the quality and quality of their work go way up, their attitudes and willingness to get involved went sky high. So, what happened? What changed in the hearts and minds of the leaders in my hotel?Service is what changed. Prior to the workshop era I was just another mouth piece. Another wining voice that wanted something. That's a relatively easy thing for most people to ignore even if I'm the controller. They all know they don't report to me. There was little in the way of retribution for missing my deadlines. You know the drill. Another way to look at what was happening with what I wanted was I had an expectation. People don't respond well to your expectations. Think about it, when was the last time someone expected something from you and you got all warm and excited with that prospect. Never, it's always the direct opposite. All my schedules, wining, sermons and reminders boiled down to one thing, I had an expectation. Dead on arrival. It never worked.The workshop changed all of that for me and my non-performing non-financial leaders. In the world of the mind there is a fundamental law. The law of reciprocation or as some call it the law of reciprocity."Social psychologists call it The Law of Reciprocity - and it basically says that when someone does something nice for you, you will have a deep-rooted psychological urge to do something nice in return. As a matter of fact, you may even reciprocate with a gesture far more generous than their original good deed." - GoogleBy taking the time and effort to put together the workshop my non-financial managers were on mass more than happy to reciprocate. Its just what human beings love to do. What this meant is their contribution to my forecasts, month end and commentaries went way up. As a direct result of me educating them. But don't let the workshop or the education piece fool you like it did in the beginning for me. What was really going on here is I was serving them and due to the law, they were more than willing to return the love.Think back in your career and remember the people who helped you. The manager that took you under her or his wing and helped you. You would do just about anything for them. There's the law again. If serving is beneath you then leadership is beyond you. Its that simple. Help people first and they are going to respond. Especially when you help them with something and seemingly large and scary as hotel finance. They see what your trying to do. They see you helping them with lifelong skills that make a huge difference to their individual personal prosperity.Service equals an opportunity to provide your leadership with what they are longing for. Provide your managers with the gift of a no strings attached education on the business of hotels and I guarantee you they will love you for it and respond.Let's face it. Who else is going to do it?

Hospitality Financial Leadership - Credits to Cost of Sales in Food & Beverage

The Hotel Financial Coach ·17 July 2018
The first question to answer is why we need to credit the F&B operation for its goods used in other parts of our business. Someone once asked me why we don't credit maintenance for their costs when used in other departments. Or better still, why don't we credit rooms when staff members stay over because of bad weather or business volumes? Why is F&B so special? I have heard this one a hundred times.The reason F&B is special is because it has cost of goods sold accounts. Cost of food and cost of beverage. The rooms department has no such cost of goods account because they are not producing anything they do like F&B. In F&B we buy products--food and beverage--and we manufacture goods and sell them for a higher price. In rooms we don't do anything like this (sorry, rooms folks). In the case of maintenance, that is a non-operating department (no revenues) so it gets no such credit. We do appreciate all their hard work, but we do not give them any credit on our books. Sorry.We want to give F&B credits for their goods used in other departments, so we can keep a close eye on the cost of goods sold percentage--food cost percentage and beverage cost percentage. Credits come in two forms: credits for goods at cost and credit for goods at retail. These transactions are handled separately but their values effect the same accounts on the statements.Let's do credits for goods at cost first. As a young lad one of my first jobs in hospitality was a food and beverage storeman. My job was to fill all the requisitions for the kitchens and the bars. Many carts full of food from the freezer, fridge and dry goods room every day were delivered to the kitchen. Boxes and boxes of wine, beer and spirits for the bars to pick-up. But then, every once in a while, I would get requisitions from other places: general manager's house, executive offices, staff cafeteria, and the chef also would order booze for the kitchen and the bars ordered food like limes, lemons and juices. I thought at the time this was interesting, but I had no idea that it all meant something. Every one of these "other orders" caught the attention of the cost controller each month as he requested I keep a separate and complete copy of each "other" requisition.Odd, I thought, as the main requisitions piled high in the corner of the office, never to see the light of day again. Each one of the other items was costed and recorded as a credit to either the food or the beverage cost depending on what family the products requested belonged to. The cost controller totaled these requisitions each month and sent the summary up to accounting.Food to the GM's house was a credit to food cost and a debit to GM's expense. Same for the booze and oddly enough it was a big number, then a credit to the beverage cost. Same with the cafeteria food as it became a debit to employee benefits.The booze to the kitchen, which I am pretty sure didn't all make it to the soup (Cheffie), was a credit to the beverage cost and a debit to the food cost. Lemons and limes to the bars were a reverse to the booze for the kitchen. Finally, I was able to see the work I was doing was not going unnoticed. These items were closely watched, and I even had a visit one day from the Director of Finance and some strange people from the corporate office. They were interested in looking at all the requisitions for the GM's house. I still wonder why. [?] Credits for goods produced were not handled by me in the store room. They were done by the number crunchers in the accounting office. When a hotel uses food or beverage to entertain or promote the hotel, the cost of sales is credited to the food and beverage departments' accounts and a corresponding debit is charged to the department that benefits from all this entertaining--usually the sales department. What happens each day in a hotel when there is an event which is a "hotel event" the banquet event order states which "house account" to charge the function to. That night the auditors reverse the revenues, credit food cost, credit beverage, reverse the sales tax (depends on your local rules) and debit the sales entertainment account at cost. The same thing happens when one of the managers uses a restaurant or bar for entertaining. Reverse the sales, taxes, covers, reduce the value of the sale to cost, credit F&B costs and debit the department that consumed it.At this first job I was often asked to consider giving credits for things other than the cost of sales. I would hear:Why we don't credit the labor the same way, especially for big events?Why don't I get a credit for all those 50 percent off accounts?Why don't I get a credit for all those package discounts?Why don't I get a credit for the "poor service" write-off account?I could fill this article with the requests I have heard, some of them seemingly legitimate and others not so much. All I can say to that one is "Read the book, The Uniformed System of Accounts for Hotels. It tells what to do and not do when it comes to all things financial.For consistency, your hotel must establish the rules for their credit to the cost of sales. Some things to consider:What percentage to use as a credit to the cost of sales? Last year's cost percentages, budgeted costs, year to date cost, last month's cost. All of these are good selections, just make sure once you choose your method, you stick with it (consistency principle).Do you take the credits each day with your income audit or do you do it monthly with the closing of the house accounts?Who can authorize the use of the promotion and entertainment accounts? I have seen some questionable events, outings and requisitions in my day. You want to make sure the proper approvals are in place for both types of credits.If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comIncentive Plan TemplateEFTE and Productivity ExerciseHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"A White Paper - Creating a Hotel Policy ManualF&B Productivity SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WA White Paper - A Six Month Workshop and Coaching AssignmentHotel Financial Coach - "Speaking Sheet"Flow Thru Cheat Sheet - EnhancedVisit my website today for a copy of my FREE guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotelwww.hotelfinancialcoach.comCall or write today and arrange for a complimentary discussion on how you can create more profits in your hotel.Do you need a dynamic speaker with a unique and creative financial message for your next hospitality event?Are you thinking about your management team and what to engage them with this year? Consider a full or half day hospitality financial leadership workshop.Give the coach a call and let's get going!Contact David at (415) 696-9593.Email: david@hotelfinancialcoach.comwww.hotelfinancialcoach.comFacebookTwitterGoogle+LinkedInPinterestEmailShare

Hospitality Financial Leadership - Why Hotel Brands and Franchisers Secretly Love the OTAs

The Hotel Financial Coach ·10 July 2018
I know we all hear the battle cries every day in our industry, but what's really going on with hotel brands, franchisers, the online travel agents and their war over commissions and fees? In this piece, I am going to expose an angle that I think needs some light. It gets back to a fundamental understanding of how our industry functions based on its evolved structure, with brands and owners. I also believe this is a good lesson in hotel business strategy, to understand what underpins the relationship between the warring parties and what drives the business model with hotel franchisers and brands.The first thing to know about hotel management companies and franchises is they make the lion's share of their revenues and resulting profits based on the hotels in their portfolios generating revenue. Fees based on revenues are what drive the hotel brand's business model. They also make money on reservation systems and other services, but normally these are on a cost recovery basis. The brands tell their hotels that the services they provide are on a cost-return basis and largely they are. Very little profit is generated by the brands from their other services. On the flip side--when you look at the way the fees are calculated--is a simple total revenue or total room revenue times "x" to produce the fee.What really matters most to the brands is getting their hotels to produce more revenue. The more revenue the better. Not profit, revenue.The second thing to know is that management companies and franchises make little or no money on the profits their hotel owners make. Unless the agreement with the hotel has profit sharing or an incentive fee component built in, the hotel owner does not share any profits with their brand.The third thing to know is fees paid to the brands by the owners are in no way linked to the hotel's profitability. Whether or not the hotel is profitable has zero impact on the calculation of the fees or the requirement to pay these fees every month.I don't know about you, but I see a problem here. The problem I see is the brands make hay on the backs of their hotels whether the sun is shining or not. Not unlike a stockbroker who makes fees on your entire portfolio regardless of their performance with your investments. Some might think this is OK and the way it should be, but I see it as offside.Let's look at the impact the online travel agents have had a big hand in. For almost the past 20 years the OTAs have been turning the hotel and travel world on its head. They have built systems that allow any hotel to sign up almost universally without any upfront fees and instantly market their hotel around the world to the ever-growing planet of the traveling public. This, in my opinion, is the single biggest positive development in our industry ever. Hotels always have used travel agents and what has happened in 20 years is more and more business has moved online--where today the individual hotel consumers' world is virtually all online.Shopping for a hotel room online? In general, we can thank the OTAs for this phenomenon, they created it. How does all of this online activity benefit the hotel brands with little skin in the game?Here are some revenue factsAccording to a Cushman and Wakefield report, room revenue in America has grown from $70 billion in 1998 to a whopping $150 billion in 2017. That's more than a 100 percent increase in 20 years. Here are the numbers that make this up: supply in 1998, 3.9 million rooms; 2017, 5 million rooms; RevPAR in 1998, $50 and in 2017 it was $81.Now let's look at feesThe typical hotel management fee of 3 percent of total revenue and a franchise fee of 5 percent of room revenue will be used in this exercise. I know these are estimates but bear with me. We'll be blending the two together and using a conservative 4 percent of total revenue as a gauge.The total fees charged to owners in the past 20 years has more than doubled as well. No surprise, revenue doubles and so do the fees. Fees in 1998 at $70 billion equal $2.8 billion. Same 4 percent of revenue in 2017 equals $6 billion.The first real question and my point is this: How much of the increase in room revenue in the past 20 years has been because of the platforms and systems built by the OTAs? The simple answer is lots of it.The second question: How much investment was incurred by the hotel companies to get consumers to use the OTAs and ultimately spend more and thereby generating more fees for them? The answer is quite simply - A Big Fat Zero. Someone else built the OTA monsters and the brands are the number one recipient of the benefit with no investment.Would hotel companies minus the OTAs have invested the cash necessary and revolutionized the travel industry? I think not. They are management companies and they are capital light. That's their strategy. Put their name on the hotel, and let the owner invest and drive the guest experience, brand promise and fees.I'm not saying OTAs do not have some faults and some hotels may rely on them too much, but the fact is they have had a big hand in revolutionizing the travel world and that is very good for brands and owners.No wonder hotel management companies and franchisers secretly love the OTAs. Anything that drives revenues their way is what works.When something or someone else does this for them, it's golden.

Hospitality Financial Leadership - The Greatest Illusion - Ever

The Hotel Financial Coach ·25 June 2018
What are you believing and why? Do you believe the numbers are the hard part of hospitality? Do you believe you were in the wrong line at birth and just did not get the right tools? Well, I invite you to open your mind and think again about what you believe. If you do, you can open a brand-new door that will pay off in spades.This is an article about how people see things, how they think. Because we're human we have the highest power in the universe and that's an imagination. Because we have an imagination we "feel" our thinking. In hospitality, there is a lot of misuse of our imagination and I will examine how this negatively affects financial leadership.The problem with feeling our thinking and having an imagination is four-fold:Often, we use our imagination the wrong way, we use it to scare ourselves.Often, we believe what we think is real, what we imagine is real, right?Often, we get hung up on these scary imaginations and they preclude us from being productive.We think the world is happening outside of us when it's all an inside job, it's our imagination."Imagination is everything. It is the preview of life's coming attractions." -- Albert EinsteinImagination is our greatest gift as human beings. We are the only creatures that have one. Your dog is not sitting at home planning his retirement. The dog, like all other creatures, operates on fight or flight and some instincts. Same goes for all other creatures in our world. They all have an operating system that does not include an imagination.At the very foundation of our beings is the 1,2,3 concept of mind, then thought and finally our consciousness. Another way to express this 1,2,3 is our brains, our thinking and our outlook on life.Let's first look at the brain--our mindIt operates the body and it is the most sophisticated thing on earth. We do not need to tell it how to process our oxygen, manage our waste or to remember to grow our hair. It operates our body without our thinking or intervention. We can think about holding our breath or needing to pee or getting a haircut, but the brain and our minds just go about managing things for us. This is a wonderful thing.The second part is thought--our thinkingWe have thousands and thousands of thoughts every day and most of these we are not even aware of. As much as 95 percent of our thinking goes on without us even being aware of what those thoughts are. This is described as habitual thinking and quite often a large percent of this thinking is negative.Much of this thinking comes from our upbringing, our past. This is nothing to get worried about because there is nothing we can do about it. So, no solution, therefore, there is no problem.The third part is consciousness--our active thinkingPut another way, it is our outlook on life. This is where things get put together. This is where we get fooled. This is where we see how our world and the people, places and things seemingly affect us. We believe that this is our reality. My life and the people in it, the conditions I live with, the job I have, my relationships, my prosperity, my image of myself, my happiness. This is where we take all the stuff that is happening to us and we make up our story. We see the world as outside in and the truth is it is the opposite. Our reality is made up of our imagination combined with the thoughts we have. This all happens inside our consciousness not outside. This is "the great illusion".Now stick with me here because this is where we will expose the illusion for what it really is.As human beings we are well advised to realize--we do not need to believe--what we think. We are much better off if we do not believe what we think, especially the negative thoughts. We have thousands of thoughts a day. Most we do not even realize. The ones that we do realize we believe or better still we "believe them" because we "feel" the thinking. We have a negative thought about our finances and we feel bad. We have a negative thought about a relationship and we feel bad. Before you know it we are feeling really bad. But it is all an illusion and it comes from inside our consciousness where thought and imagination get mixed together.What we need to do is not believe it. Do not believe any of it.Thoughts are like a perpetual fountain of crap that spews into our consciousness. It never stops spewing. Our job is to look the other way until a good thought happens along and then we play with that one. The same way we pick the things we like in other parts of our lives. We have the choice to pick the things we think about, believe and like. Thoughts both bad and good will pass, like a cloudy day. However, the thoughts we hold onto are going to shape our consciousness. Hold onto bad thoughts and see where that gets you. Play with and nurture positive thoughts and life looks much better. Things will naturally move in a good direction.Now back to financial leadershipIt is simple. What are you believing and how is it making you feel and what direction are you heading in?Do you believe that you were born without the numbers gene? Do you imagine how embarrassed you will be at the department head meeting when you cannot explain why your payroll is more than the forecast? Do you panic when you look at the statement and none of it makes any sense? Do you feel a sense of dread about the numbers?Or:Do you believe that the numbers are just another part of the business and that with a little practice you can learn how to manage? Do you imagine that soon you will be able to do your forecast, track your revenues, adjust your monthly expenses and payroll based on the volume of business, review your month end P&L and GL for accuracy and finally write your departmental business commentary? Do you imagine that others have crossed the same bridge of knowledge and ability successfully and you can too? Can you imagine how good it will be to manage your department's finances?Financial leadership is about your imagination and believing you can build your muscles and the desire to feel good about your abilities and yourself.For a complimentary copy of my guidebook on creating a finically engaged team in your hotel head over to my website, and don't forget to email me for some of my free spreadsheets.
Article by David Lund

Hospitality Financial Leadership - The Busy Hotel Executive

The Hotel Financial Coach ·19 June 2018
Many people are fond of saying the numbers are the hard part of hospitality. That's not true. What is true is we do not exercise these muscles. We do not even know we have a financial muscle in many cases. This story is about one of those people and how I was able to help her. Names and places are changed to keep anonymity.Tina emailed me with a somewhat cryptic and erratic message that almost had me delete the email without even responding. A message about needing help with budgeting and I could tell immediately that this person was racing against time. You know the kind of note that someone writes when they are doing three other things at the same time. That's what my instinct told me. It also told me to slow down and see if this was someone who needed my help.I replied to Tina's note and suggested a call to discuss her needs. She immediately replied yes, and I followed up with two open times in the following week. She replied, and we had a time for our call booked--now she just needed to confirm a phone number for me to call. No response to this question. I sent a note early on the morning of our scheduled call that I still needed a phone number. No reply. Ten minutes past the time of our call and my phone rang. I did not recognize the caller, so I let it go to voicemail. It was Tina. I picked up the phone.That was a long paragraph to tell you this lady was a busy hotel executive. She was just appointed as the director of operations in a 600-room hotel in Chicago. She immediately impressed upon me just how busy she was with meetings, long hours, vacant leadership positions, a 90 percent occupancy week, owner's meetings, a GM that had expectations. All of this in less than 60 seconds. After I had an opening in the barrage I asked her how I could help. She told me she had more than 15 years of experience, but numbers were not her strong suit. Lots of operational experience in both rooms and F&B, but not comfortable with numbers.We talked, and I asked her why she didn't have a comfort level with numbers and she said it was just one of those things that never naturally came her way. No direct experience and spending most of her career in positions where the numbers were not part of her responsibility. A familiar story and a hallmark of hospitality. Look after the guests and the colleagues; someone else will look after the numbers. I did not believe her for a minute. But it was way too early in our relationship to tell her the truth. If she stuck around long enough it would be revealed, but not now.I listened to a few more war stories and then I asked her if she would like to have another call where I would coach her. My gift to her. She said she would like that. We coordinated a time, I got her number and that was that.Over the next three weeks, she canceled and changed the appointment four times. This is a busy person. No, not busy, just not committed to herself. I see this quite often. When we finally did get on the phone I asked her about her commitment to herself and specifically how committed she was to change the relationship she had with her numbers. She seemed kind of puzzled by my question."I want to get a better understanding of the numbers," she said."Why have you rescheduled our call so many times?" I asked.She went on again about how busy she was, and I listened for a moment and then asked, "Over the last two weeks since we spoke, did you have dinner every day?""Yes," she said."Did you manage to get to sleep every night?""Yes," she said with a little laugh."What about coming to work, did you manage to get to work each day you were required to be there?""Yes, what's this all about?" she asked.I replied, "Your problem with numbers isn't because you lack the ability, you are just not committed to it. And unless you are willing to make it a priority and lock in the time, it is not going to happen."There was a moment of silence and I was not willing to fill the void. I waited for what seemed like a long time until she spoke."I know," she said, "I do this a lot with things that I think are difficult.""How you do this thing is how you do everything in your life," I said."If you're willing to recognize that and if you are willing to really commit to this, then I can help you," I continued, "If you're not, then do us both a favor and let's both move on.""No, no," she said, "I want this more than anything right now and I'm willing to commit.""That means a weekly call with me that does not get canceled or postponed, ever. Making yourself and-- in this case--your development as important, or more important, than the one thousand other things you need to deal with each week. Make your learning and personal development the priority and schedule your world accordingly."This is what's missing. If you think the numbers in hospitality are the hard part, then you are just not committed enough to change that. Up your commitment and the numbers will start to come together for you. It is no different than anything else in life.The very notion that somehow you were in the wrong checkout line when they handed out the numbers gene is not true. It is just a popular excuse.What you focus on in your life gets results, it is that simple.If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comIncentive Plan TemplateEFTE and Productivity ExerciseHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"A White Paper - Creating a Hotel Policy ManualF&B Productivity SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WA White Paper - A Six Month Workshop and Coaching AssignmentHotel Financial Coach - "Speaking Sheet"Flow Thru Cheat Sheet - EnhancedVisit my website today for a copy of my FREE guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotel

Hospitality Financial Leadership Business Acumen and Women

The Hotel Financial Coach ·12 June 2018
I may have caught your attention with this potentially explosive title, so I hope you will read this and either help change this inside your hospitality business or personally get your hospitality business acumen on, whether you're a woman or not. In my experience in the last 35+ years I know three things are true about women and business acumen. By the way, I think the word "acumen" is the wrong word simply because it has the word men in it. To my way of thinking it is a non-starter right out of the gate because it sounds sexist. To me the words to describe any manager who has their stick together with the numbers side of our business should be Hospitality Financial Leadership Skills. We need the word Leadership in our description. Leadership is about communication and development. Perhaps we could swap out Financial and replace it with Business. Hospitality Business Leadership Skills. I just wrote these four words together for the first time. I am going to try them out and if you have an opinion on the little debate I just started about words and which ones are best, I would love to hear from you. The first thing I know about women in the hotel business is there are not enough in senior leadership positions. Specifically, General Managers. I do not have any hard data to cite here but there are lots of articles that have been published that exalt the unbalanced results. Just google, "Women in senior hospitality management rolls," and you will find lots of links to articles and papers on this subject. Why are the numbers so one-sided toward men?Three main reasonsOne, we do not train our managers on finances. We do not have systems inside our hotel companies to train women or men on Hospitality Business Leadership Skills. We still cling to a system of mentoring, (there goes the men word again). We cling to a somewhat sick right of passage to get the numbers down. Two, men are--more often than women--risk takers. This propels them through the "figure it out as you go" system faster and more often than women. Three, men have always accounted for more senior leadership rolls and they favor more men. Long hours, children, family life and sacrifice all favor a man's world. This is simply my opinion and I want this to change. There is no argument to the imbalance and it has improved but we still have a long, long way to go. The second thing I know is, in my experience, often when we give our female managers training and support around the numbers and they accept the challenge, they are equal to and often better than men at delivering financial results. When I consider what is required to create the kind of engagement with the numbers inside the hotel, I am focusing on managers consistently and accurately preparing their departmental payroll and expense Forecasts. Tracking business volumes, Adjusting their spending to maximize flow thru. Reviewing the month end results for accuracy. Writing their commentaries. F TAR W. Read the article on how to create financial leadership using my system. Women are better at consistently and accurately delivering these results. I believe this is the reason why: Women pay more attention to the details, they are more organized, and men are more interested in the lime light. I know you are probably thinking that is a BIG statement to make. I make it based on my experience. With the proper training and resources, I would pick my line-up with more women than men when it comes to delivering on financial preparedness. The third thing I know is women have a predisposed belief that they were short changed with the numbers or numbers just are not a woman's thing. It is some cocktail of left and right brain misalignment. All of this is complete BS. There is not one shred of evidence that I have ever come across that supports this.Three important factors are missingOne, women, like men, need to know that in order to get ahead in the hotel business they need to know their numbers. It is not nearly enough to be good with the guests and the colleagues. Being a leader that knows their numbers and can actively participate in the financial and business strategy side is a must for advancement to senior rolls. Without this you are just another face in a long line. This is equally applied to men and women. But more frequently, women are not given this advice and they are not "groomed" as often. There is a great Ted Talk on this subject. Check it out here.Two, both men and women can easily learn the numbers and all it takes is effort, commitment and practice. To learn the numbers--like anything in life-- it takes effort, time and practice. Far too often the numbers are the very last thing aspiring managers focus on. They all use the same excuses:We are so busy.My finance person is impossible to deal with.They just change my stuff anyway.The numbers are just for the senior team.I was told to look after the guests and the money looks after itself.You get the picture. Lots of excuses and victim thinking. If you are going to ramp up your financial skills it takes work. No fairy dust here, just apply yourself. If this is not something that is readily available at work, then seek it out. Find a mentor, a night class in accounting, volunteer for projects that have a numbers side (they all do), ask for cross training. Read a book. Read my past 50 blogs on financial leadership. Oh, last but certainly not least, get a coach. And know this: It will come and when it does you will look back and laugh. You will laugh at all the fuss you made in your own mind before you crossed the financial skills bridge. Three, we confuse things and roles. Accounting underpins the language of business. To have Hospitality Business Leadership Skills you do not need to be an accountant or know accounting. Some very basic concepts, yes, but people think that accounting knowledge is what is missing. Wrong. You do not need to know squat about accounting to do your departmental expense budget and staffing guide, track productivity, adjust spending in the month-for-month based on business volumes, write your monthly commentary, read a P&L or review your general ledger listing at month end, just to name a few. People hide out with a misguided version of what they are missing and in the process of being misinformed they get scared and back away. If you are going to understand and improve your numbers, you must be open-minded and curious about how you can apply your skills and efforts to work those numbers. This is the pivot point because the work to accomplish is NOT accounting. I wrote a previous blog on this very subject with a story of a leader who did exactly this with her numbers. To wrap things up I want to tell you that I have a dream. My dream is the numbers are just as well managed in our business as the guests and the colleague engagement. What that really means is I dream that all our leaders are just as comfortable with their numbers as they are with creating great guest service and superior colleague engagement. I know that it is possible for my dream to come true. Like Walt Disney said, "If you can dream it, you can do it." I also know it is true because I have seen it happen many, many times and, Women, you do not need to take a back seat to anyone. Getting your financial game on is completely within your reach and abilities. Just jump in with both feet and apply yourself and do not take no or later for an answer. If someone or something is in your way, then move around the obstacle or even over or under. Just do not stop and look the other way. The last part of my dream is that our industry understands the numbers for what they are, and we ditch some of our stereotypes at the same time. The numbers are just another part of our business, just like guests and colleagues. Like guests and colleagues, the numbers are not going away. Here is the shift in all of this. We somehow think that the numbers are like grade 10 math, if you pass it you will never have to take math again. Well, the numbers are never going to be perfect and they are never going away. The only thing we know for sure about the budget or the forecast is it is wrong. We need to bring the same lightness to working with our numbers. Remove the seriousness and just get on with the task. We come to work every day to face the imperfect guest service delivery and the colleague engagement mess knowing it is never going to be perfect. Same goes with the numbers. Just take your shot!If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comIncentive Plan TemplateEFTE and Productivity ExerciseHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"A White Paper - Creating a Hotel Policy ManualF&B Productivity SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WA White Paper - A Six Month Workshop and Coaching AssignmentHotel Financial Coach - "Speaking Sheet"Flow Thru Cheat Sheet - EnhancedVisit my website today for a copy of my FREE guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotel
Article by David Lund

Hospitality Financial Leadership - How the Coach Helped Me

The Hotel Financial Coach · 7 June 2018
Coaching people around the financials in hotels is what I do. I accomplish this by one-on-one coaching usually on the phone, through Skype, or in workshops where as a group we explore and debunk the mystery around the numbers. Many people are fond of saying the numbers are the hard part of hospitality. That is not true. What is true is we do not exercise these muscles. We do not even know we have a financial muscle in many cases. This story is about one of those people and how I was able to help them. Names and places are changed to keep anonymity. Chris sent me an email requesting some of my free documents that I offer on my weekly blog posts. I think he had read the article, "Financial Statements and Your Hotel Career. " His note was uplifting and he thanked me for writing the blog. Short and sweet. I replied and thanked him for his kind words and attached his free stuff to my email. About a month later he wrote to me again and asked if I could help him understand the rooms productivity measurements. I replied and sent him the link to the blog that explains how they are used. "Read this and if you want more help let's have a call," I wrote, "It will be a gift from me to you." He replied thank you and we scheduled a call the following week. During the call, he explained to me that he was the rooms division manager of a 350-room hotel in San Francisco, Calif. They had a labor planning tool and daily labor reports but no real productivity measurements to work with and no labor statistics in the property financial statements. What they were using was "the standard" that the labor planning tool generated based on job tasks that each department manager created for each position. They would input the forecast rooms and the system produced a schedule. They would compare the actual standard to the scheduled standard at the end of each week. All of this sounded familiar. I asked him what the problem was. He said, "We use this tool but at the end of the month the payroll on the financials is always too high and as a result, no one likes the tool."We looked at two things during that first callHe was able to find the latest schedule and tell me how many rooms were forecast for the next week and he also ran another report from the labor tool and was able to tell me the hours that the system had scheduled. We then broke down the hours into the following buckets: front office, reservations, bell desk, room attendants and general housekeeping. We had a subtotal for each and a total number of hours for the week. Then I had him do the division on each subtotal and the overall number. Now we were getting somewhere. Now we had the productivity for each sub-department. This took us most of the hour to unravel and he was excited to see the results. His hours per room occupied by sub-department and for the rooms division for the next week's schedule. He then asked, "Now what?" What I explained next was what he needed to do to make this weekly number relevant. I told him to go back for the past 12 months and get the hours by month for the same sub-departments and in total. Once he had that, I explained he then need to total each month's hours, for hourly and management and divide those subtotals and the total for each month by the rooms occupied for each month. I then told him to only get the productive hours: hours of regular, overtime and double time. No holidays or other hours are needed. He said, "That's a lot of work." I replied, "Not really when you consider what you will have as a result--the baseline productivity for an entire year by sub-department and in total for the rooms division." Then I moved to wrap up the call. I asked him if the information was helpful. He exclaimed that it was indeed, and we agreed on a regular series of calls. In a few short weeks, he was able to start scheduling based on productivity targets and he taught all his managers the productivity system. We then turned our attention to expenses and devised a system for him to zero base his departments' expenses. He, in turn, got his team on board to do the same exercise in each area. We worked hard to get numbers figured out. The last piece we worked on was him producing the commentary for the monthly manager's report that he submitted to his GM. Again, we worked on all the pieces and getting his managers to do their individual parts of the commentary using what he created with the labor productivity and expense management tools. In a few short months, he really grew as a manager and leader. The exercise I put him thru paid off. His department's results--the rooms profit--finished the year ahead of budget. The flow thru to the previous year was off the charts and he accepted a promotion to a bigger hotel and a bigger job. All because he got some help to learn how to use his financial muscles. It's not accounting--it's business thinking--and it's not the hard part of hospitality.For a complimentary copy of my guidebook on creating a finically engaged team in your hotel head over to my website, and don't forget to email me for some of my free spreadsheets.

Hospitality Financial Leadership - The General Manager's Yardstick

The Hotel Financial Coach ·29 May 2018
The typical GM I have seen, worked with, and gotten to know over the last three and a half decades is hardworking, dedicated and a bit of an egomaniac. Let's face it, to rise to the top in any vocation you need to have all three of those traits. They are not handing out keys to the oval office for the meek and mild, and never to the stay-at-home crowd. The job of a GM is incredibly demanding and responsibilities are huge. The place never closes, the guests always want something, and employees are never satisfied. There is always a pot of trouble cooking, and it is usually wrapped in some mystique and intrigue. I have said this before and I will say it again. GMs usually come from the sales world or an operations background. Which makes complete sense given the long hours and the schmoozing that is required for the job. What GMs bring to their job is energy, enthusiasm, creativity, and passion.What the typical GM does not bring to their role: administrative skills, focus, number savvy, computer skills, finance knowledge, business acumen, and what I always found missing the most was interest to learn any of these skills. GMs rely in large part on their financial person to carry the day. Why not? The hotel is full of parallel examples. They rely on the chef to hold the expertise of the kitchen and produce great food and not kill anyone in the process. They rely on the director of maintenance to make sure the boilers and the chillers are operating. They rely on the human resources manager to ensure the benefits and programs are in place. You would never see or expect the GM to jump in the middle of any of these functions because that is not their job. They rightfully so rely on the expertise of these professionals, right or wrong, to carry the day.When something is amiss in these areas the owner or brand is typically sympathetic and either grant a pass or add resources to fix the problem.What the GMs do not and should not get a pass on is poor financial management. After all, finances are a pillar of the hotel business. Right up there with their brother guest service and their sister colleague engagement. That is what is front and center in a GM's job description and it is how they are additionally compensated. Guest service scores, employee engagement survey results, and the profits. The 1-2-3 of the hotel business.So, why don't more GMs jump into the middle of the financial machine and make the kind of splash that they typically do with service and engagement? I believe the answer is close by. They do not have the training and experience with the numbers and as such, they hesitate to challenge the financial person or processes. There are many things going on in the financial world and they are seemingly complicated, and who wants to go there anyway? It is accounting and numbers and mumbo-jumbo balance sheets and yucky stuff. So, most GMs just tune it all out. Sure, they get and read the P&L, they know what the score is after the game. But few will jump in front of the train and wrestle their department heads to the ground and create the kind of business that holds their direct reports responsible for their results. GMs seldom go there because they are unsure of what they do not know.The typical scenario when dealing with a department head, GM and controller goes something like this: The statements come out and the GM sees the expense spending and labor are out of control. They are over budget and forecast-- way ahead of last year--and why? She or he asks the controller for an explanation and they convincingly blame the department head who did not do their forecast and had little to do with the annual budget because they just do not care. The GM now has another conversation with the department head and they put the blame squarely on the controller and his staff who are certainly inept because half the crap in their accounts is old, not right and subject to great suspicion.So, now what is the GM to do? She has two very different stories and whom should she believe? It seems every department is in the same boat. No one knows what is going on financially. They are seemingly flying by the seat of their pants. Good months only mean a bad one is around the next corner. Surprises are everywhere. Like mines in a field, they just go off when they should least expect them. With all this, the GM is convinced more than ever to stay away from the numbers. Focus instead on relationships with her direct reports and try to get everyone to play well together. This is usually the strategy because the GM has no idea where to begin to get her hotel finances in order. She did not sign up for this part of the game. And none one is telling her how to fix it.Meanwhile, the asset manager, owner and everyone else involved including the department heads and the controller are waiting for some leadership and someone to make sense of it all. The GM tries but really the effort is far short of being effective because they all think the numbers are different. They think there is a magical solution to all the infighting and confusion around who is accountable. They believe the solution lies outside of their scope. Can't someone just fix this mess?Back to the hero of this storyI met our hero rather early in my career when I was an assistant controller in a 500-room full-service hotel. I had been on the job for less than a year and my boss announced that he was taking the month of August off and I would be responsible for putting together the first full draft of next year's budget. This meant a few things, but the biggest thing I feared was having to talk to our GM. Prior to this my exposure to him was very limited and he had a reputation for being a tough cookie, to say the least.As the month went by I set about preparing the budget and the GM called me to his office. He outlined to me how each manager would present their expenses and payroll and how he would be "approving" any and all budget submissions before I did anything with their numbers. Interesting and somewhat surprising. But, then again, who was I to say otherwise--I was a super green rookie.One by one the managers had their appointments with the GM and I rode shotgun. He had instructed me to send each one their part of the four-year statement wherein four columns you could see the annual total for each line of expense and payroll. He then instructed his managers to prepare their expenses for the budget and to have a list of items for each account. No approval would be given on a cost per room occupied or cost per cover or a percentage of revenue basis. He insisted on the detail and he made each one of his managers responsible for getting their facts together. I have never seen so many people in accounts payable, sifting through files and invoices. The same for payroll. He set the standard.Each manager needed:An approved staffing guide for the budgetA clean list of salaried positions for the fixed payrollA formula for each employee in the variable positions that equated in total to hours per month on a per room occupied or per cover basis for each payroll classification equaling the best year-over-year or improved productivity compared to the four-year reportThe meetings were telling. Several managers were shown the door and were told the information they had was either incomplete or it had too many dollars. He simply looked at the information and asked what was in the expense line, comparing the four-year summary for each line and the departmental total. The same with payroll and the line-by-line productivity. Not rocket science but he sure had his managers in line. Several managers made return visits to re-present their numbers until they got it right and had his approval. What came to me to be added to the budget model was already approved.I quickly changed my opinion of this man from one of distrust and fear to one of respect and admiration. This guy knew how to manage his team. He was fair and objective and if you had good reasons for increases he listened and, more than anything else, he asked good questions. I just sat there and took it all in, a great lesson on management, organization, and budgeting. I will never forget what he taught me that August budget season. In that month I learned more about inner workings of each department in the hotel than I did in the previous five years, and so did he. That is what a good budget process will teach you.Many of his managers would come to see me after their meetings, to whine about their budget ordeal with the GM, and I would listen and commiserate. After they all "passed mustard" with the boss, the level of their knowledge and engagement around their numbers went through the roof. They had to know what was in their accounts and payroll and the boss used the budget season to get them all in shape. From this exercise, he took the review process to another level. Every month in the following year he would do the same one-on-one review of their departmental monthly financial results. This guy was on top of his business.Back to budget seasonThe following month my boss returned, and I was somewhat sad that he did. I was having a lot of fun with the budget and the GM. Two weeks later and it was time to go to a nearby city to present the budget to the corporate team including the company's CEO and a long cast of other characters. This would be the GM and my boss doing the presenting or, as we like to call it, the dog and pony show. To my complete surprise, my boss came into my office a couple of days before the scheduled review with corporate and said, "The GM wants you to go with him to present, you did the work and he wants you there with him." Wow! Was I in shock.Two days later I was on a helicopter with GM and off to the presentation. Here I was, the green rookie assistant controller, helping to present my hotel's budget to the corporate people. My GM did most of the talking. I do not remember saying much. He did take a moment when we were done and the budget was approved to tell the corporate squad what a great job I had done in the absence of my boss in putting the budget together. It was a great moment for me and my young career.I can honestly say that I have not worked with a GM since who had as much interest or backbone when it came to the numbers. GMs leave it up to the controller to try and sort out the wants and BS from department managers. This causes a lot of wasted time and effort. Usually, the managers have rose-colored glasses when it comes to budgeting. They think budget time should right all the wrongs and they add copious amounts of payroll and expenses. This then gets flushed out with budget consolidations and reviews, but what happens, as a result, is people waste an inordinate amount of time and they typically get discouraged and feel put upon because they do not get what they want in their budgets. All of this is nonproductive work. In as many times that I have prepared budgets, the only one in my opinion who got it right was that GM. He took the time to organize his department heads and he used the budget process to educate them, himself and me on what was going down in each area of his hotel. That, my friend, is how it should be. It's not magic but the results are magical.I vividly remember my boss telling me the budget is the GM's yardstick. It is his deal to get his managers to come to the table with what they need to run their departments. It is also his deal to make sure they understand what they have for payroll and expenses to operate their department. Equally as important is what they do not have to play with.Most GMs do not use their yardstick. Why? They think the financial piece is something else. Some weird concoction of computers, numbers, all things outside of them. But it is not. It is the same as the other pillars. They just need to take an interest and work it like he did.The moral of the storyThe GM did not know squat about accounting. He did not know the difference between a debit or a credit. All he needed was a keen interest in knowing that his department heads had their financial stick together.Simple and incredibly effective.For a complimentary copy of my guidebook on creating a finically engaged team in your hotel head over to my website, and don't forget to email me for some of my free spreadsheets.Give the coach a call and let's get going!

Hospitality Financial Leadership - The Three Dimensions of Delegation

The Hotel Financial Coach ·22 May 2018
Delegation has three dimensions that are powerful tools. Delegation is also quite often misunderstood. In this article I am going to explain my thoughts on how to use delegation to be more productive, to grow your own abilities and to help you see the way forward using delegation to develop others.First off let's examine what delegation is all about and clear up some misunderstandings. I for one was not a fan of being delegated to early in my career and I did not understand how to use it properly. I thought I was being "put upon" by being delegated to. It was not until I had my first post as an assistant controller that I started to see delegation in a different light. I vividly remember my boss coming into my office to give me yet another assignment that previously was his task. I had been in this very new and challenging role for about six months. It felt like most days I was drowning. The work just kept coming. Yet again he was giving me a report to put together that needed to be sent to corporate by the next Tuesday. That was it--the straw that broke the camel's back--so to speak."Why do I have to do another one of your chores?" I asked, somewhat frustrated, to put it mildly."Listen, David, I get to decide who is ready for more assignments around here and if you're half as smart as I think you are, you will do the same!"Wow, that hit me like a ton of bricks. My initial reaction was: what a conceited and shallow attempt to manipulate me by dumping his work on my plate. This was yet again his MO and, to boot, he was even doggedly proud of it. This envelope hit me hard. There was no way I was going to be able to swim with this crap piling up and a never-ending supply of new bunk to deal with. I worked late that evening and, on my walk home, I was recanting the episode with my boss and had an epiphany! It flew at me out of the night sky."If you are half as smart as I think you are, you will do the same."What exactly did that mean? How was I going to do the same? What was the real message inside the envelope? I thought long and hard about this and the following day I decided to get some clarity.I went to see my boss and asked him to tell me what I should be doing with delegation in my role. He smiled and said, "I was wondering how long it would take for you to wake up."He explained his view of the hotel finance office work world. It went like this: The work never stops coming. The assignments from corporate, the owners and the GM are not going away, in fact, they are going to get more and more frequent. That is just the way it is. To combat that it is our job to ensure these assignments are dealt with properly and to do that we need to take the work we have, the work we know how to do and delegate it to others. He said, and I will never forget these words, "If you know how to do something, it is time to give it up and teach someone else how to do it.""But how?" I asked, "Everyone is so busy.""By finding out what people want and helping them get it," he said. This sounded like a con if there ever was one, I thought. Then he explained that people all want to grow and have greater responsibility and move ahead.That is what we constantly need to be looking for and developing in our teams--an attitude of learning and progression. If we assume people are at their limits, then we just shut down the machine. Our job and quite frankly everyone's job is to teach and develop, and the fuel for this growth is the work we do. Once he explained it to me that way I began to see what he meant. Could I learn to do the same?First break-through as developerThe following day I sat down with our credit manager who was relativity new and green. I asked her what her goal was in the next two years. She said quite clearly to get out of the credit roll and on a path to be an accountant and eventually Controller. I was blown away by what came next. I offered to help her get there by showing her how to do some journals and reconciliations. I told her that it would be an additional workload, but I could also help her with the development of her credit and collections assistant who was chomping at the bit to become the credit manager. It seemed like someone just changed the music in our office and it now had a fresh and uplifting beat. These development exercises continued, and it was not long before I could see a much stronger and meaningful team developing.I know what some of you are thinking and I want to dispel that right now. You think that some or most of your colleagues are maxed out and on top of that they do not want to move ahead. They are happy just where they are or maybe they are even blockers. This thinking will get you nowhere fast. It is victim thinking and you need to turn it around to owning it and finding a way to lead that means everyone is a development opportunity. People naturally want to make a difference. They just need to see this and it is your job to create this environment, to have those heartfelt conversations and always be creating.The work we do is the fuel for development. When the work is properly positioned it takes on a whole new light. Think back if you will to your own development. Who helped you? Who is that individual that took you under his or her wing? I am willing to bet you that you would move heaven and earth for them. This is the kind of relationship you want to be constantly developing in your teams.This is the first dimension of delegation. Be that mentor, be that trusted guide.The second dimension of delegation is your growth. With an evolutionary plan underneath you, the path is being cleared for you to take on newer and bigger assignments. The people in your organization will see this and your career will be supercharged because you have demonstrated your ability to lead and expand.The third dimension is the most exciting. What I have always learned and seen in the development and delegation of others is what I call one step closer. People always surprise me, and this translates into creating new and innovative ways to do things. A fresh set of eyes and an engaged mind lead to progress. A great example was that credit manager who was a few years younger than me and more than just a little comfortable with macros. She automated several of the journals and created a calendar tab process for the reconciliations. Both processes were her doing and they saved considerable time. This is the by-product of learning and development--new and continuous innovation."Delegation is giving others the opportunity to participate in the story. If you have a good story, people will line up to get involved - to play a part in the story." - Eric PhillipsFor a complimentary copy of my guidebook on creating a finically engaged team in your hotel head over to my website, and don't forget to email me for some of my free spreadsheets.

Hospitality Financial Leadership - Is Teaching Hotel School Students About Accounting a Waste of Time?

The Hotel Financial Coach ·15 May 2018
I have a dream. My dream is that the numbers, the numbers that so many managers agonize over in our industry, are just as accessible as guest service and employee engagement. Let me put this another way for more clarity: I want you and the other leaders and managers in your hotel to be just as comfortable dealing with the numbers as you are dealing with guests and colleagues.You might be thinking that is a tall order. Well, I do not think so. I have seen many managers overcome their fear and confusion with the numbers. I also believe a big part of why the numbers scare so many people off is because we "seemingly" do not know how to teach them to our leaders. I also think that college and university hotel programs that teach accounting are a big part of the challenge.When we look at a college or university hotel management program, it invariably has an accounting for hospitality management course or a course by a similar name. Look inside these courses and you are likely to find all kinds of accounting stuff, from T accounts to trial balances to general ledgers, financial analysis, problem solving, cash flows, balance sheets and profit and loss statements. All of this is OK for a finance major but why are we teaching this to our hotel management students? Repeatedly I have heard from colleagues over the years just how much they hated accounting in hotel school. Over and over again I hear from leaders just how little they learned. Recently, I am hearing from schools too. They tell me just how poor the comments and ratings are for their hotel accounting courses.I remember just how confused and frustrated I was in both first and second year accounting when I attended hotel school. I do not think I learned one thing, at least I cannot remember if I did. It was always too far out there, too mumbo jumbo and, "Why are they doing this to me?" Accounting was like this water torture test we all had to endure--just get through it was our mantra.Well, no wonder no one likes the courses and it is not a surprise that they all complain. What gets taught in hotel school is exactly the wrong thing.Let me digress a littleI remember when I was taking Certified Management Accounting courses many moons ago. We had a law course. Business Law I believe it was called. And guess what? They did not have us prepare a case or defend a client. They did not even have us prepare any summations. They did not have us definitively answer any questions. What they did teach us were some principles and concepts that were in line with where we were at in relation to our other learning. It was not over our heads and when we were finished I had some basic understanding of business law concepts and still do today.When I cross the hall to the hospitality accounting class, the professors were trying to create mini accountants and this is the wrong approach. Do we honestly think that any more than .001 percent of these hospitality students will ever pursue a career in hotel accounting? If they did--like I did--they would need a rather lengthy list of other classes, courses, training, and experience.Young hotel students today will find their way into the industry and like most of us they will land in operations and a few short years later they will be a junior somebody in an operating department. Once this happens we throw schedules, purchase orders and whatever else we can find to throw at them. If they survive this we give them the forecast, budget, and commentary, not to mention all the other "special projects" or, as the job description states, all other duties as assigned. What our leaders need from school is a basic understanding of the business of hotels. What makes them tick financially and operationally--not finance and accounting courses.What students need are Financial Leadership SkillsSchools, please teach them the fundamental accounting equation, explore the basic accounting principles and then turn them on full speed to the business of hotels:Instruct them how to read and understand a hotel profit and loss statement and what constitutes a good one.Teach them about rooms market segmentation and what it all means for profitability and diversification.Baptize them in the world of food and beverage and why we produce statements for our outlets the way we do.Explore banquets and the engine of hotel F&B profit.Introduce them to the Uniform System of Accounts for the Lodging Industry (11th Edition) and why our entire industry uses this book.Stop along the way to examine real hotel ratios that people watch and the expense dictionary.Walk them through operating departments vs. non-operating departments.Tutor them in understanding RevPAR and STR dynamics.Turn them on to basic management and franchise agreement details.Delve into flow thru and labor productivity analysis.Expose them to EFTEs.Show them how to do a zero-based expense budget and forecast.Make them create a staffing guide where they differentiate between fixed and variable payroll.Critique real property commentaries and show them what owners are looking for.Introduce them to a Return on Investment model and CAP rates.I could fill the page with what they want to know and what would be really useful. But please stop trying to make them into mini accountants. This is entirely the wrong approach and a waste of time and energy. Let's start turning out students who have hospitality financial leadership skills!There is so much hotel business thinking that is crying out to be taught.Equip the leaders of tomorrow with industry business-savvy concepts and experiences.They will love it, they will remember it and--most importantly--when they are thrown to the lions they will have skills to fall back on.Try running your trial balance simulation when someone asks for next month's forecast. Good luck!

Hospitality Financial Leadership - Beverage Cost or Contribution Margin?

The Hotel Financial Coach · 8 May 2018
We all heard about it every month. The beverage cost! And it usually was not very pretty. Seemingly always too high, and it typically created lots of finger pointing and much pontificating. Beverage cost was always a slightly complex beast and often misunderstood. That was largely because this poor cousin to food cost was shrouded in a bit of mystery and mystique, like a secret lost cocktail recipe.Let's have a closer look at the black sheep of the family.Many people are simply confused by beverage cost and, while it is an important standard to maintain, the real game to understand is contribution margin. What makes the biggest dollar profit is what is truly important to understand and focus on.In hospitality there is a business version of schizophrenia. It is a different way of managing, measuring and reporting everything. Just when you think you have one area of the business figured out, you quickly and silently switch gears and, Voila! You have a more complex version of what you just thought you wrapped your head around. Rooms, food operations, spa, golf, retail, communication, banquets, mini bars and, alas, beverage sales. They all are seemingly the same but under the hood they act and produce very differently.The black sheep of the family is the booze and it has four middle names:LiquorBeerWineMineralsLike most people's children, they all look and behave very differently. When it comes to their cost you are well advised to look in the two-way mirror and see their contribution as the bigger part of their story and not their cost.Let's look at the first threeContribution is measured two ways. The first is the inverse of the cost divided by the selling price minus one.In the first example I am going to use a vodka tonic--it is in the liquor family.We pour 1.5-ounce drinks in my establishment. A 26-ounce bottle of Smirnoff costs our hotel $8. We get 17.3 pours out of one bottle when we sell highballs (26 / 1.5 = 17.3).We sell each highball for $8. My portion cost is $8 divided by the 17.3 number of pours = ($8 / 17.3 = 46.2 cents). My contribution margin on this example is 94.2%.Another way to establish the contribution markup is to express this as ($8.00 - .462 = $7.53). In my liquor highball example, we produce a gross contribution of $7.53 and a gross contribution margin of 94.2%, or, inversely, a cost of 5.8%.I need to also add my tonic cost. To control my portion, I always want to use a shot glass properly or-- better still--an electronic portion device. (This is a key to success with No. 4-- Minerals. Control your portions, control your profit.)Now for the second example: contribution margin of beer.If a bottle of beer costs me $2.05 and I sell it for $6.00, the math is. (2.05 / 6.00) - 1 = 65.8%. My contribution margin on this example is 65.8%, my beer cost is 35.2%.Another way to establish the contribution markup is to express this as (6.00 - 2.05 = $3.95).In the beer example we produce a gross contribution margin of $3.95 and a gross contribution margin of 65.8%.The third and final part of the family we will look at is the contribution from wine. In this example we will use house wine.My house white wine costs $12 per one-liter bottle and I sell a glass for $11. I pour a 5-ounce portion. There are 35 ounces in a one-liter bottle, so I get 7 glasses per bottle.My cost is ($12 / 7 = $1.71). My contribution margin on this example is 84.5%, my beverage cost is 15.5%.Another way to establish the contribution markup is to express this as (11.00 - 1.71 = $9.29). In the house wine example, we produce a gross profit of $9.29 and a gross contribution margin of 84.5%.When I serve wine, I always want to use a 5-ounce carafe or a portion device to ensure my quantities are always correct.To summarize things we have liquor, beer and wine all behaving very differently:Liquor cost of $.42 per portion, beverage cost of 5.8% and a gross contribution margin of $7.53Beer cost of $2.05 per portion, beverage cost of 34.2% and a gross contribution margin of $3.95Wine cost of $1.71 per portion, beverage cost of 15.5% and a gross contribution margin of $9.29The question that I first want to ask you is this: Who in your establishment has produced and propagated the beverage contribution margin strategy? Who knows which products produce the highest margins and which ones to sell first? Think about your local car dealer. They know which model has the biggest markup and the highest contribution margin. Your beverage operation is no different. This intel should be front and center, not hidden in a well.In your banquet and catering operation, what products are your sellers actively promoting? When a client presents themselves with a budget and needs your help to put together their event, you have an excellent opportunity to steer them in the highest profitable direction. In your restaurants and bars, do your servers know what products to offer first? Do they understand the difference between the contribution margin and the beverage cost? I bet most of them do not. You now have an excellent tool to use to help get your service staff to sell the most profitable items first.Clients often know exactly what they want but they also in many instances are looking for suggestions, help and service.Learn to serve what profits the most first.
Article by David Lund

Hospitality Financial Leadership - Hotel Current Assets: What You Need to Know

The Hotel Financial Coach · 3 May 2018
When we cross the bridge in the hospitality financial world to the greater business world, the concept of an asset and how it is used comes full circle. I am going to explore what is unique about hospitality assets and how we record and use them. I am only going to talk about current assets in this article.First of all, an asset is something you have paid for or earned previously that can be used to generate more income. That is the critical test: Can you use this item to make more money, to create more economic activity? If you bought it or created it previously and can use it to generate more income, it is an asset. Items like tenderloin, tequila, guest and city ledgers are all good examples of things you can use to make more $$. You prepare the tenderloin and tequila and sell it for four-six times what you paid for it. You can use guest and city ledgers once they are collected to buy more tenderloin and tequila. And on it goes.An asset is part of the balance sheet and it can travel over to the sister statement, the P&L, as an expense or cost of goods sold. In hospitality, current assets typically consist of cash, accounts receivable, inventory and prepaids. That's pretty much it for a hotel. For sure there are others but on a hotel balance sheet, you will always find these four. In other industries, current assets will be made up of what is unique to that business. If making cars, assets are probably cash, steel, wire, tires. If selling clothes, current assets might include cash, sweaters, and jeans. Each different industry is unique.One thing you will not find that my workshop students find interesting when we talk about assets is people. We always say that people are our number one asset in the hotel business. Brand slogans and company cultures are built on this steadfast ideal. In most cases, it is true that our people are our most valuable asset. However, we do not account for this value on our balance sheets. We do not account or measure this on any device, report, app or valuation. It is sad that we have not figured this one out. Note to self: Think more about how we can do just that, put an economic value on our most important asset.Some unique aspects of hotel current assets that trip people up are the guest ledger and the city ledger. These sound like descriptions of an institution locked in a time warp. Let's demystify them. The word ledger simply means list. The guest ledger is the value of the accounts in-house for all our current guests, their rooms, taxes, restaurant charges, parking, etc. It is a total of what each one owes the hotel while in-house. Imagine if you will that we line all our guests up in the lobby, each one owes us money and the sum of all the guest accounts is the total guest ledger. And guess what? You can use this money to make more money. The city ledger is the value of all the credit arrangements and the resulting billings that the guests and groups have made with the hotel.The city ledger, when you think about it, is unique to the hotel service world. We extend our guests credit! Can you imagine your airline giving you a master account? Never. So why do we extend credit like we do with our guests? The answer is twofold. One, we have always done this. In our business, the practice of extending credit goes back to and beyond time, even before currency. The second more apparent reason is our competition does too. This means we also need to give credit or we risk losing a competitive edge. Now that I think about it, the whole credit world in hotels is ripe for some disruption!Here are some principles to help understand current assets:CostRecord an asset at the time you acquire it at the cost at that time. A good example is wine. You buy wine and sit on it sometimes hoping the value will increase as it ages and tastes better. However, should the value move you probably do not recognize the movement on the balance sheet. If you bought some wine for $30 per bottle three years ago and it is now in its prime, you can sell it for a premium, but you do not ever change the value of the asset on your balance sheet. This is referred to as the "cost principle" and simply-stated assets are recorded at cost at the time they are acquired at their price at that time. Assets are not revalued at their cost today--they are consumed at the price you paid.MaterialityI am going to use applying the materiality principle to inventory in the hotel trade where only "material assets" are recognized. That is to say, we recognize some things we use as material and some not so material. The difference: How we treat them on a transaction basis.Tenderloin and toilet paper are two useful opposite examples of materiality in hotels. When you buy tenderloin, it is put it into the inventory account on the balance sheet. This is done because it is valuable and you sell filet mignon with a nice markup. With toilet paper, you buy it and immediately expense it, bypassing the balance sheet altogether and going directly to the profit and loss statement. You do this with toilet paper because it has a much lower value, you do not sell it and people are not likely to run off with it. Treat these two items differently because tenderloin is material and toilet paper is immaterial--in the hotel business. This principle also helps maintain a level of efficiency when it comes to the number of items we need to "put on the balance sheet."ConsistencySimply put, this means operating consistently from one reporting period to the next. Not changing policies or methods of recording transactions in the business regularly. Again, I will use tenderloin and toilet paper.Tenderloin is purchased, then put it into inventory on the balance sheet and the value of the inventory is recognized on the books using one of four different methods. Also, cost of sales is calculated the same way each month. You want to be consistent with this practice from month to month. If you change the way you recognize the tenderloin this month and expense it all, you create a financial hiccup that changes earnings unnecessarily and inconsistently. The readers of financial statements--the stakeholders--do not like this. With the consistency principle, the same applies to toilet paper. If you change the method and no longer expense it when it was purchased and rather put it into inventory on the balance sheet and recognize costs after counting it each month, you would have the same income hiccup. The particular method a hotel chooses is usually fine as long as it makes sense and is above all consistently applied over time.Current assets live on the balance sheet and they serve one purpose and that is to fuel the profit and loss statement. If we take the tenderloin example again and start at the beginning and go through its life cycle it looks like this:The owner invests his money and adds cash to the business as a current asset. The cash is used to buy tenderloin. The tenderloin is used to sell filet mignon and the asset leaves the balance sheet and travels to the profit and loss statement as the cost of goods. Cost of goods is an expense and, at the same time, it creates income and corresponding payment for the four-six times sale price. Now there is more cash to buy more tenderloin and toilet paper, and on it goes.You can look at any current asset in the same light. They do not all directly get sold like the tenderloin but they all fuel the profit and loss statement and eventually find their way there.Understanding current assets in the hotel business is manageable for anyone who is a department head or aspires to be one. Do not get fooled into thinking it is a big complicated dance. Remember the three principles: cost, materiality and consistency. The next time your hotel financial statement lands on your desk or in your mail go see your friendly financial professional and review the current assets:Which ones do you have in your hotel?How does your hotel treat certain items?Which items are put on the balance sheet and which items are expensed?What unique current assets does your hotel have?Expand your understanding a step at a time. Being a leader in hospitality that has financial leadership skills is totally within your grasp.Do you want a leg up on your leadership competition? Consider a coach in your corner. Ever wonder why great actors and athletes all have coaches? The answer: They are committed to being the very best they can be at what they do and finding an advantage over their competition.Coaching is a proven strategy for continuous and superior growth. What are you waiting for?
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Hospitality Financial Leadership - Fixed/Variable Costs and Room Revenue Management

The Hotel Financial Coach · 1 May 2018
What I heard concerns me because it tells me some people do not understand the fixed vs. variable components of payroll and expenses in their hotels.Quite simply put, one revenue manager told me his cost to take a room in his hotel in NYC was $290."What?" I exclaimed over the telephone."Yes, that's the cost."To which I replied, "That's the total cost of all your expenses, both fixed and variable?"Silence ensued for a moment and I said, "Let's slow things down and look at the scenario."It is noon and you have 10 rooms left to sell today, the demand for today has been strong but in the last week we have been up and down around the +10 mark. My question is, "Exactly what does it cost you in variable expenses to take those last 10 rooms and how should they be priced?"This is a very different question than: "What are costs per room occupied?" Let's look at this question first because I think it will help clean up some confusion. Here are the facts of this "rooms only" operation in New York City. In the above-simplified budget for this 295 room hotel, we can see all the expenses on an annualized basis is just north of $24 million. This number is achieved by adding the rooms pay, rooms expense, overhead pay and expense, and finally the owner's expense. We only need to divide this number by the total rooms available--which is 83,488 on an annual basis. This gives us a good measure to understand what our pricing should be to generate an annualized profit using the current cost structure.However, it does not tell us the real variable cost to take those last few rooms. Let's look at the major components of the cost to take those last few rooms. What items will we need to utilize to take those last 10 rooms that are purely variable? To determine this we must first understand the nature of the fixed expenses.The fixed expenses in this hotel at this point are many. We are already running a house count of 285 rooms and occupancy of 96.6 percent. All the costs for the following under this scenario are fixed. In other words--and this is the pivot point--it will cost no additional dollars on any of the following items to take those last 10 rooms:Front desk, guest services, reservations payrollCable televisionContract servicesLinen and uniform purchasesEquipment purchaseDecorationsAll overhead expenses and payrollAll owner expensesThe truly purely variable expenses:Room attendant payroll and benefitsLinen cleaningGuest suppliesPapersCleaning suppliesTravel agent commissionsReservation feesCredit card commissionsBrand feesEnergy (some variable)That's it for our costs to take the last 10 rooms.Let's look at the chart below for a summary:The chart clearly shows the individual costs for the variable items and the incremental profit from the sale of each room. For an annual picture let's look at the impact on profits if the hotel was able to sell these 10 rooms half the days of the year:(180 days x 10 rooms x $117) = $210,600 in additional profit that goes straight to the bottom lineThis boosts the NOP closer to 10 percent. The real impact is an additional profit of the $210K, which adds an additional $2.6 million in asset value using a very modest capitalization rate of 8:(8/100 = 12.5), therefore 12.5 x 210,600 = $2,632,500When you think about your current selling policy as it relates to last-minute inventory, make sure you have a good handle on the real variable costs to sell those last-minute rooms. Don't be confused by the big fixed cost per room stickers.Know there is a balance between building the base, yielding the inventory in the largest demand period, and selling those last rooms more often.

Hospitality Financial Leadership - Catch Me If You Can

The Hotel Financial Coach ·16 April 2018
Frank Abagnale is arguably the world's most famous modern-day impostor. Leonardo DiCaprio played his character in the 2002 movie directed by none other than Steven Spielberg, with the same title as this piece. The movie was based on the 1980 book that Frank wrote. I am writing about Frank Abagnale because I had the pleasure of meeting him personally, and experiencing his trickery, just a little. Also, there is a direct link between what his story is all about and your own financial leadership journey.If you have not seen the movie, watch it. Tom Hanks plays the lawman chasing after Frank and it is a wild ride. The book is also a must if you are even mildly interested in a good con man's story.My story of meeting Frank and the parallel to Financial Leadership starts early in the winter of 2003. I was the hotel manager of a popular downtown hotel in Vancouver, Canada. The movie "Catch Me If You Can" had just been released and a local business association had booked Mr. Frank Abagnale to speak at a luncheon in my hotel. I had the pleasure of attending the luncheon, listening to him speak passionately about children and the role of a parent or guardian. We even held a private reception the evening before he spoke, and I got to meet the famous impostor. I was a big fan, having read the book and seen the movie just days before. Frank has a cameo in the movie and I had seen his picture, so I was a little familiar with what he looked like.For those of you who are wondering about my character and you have not heard of him, he successfully pulled off taking on eight different identities from the age of 15-21. He traveled the world as a commercial pilot (jump seat only), physician and lawyer, just to name three. He also was a master at check forgery. He was caught by Hanks, turned legit and has worked with the likes of the FBI using his talents for the good, and he has even testified before the US Senate about his former life as a master counterfeit check man.The funny thing was--he was even an impostor at our reception.Here is how we metI was speaking with a couple of people at the reception and all of a sudden there was another person engaging in the conversation. We were talking about our guest of honor and what a great story he had and his movie. All positive things, thank goodness because he was now part of our discussion and I, like the other couple, thought Frank was someone else. I am not at all sure who I thought he was, but he simply assumed the role of a person who made me believe he knew me. The other couple experienced the same comforting feeling. I do not know what he said to gain our confidence and allow us to drop our guards, but it was pretty cool. We continued our dissertation of our guest of honor until he spoke and introduced himself. We were all quite embarrassed and completely surprised at the same time. He smiled, and you could tell he was a master in action, simply practicing what he does, pretending to be someone he is not.After he left our little group at the reception, the other couple and I marveled at his bravery and the pure entertainment we just experienced. How he made us all think he was someone we knew. Actually, he convinced me he knew the couple and, in turn, the couple thought he knew me. Genius.This is the magic of being an impostor. Knowing enough to fool someone who should know something about how you need to look, sound, smell and feel like. That is the con. It is a confidence game and to be successful you need to show up with that level of confidence in who you are and what you are doing so other people do not get suspicious.The Tie to Financial Leadership - My First Budget Review MeetingI vividly remember the first time I had the opportunity to see the corporate budget review team in action. I was invited to the meeting where we reviewed the hotel annual budget. I really had no idea what to expect. I was nervous, and I had convinced myself that I would be found out and singled out for not really know what was going on. You know, the impostor syndrome. I know this is what holds many people back from jumping into the numbers game in their hotels. Fear.What I experienced that day was nothing short of theater. A lot of chest pounding and pontificating in that room. Who had the best stories, the most convincing comparisons, the examples that paled the rest? Each person in the meeting that day was in some way an impostor, playing a part and trying to convince the others that they knew what they were talking about. All the while we followed the president's lead. If he liked a particular story or theory, we all followed that dog. It was an amazing dance to watch. I barely said a word beyond hello, goodbye and kissed my calculator. But what I did see that day was that these captains of my industry, they were all trying to convince one another and the boss they knew the story. It is a confidence game. It is how human beings play together in the business world. If you have been there you know what I am talking about. If you have not experienced this yet, be patient, be ready and above all else take your shot.Here is the parallel: being an impostor and financial leadership. You must be willing to walk into the meeting room like it is your room. That does not mean you are cocky or arrogant. Humble and respectful is the demeanor you want to have. Your number one job is to listen, observe and learn. You also need the stomach for what is coming your way, and the willingness to respond. This is where most people turn away. They do not feel they have the knowledge or the experience, so they do not feel they can play, let alone play at this level. This is a big mistake. What you do not realize is everyone in that room is in the same boat as you. At some level or another, they are thinking the same things you are, namely, who am I to be here with my limited knowledge and sooner or later will someone find me out?I have seen hundreds of examples of people playing this game and I want to share a few things about this experience with you. In fact, once you see this you will realize everyone you encounter is playing the game at one level or another.One, the biggest impostor is almost always the bossThat is right--he or she ultimately knows the least about the detailed subject matter. That does not mean they lack the experience or the knowledge to do their job, they just do not have the knowledge and firsthand experience you do. Do not think for a moment they know your reality. At the time my experience began, our president had just joined our hotel group from a sister company that made baking supplies. Now he is in a boardroom with 15 hotel people talking about our business. The best con man that day was him.Two, people have your backThe people in the room want to hear from you and they have your back. They have a natural desire to want you to feel comfortable and to hear your thoughts. They instinctively know you are the rookie and they want to put you at ease and they do not want to see you suffering. They will not hang you out to dry.Three, play the gameIf someone you work with thinks enough of what you are up to and they have invited you to the big show, then you are ready. The only thing that is missing is you and the courage to play the game. To listen and learn.When you are called upon, speak from your heart and above all else do not try to BS your way. If you do not know the answer, ask a clarifying question. Someone will bail you out. Many times, not having the answer is the best strategy.Point to a possible answer or conclusion and watch others fall in.Fourth and final, they've been in your shoesEveryone in that room has passed through the same door as you. They have all been in your shoes and in some way, they are all impostors just like you, so enjoy the show. You are about to witness human interaction at a whole new level. Be conscious enough not to miss this. Over the years, every time I have attended a similar meeting I received an education that cannot be taught in school. Do not lose sight of this.What "Catch Me If You Can" taught me was a willingness to get it wrong was more important than being right. The readiness to show up and see what happens is more important than staying home until you are ready because you never will be completely ready. Taking the numbers in your hotel by the horns is the way to go. Trust yourself enough to walk into the cockpit and take a seat and welcome those probing questions."All the world's indeed a stage / And we are merely players / Performers and portrayers / Each another's audience / Outside the gilded cage" - Rush "Limelight"
Article by David Lund

Hospitality Financial Leadership - Management Incentive Plans

The Hotel Financial Coach ·10 April 2018
Recently I have been working with a client who has four hotels and we worked on putting together an incentive plan for his executives. This is a story about how we structured the incentive and the goals around the plan and his business.Bonus plans or management incentive plans are nothing new. Even a recent client had almost always given his senior people an annual bonus, typically at the holiday time. When I asked him what it was based on, he said it was just the overriding feeling of his thanks for a job well done.We then discussed the very real fact that he had not shared his financials with his leaders and this was something he wanted to do. This is a good thing because without it and other measurements the real power of the incentive is lost. Sure, his managers appreciated the bonus, but no one knew what it was really for.We discussed creating an incentive plan that is broad-based, measurable The hotels were relatively small, less than 150 rooms each, but still they had some very good tools to put to work in the incentive arena. We decided the first year's incentive plan would have three components and it would also have three performance levels.First component: Guest service score His hotel used an app that gave him good data on a daily, monthly and annual basis. The guest service score was a percentage up to 100 percent. The score for the prior year was 84 percent and the score from 2016 was 85 percent. When I asked him what his goal for 2018 was he said it was to get the score back up to 85 percent. OK, so now let's look at the kickoff and touchdown levels. He is a big football fan, and this was exciting for him. I asked him if he would pay an incentive for service if the score for 2018 was 84 percent again. He said he would. I then asked him if he would be willing to pay a higher amount if the score was 86 percent or higher. He said he would.So, now we have an important part of the incentive. The different payout levels. We used kickoff (starting point for payout), goal (the full payout) and touchdown (the outstanding result). With this breakdown, participants can see the importance of the measurement and it is not an all or nothing result. He will still reward good results that do not quite make the goal and also will allow participants to "double up" on the result of each individual component.Second component: RevPAR index He used STR and the previous year's result was 107 percent. One big challenge with this part of the incentive was new competition. Late in 2017, a new hotel which was a direct competitor entered his market. So, I asked him what a really good result would be for 2018 on RevPAR Index. At this point, he had two full months under his belt and his index year-over-year had dropped to 98 percent. He thought about this one quite a bit and decided a really good result would be 100 percent. We then came up with kickoff at 97 percent, goal 100 percent, and touchdown at 103 percent.Now for the third component: Profit He had his financials for the last two years and we zeroed in on the Gross Operating Profit number. Why GOP? Well, that is the number the manager can control. Pricing, staffing, supplies and overall efficient management cumulate at the GOP number. Most brands use this as well for management incentive plans. The GOP in this property was $2,001,418 in 2017 and $1,955,008 in 2016.Now, for the toughest question so far: What's the budget for 2018? He took a while to explain he did not really have a budget. This is not uncommon, and we had a good discussion about what he thought should happen in 2018. With the budget rhinoceros on the table, we agreed the most effective process would be to map out 2018 month-by-month using occupancy and average rate to produce room revenues and then model the payroll and expenses on 2017 levels. In short order, we came up with a GOP goal for 2018 at $1.95 million. Given the new competition, he would be very happy with that. We then established the kickoff $1.85 million and the touchdown at $2.1 million.We have the framework for the plan He now has a decision to make on the incentive gatekeeper. Will the profit target be the gatekeeper? In other words, do we need to make the profit kickoff point for the other components to pay off? Or, will the fact that the other scores are achieved generate an incentive payment?He decided that no gatekeeper will be necessary for 2018 because it will be a challenging year and he does not want the team to be discouraged if the profit is missed. Focusing on the service, in the long run, is important. The market is changing and it is also the first year for the plan, so he wants to give his managers a fair shot.Next step: Decide on payout percentages He decides the "goal" is 12 percent and applying our kickoff, goal and touchdown metrics we put the data above into an Excel spreadsheet. The very last thing he had to decide before we were done is what weight each component would carry. He decides guest 30 percent, RevPAR index 30 percent and GOP 40 percent, adding up to 100 percent.Three scenarios are mapped out, and the payout can go from 1 percent to 200 percent of the targeted 12 percent. So, a manager making $100K can earn a bonus from $120 all the way up to $24K.The last part of what this client needed to do to put some wheels on this plan was to meet with his incentive plan participants. This is necessary to review the structure of the three components as well as the different levels of the program. This ensures the members understand the system and, most importantly, see that the goals are achievable.One last note (play)We agreed to visit the plan each quarter, and he, in turn, would update his team through regular communication and monthly copies of the guest service score, STR and financial statements. This is the best part because we will see how managers react to the plan and what ideas they put into action this year in those hotels to create better results.That is the middle tasty part of the incentive plan sandwich. It will be interesting to see how this unfolds and how effective it is.
Article by David Lund

Hospitality Financial Leadership - The OTA Distraction: Pushing Rather Than Pulling

The Hotel Financial Coach · 4 April 2018
You cannot go a day online in the hotel community without seeing a ton of OTA related discussion. Hoteliers are like scared kittens when it comes to how they have been treated by the evil empire that the "On-Line Travel Agencies" has created. There is no doubt that the OTAs have dramatically changed the landscape in the last 20 years since Expedia bounced into the world under the strict parenting of Microsoft.In this piece, I want to offer a different perspective--one based on a different view of the OTA revenue creation and resulting costs. I also want to look at and analyze some black and white revenue and profit facts from industry leading organizations that I researched for this article.Hoteliers complain that the OTAs are greedy and they take too much commission. They especially feel the pinch when the commission hits their room P&L statement in the form of a commission. With the merchant model all but on life support, hotels in most cases need to record the gross revenue paid by the guest to the OTA on their income statement. In turn, the hotel needs to pay their room reservation commission expense which is recorded in the rooms department as an expense. On top of this, the hotel needs to pay the credit card commissions and all the other brand-related fees that ramp up on total room revenue or gross hotel revenue, etc., as dictated by the franchise or management agreement.For many hotel owners and operators, this is a bitter pill to swallow. But why so bitter and hard to swallow?My perspective is different The hotel just got a room night or several and, in exchange, they pay a fee--the dreaded commission--and additional ancillary fees. I believe we need to be fair and look at the transaction just made. In the old days, hoteliers were happy as could be to pay the travel agency commissions to the tune of 10 percent of room revenue. This was largely a manual process with a fax or phone call to the reservations office. No one ever complained about this other than perhaps the person who had to manage all those pesky $12 payments and the reams of TA commission inquiries the hotel received and had to research.The comparison to today is hotels allow distribution channels to manage and accept reservations, payments are electronically processed, and they pay roughly double the commission, to the tune of approximately 20 percent. They have, in effect, traded the additional commission--the plus 10 percent--for additional distribution and shear advertising horsepower that the OTA delivers. We can argue all day about the amounts, the pluses and the minuses and how much more we are paying in commission expense. That's not my point or the intention of this piece, so stay with me.Rather than do that let's take a radical approach and disrupt the jailer. Much like the story of the prisoner who needs to pull rather than push his cell door to escape, hoteliers are held prisoner by the expenses they see pumping through their P&L. They are prisoners simply because they look at the cell door and how it works the wrong way.Let's look at another aspect of the business to get a clue for how to operate the cell door--to look at it through a different lens: banquets. When a banquet customer comes knocking, we don't try to kick him in the knee because we will have to record the "cost of sales" from the event she just proposed for the hotel. We welcome them in and service their needs all the while knowing we just added a 20-30 percent food and beverage cost of sales to our operating statement, plus the direct payroll and other expenses. So why then do we scoff at the OTA who brings us business and in turn gets a fee? I say it is because we simply look at it, "the commission," differently.We want our cake (the room revenue) and we detest the commission. But we can't have one without the other and maximize room revenue capture in today's world. We would like all our business to be commission free but that is not the way the game is played. We all know that to maximize RevPAR we need more rooms distribution horsepower than we can ever create by ourselves.Let's look at this scenario with some fresh eyesWhat if we looked at the OTA transaction and the resulting commission as a cost of sales? In F&B the whole profitability deal is built on volume. Get the F&B machine pumping at a good rate and we are profitable. But wait a minute. For every dollar we let in the front door we automatically need to recognize the cost of sales (20 to 30 percent). We never have a problem with this so why is the commission to the OTA any different? We know without the volume cranked way up high in rooms operation we will not hit the desired profitability.I say it is simply because we are pushing rather than pulling. Bring me another 1,000 room nights this month through OTA that I cannot and will never have the distribution to generate and let's both have a good look at the financial result. We all know there are many days and months in the year when we cannot fill rooms with only direct sales tactics and brand efforts. The way we can look at the cell door most effectively is to not get hung up on the percentages.Financial facts boiled down into profit dollarsI am going to use data from the 10-year period 2006-2015. According to CBRE hotel rooms department, profit went from a high in 2006 of just over 76 percent to a figure of just under 75 percent in 2015--down 1.25 percent. This, on one hand, is alarming. But I believe this is where we are pushing rather than pulling.According to a Cushman and Wakefield report, RevPAR in the US has increased over 35 percent in the same time frame as the falling rooms department margin. This room revenue growth is on top of the additional supply growth of more than a half million rooms. Who in their right mind would not like that deal? The adage that we do not take percentages to the bank is our industry "pushing the rooms profit percentage myth" and it is completely misleading. Profit margins are down but the growth on top is a trade anyone in their right mind would jump at. We have enjoyed record growth in RevPAR in the last decade which has been in no small part because of the OTAs investment in computing and marketing that our industry, if left to its own devices, would never have accomplished.I cannot prove the statement I just made about the revenue impact the OTAs have had, but think about it for a moment and imagine the hotel world without the OTAs in the last decade. A decade led by brands continuing to exit the ownership piece. A decade where hotel companies continue their quest to become management companies. Not a decade of bold hotel innovation and distribution investment that was led by who? That is the pedigree of hotels and why OTAs emerged because there was a need and an opportunity not being delivered by the hotel industry because the investment fundamentals are always backward. OTAs made the investment and they created a huge hotel industry windfall. Thank you very much.Now for some facts, I can proveAccording to my math, using a RevPAR of $57 dollars in 2006 and $78 dollars in 2015, that is a 35 percent increase and when I apply that to the 5 million guest rooms (AHLA 2015) in the US I get a whopping $38 billion increase in room revenue. Let's back out the additional supply over the same period (500,000) and I still get an additional $35 billion in room revenue. Apply that figure to the 1.25 percent decrease in rooms profit margin, I get a $26 billion increase in rooms profit over the same period. When it comes to rooms flow thru on that additional income, it is just north of 74 percent. I ask again, who in their right mind would not take that deal? Especially when someone else (AKA the OTA) is laying out the capital expenditures to create the RevPAR universe.My question after all of this is: How much of this increased RevPAR in the last 10 years is due to the OTA effect? And what effect has that had on hotel profits that left to our own devices would not have materialized without the OTAs? That answer is beyond my calculator, but I know a very good portion is due to their continuous innovation and our industry's use of their service. I put my stake in the ground and say there is no way our industry--without the OTAs--could have had the same proliferation of global RevPAR impact, travel growth, and sheer distribution might.It is time hotels stop their bellyaching.My comment and conclusion: What a good problem to have.Stop pushing and start pulling.

Hospitality Financial Leadership - Creating and Using Your Own Labor Productivity Tools

The Hotel Financial Coach ·27 March 2018
With major wage increases in many jurisdictions, it is more important than ever to have a system for planning and measuring labor productivity in your hotel. This article explains how you can do this and it is not just for the big boys, you can utilize this system in any size operation.I am working with a client who is just in the throes of getting this going in one of his hotels. It is a bit of work but well worth the effort as the results are going to pay off big time. I want to share what is working for him because I know it will work for you as well.The first thing to create is a baseline for current productivity in your hotel. If you have a food and beverage operation in addition to your rooms, you should create two baselines: one for your rooms operation and the other for F&B. The productivity measures to establish are hours per room occupied in the rooms department, and hours per cover served in the food and beverage department.For your system to produce the numbers you need, you must split the payroll hours into three main groups (or buckets): rooms, F&B and other. Once you have the three main groups, split the first two groups again, so you will end up with five groups. The American Hotel Associations 11th revised edition of the Uniform System of Accounts for the Lodging Industry (USALI) revenue and expense dictionary lays out all the positions that fall into all the various departments of any hotel. For this exercise you will use only three. You need to use three so you can get the two to measure separated from the third. Here are the three:Positions in the "Rooms Department" include all persons with guest-facing rolls: reservations, guest arrival, reception (day and night), concierge, all housekeeping positions, public spaces cleaners and, if you have a laundry, include it as well. Add all positions, both salaried and hourly, union or non-union. For this exercise now split the rooms section into two separate buckets: housekeeping and front desk.Positions in the "F&B Department" include all persons who contribute directly to the service and operation of your restaurants: beverage operations, banquets, kitchens, meeting spaces, cleaners and stewards. Include servers, bussers, hosts, runners, cooks and dishwashers. Include all positions, both salaried and hourly, union or non-union. Now split the F&B bucket into its two parts: kitchen and service."Other" will include all general administration, sales, maintenance, retail, spa, golf, grounds or any other position that does not directly support these departments.Do not fuss too much about positions that seem to not belong in either bucket. Make a decision as to where you will record it and just be consistent. The key here is to create the analysis and the productivity system, not to be perfect.Once you have the positions organized into the five different buckets, group all record-keeping efforts in the same manner. All schedules, time sheets, payroll classifications, department numbers, etc. They need to be set up, so you can subtotal all the payroll activity within the five separate groups--both hours and dollars.Now that you have the payroll organized by group you can start your analysis. The first section is the rooms, housekeeping and front desk. Pull your time sheets or run reports from your time clock or payroll system. What you are looking for are the total hours worked in these two rooms categories by all colleagues for the past full calendar year. Yes, that's right: one full year. You are only interested in productive hours, not vacations, holidays or sick pay. When you have the total hours worked in each category divide it by the rooms occupied. Here is where you see the first light of day.In a 75-room hotel that runs an annual occupancy of 75 percent you are servicing over 20,500 rooms.xxxDetermine the total productive hours for each category, housekeeping and front office and divide the hours by the rooms occupied to establish the base line productivity for a full year. Overtime hours are just another hour, do not add a multiple for over time, it is 1-1.xxxNow you have your baseline of .89153 for housekeeping and .337 for the front desk. What you want to do now is use this baseline to target your productivity, information that will be used for improvements. From this point forward, use the same buckets for weekly schedules and on these, add the forecasted rooms occupied daily. Also total the hours worked and divide that by the rooms occupied, producing a daily productivity and a total productivity for the week. Tracking and managing productivity is like a baseball game, with innings. You are going to win some innings and lose some but what you really care about is the final score. Productivity is the same concept. You will have good productive days and poor days, mostly dependent on volume.Always remember the most important things about managing labor:Your managers have little control over wage rates. Someone else sets most of these.Your managers have little control over business levels. Sure, you do right things through your advertising and promotion efforts. But the business that walks through the door, good or bad, needs to be serviced.What your managers do control is the schedule. This is where you want them to put their focus.xxxLooking at this schedule you can see the productivity scheduled for the week is below the annual standard of .892. The housekeeper must find some hours in their schedule. Looking at the least productive days of the week, he reduces the schedule by a total of 30 hours over three days.The final and most important step is to update the schedule spreadsheet each day with the actual results for both rooms occupied, and the real hours worked.xxxIn the scenario above, the hotel managed to almost meet the annual productivity target. By having a productivity target and something to measure by, they managed to save 26 hours from the original schedule. Do this every week and I'll let you do the math on that. Big savings and this is only the beginning.IncentivesNow that you have your baseline and your housekeeper is tracking and making improvements, it is time to introduce an incentive. Knowing that last year the baseline was .892, you will want to improve this in 2018. That means a lower number. Say target a 5 percent improvement with a threshold improvement of 3.5 percent and an exceptional target of 8 percent. If housekeeping productivity increases by 5 percent that means a thousand hours less payroll at 75 percent occupancy. Depending on your wage rate and benefits, this could easily be $25,000 in savings. Structure the incentive so it equates to a targeted $3,000 bonus, hit the threshold and it is $1,500, hit the exceptional target and it is $4,500.By using a productivity improvement target, you are looking at potential savings if the goal is met and it can bet met regardless of occupancy. Let's say the year is a tough one and occupancy dips to 70 percent. You still focus on productivity because it can be achieved at any occupancy level. When you are achieving a higher productivity level, having incentives is smart when business is good or bad.InnovationThat is a natural by-product of focusing on increasing productivity. Getting your team focused on what brings better work processes to the table is powerful. Your leaders and staff all have ideas and when you set the stage to welcome those initiatives people will appreciate you for taking their ideas and making them a reality. Many hands make light work, my mother would always say. Being more productive is not about working harder, it is about working smarter. If you can study the processes and materials, you will find ways.Efficiency is doing better what is already being done. ~ Peter DruckerBack to the other bucketsOnce you have your payroll positions organized and the baseline established, do the same processes with the schedules and the daily tracking for the front office, food and beverage service and kitchen operations. In the food and beverage space it is covers you want to measure against the hours worked. A cover by the new definition is anyone who you serve who orders any food or beverage item. A table of four who all have a meal and drinks is four covers. A table of four that orders chicken wings to share and a round of drinks is four covers. A table of four that orders a round of drinks is four covers. Training your staff to record proper cover counts in your point-of-sale system is key.Having a manager in place that sees the value in better productivity is essential and part of the culture you want to promote and reward.Make sure this conversation is part of the hiring process as well as the merit review discussion.
Article by David Lund

Hospitality Financial Leadership - Never More Than Two Degrees of Separation

The Hotel Financial Coach ·19 March 2018
Finding good people in our industry is a tough job, especially in certain economies. It is extra tough when you are looking for a particular skill set. Hospitality does not have the reputation for paying well. We have the reputation for long hours and working on weekends and holidays. Not exactly the millennial's picture-perfect career profile.Hospitality is special and either you get it and you drank the Kool-Aid or you don't. According to a hospitality degree is number four on the top eight college degrees with the worst return on investment. How is that for a hard pill to swallow. There is hope and there are strategies you can employ that can give you a leg up. I want to tell you a story about finding--by accident--a key employee right under my nose. This might just cause you to have a more serious look around your hotel to see what might be waiting for you.I was the director of finance in a large hotel back east. Finding service staff was never a problem for this hotel. Waiters, room attendants, bellmen, they were always in good supply. Good paying jobs for hard working people. Finding desk clerks, concierge and the like was the same. But trying to find individuals with special skills like accounting or IT was next to impossible. NO one wanted to work in a hotel if you had a computer science degree. You were in demand elsewhere and why would you go work in a hotel if you are a geek and want a career in systems. The salary we had to offer was not great. On top of this challenge we needed someone who could speak two languages. Not to mention we wanted this individual to look after some 100 personal computers, miles and miles of wiring, a lineup of aging file servers, and be on call 7-24. Oh, and get ready to get your clothes dirty because you are the one who needs to crawl under the desk and in the housekeeping closet to fix whatever needs fixing.We looked and looked, put ads in the papers--online job postings were just getting started--and nothing. Weeks went by and the mess in our server room was piling up. Service to the networks, applications and PCs was also falling way behind. A certain looming disaster felt closer every day. In the hotel business, losing your systems for even a day can mean disaster and a huge financial hit. I was more than a little worried that this might happen, and under my watch this could mean curtains for me. The regional guy was a big help but he could only come by a day or two at a time and we desperately needed someone full time.It seemed there was little hope in finding someone until something incredible happened. I was having lunch one day in the employee cafeteria and sitting next to a table of valet parking staff and doormen. They all sit together like the room attendants and, like my table, the office people. I heard something from the table next to us, the door people who were talking in the other language--the language I was not so comfortable with. I heard two words and the name of a local university. I was pretty sure he said computer science. He now had my full attention. The conversation from the other table continued but no more computer talk. I finished my lunch and went back to my office.I did not think much more about this moment until a couple of days later when I had cause to use the front door of the hotel returning from a Chamber of Commerce luncheon. Who was at the front door? None other than the kid I had heard speaking geek at lunch in the cafeteria. I could not resist. I introduced myself and asked him his name and how long he had been at the hotel. Three weeks, he said in perfect English, and my name is Bernard. I asked him how he found his way to the hotel business and he smiled and said, "I just finished my degree in computer science and I'm not sure what I want to do and there are few jobs to be had right now. I don't think I want a job in my chosen field. I just didn't know what to study so I got a degree in systems." Interesting.With this information and my introduction to Bernard I immediately asked him if he ever considered a systems career in hotels? He looked at me like I asked him if he had ever been a ballerina. No, he said. I smiled and asked, "What time are you done today?" He said 3:30. I asked him if he would come to my office as there was something I wanted to show him that I thought he might find interesting. He showed up on time and I took him on a tour of our server room and I also gave him a copy of the job description we had for the vacant IT manager position. He was practically speechless. I told him I was interested in him applying and if he was interested the regional manager would be on property the following Monday and I could arrange for him to spend the day with the regional guy to get a feel for the job requirements.The following day my phone rang early and it was our Human Resources manager. She was just a little excited, agitated is a better word. What was I thinking? This kid just started three weeks ago! We have minimum six months before you can apply for another job policy. He has no experience. He is in the union! You can't just offer people in other departments jobs! On and on she went and when she was done I said, "I have arranged for Bernard to spend next Monday with Paul. Let's see what Paul thinks."I could feel the steam coming through the phone lines and then she hung up. I was very impressed that Bernard had applied for the job so quickly. Always a good sign.Monday arrived and I introduced the two geeks and I didn't see much of either of them for the entire day. At 5 p.m. Paul came to my office and he had a big grin on his face. He said, "Mr. Lund, where did you find him?" I smiled back and said the cafeteria. Paul ran through the day he had spent with Bernard. The kid was a wiz. A real propeller head. He ate, slept and dreamt computers. Networks, software, switches, routers, PCs, printers. You name it and the kid was a natural. Paul concluded by saying he had spoken with HR and he got an earful as well. I thanked him and said we would see what happens.As they say in the movies, the rest is history. Of course, we hired him. We had no other option. He was a great hire and the kid was amazing. Good with people, good with technology and especially with this new thing he called the Internet and a term I had never heard before, intranet. He was the key to helping our hotel win an innovation award the following year for our little guest service "intranet." Some 20 years later and the kid, the last time I heard, is running the systems regime for half of the country for the same company.The moral of this story is thisYou never know who you have working in your hotel unless you get lucky like me, or up the chances and do a little looking. Your hotel is full of people that either just landed there or they are trying to support their family with this hotel job until they figure things out with their other career and education. You do not know their skills or their experience. You just might be sitting beside your next star. Take a walk to HR and ask them to run a report from their system and include the fields, prior experience, and education. Bang. Now you have a list that might just help you find your next Bernard. No system like that in HR in your hotel? Go sit in HR. Better still, have someone else go sit in HR and read the resumes of the staff you already have. Make a list of the underutilized talent that already works with you. I guarantee you will be amazed at what you find. I once worked in a hotel where my accounts payable guy had a degree in astrophysics. I am not sure how we could have better utilized this skill but you get my point....Hotels have long been pipelines into our communities for immigrants and young people that come for a summer and often stay a lifetime. Attracting established skilled and educated people to hospitality for non-service positions is not easy. Use the resources you have that are close to you and discover what hidden talents, experience, and education you might have right under your nose.Don't overlook the possibility that the talent you are looking for is already there. I know if I had not heard what I did at lunch that day--and if I didn't speak with Bernard at the front door--he most probably would not have found his way to the path he did.We might still be looking!

Hospitality Financial Leadership - How to Read Hotel Financial Statements and The Link

The Hotel Financial Coach ·13 March 2018
The first thing you need to know about reading a hotel financial statement is there are basically two different statements you will want to get comfortable with. The two are the income statement--some call it the P&L or profit and loss statement--and the second is the balance sheet.Now I know what you are thinking, balance sheets are for the accounting types and they are complicated. Nothing could be further from the truth and I am going to give you a new understanding and share a secret about the balance sheet and the relationship to the P&L.Let's start with the income statementSomething to note here: Hotel income statements are free-form items and are not all created equal. One characteristic they all have in common, however, is they are all set up by department. They always start with the rooms department, then F&B, then the minor operating departments like golf, spa, telephone and laundry. These departments are what are called operating departments because they all have income. Then you will find the non-operating departments, i.e., administration, sales and maintenance. These departments are called non-operating because they do not generate any income. I know some of you think the sales department makes money--not so fast. Sales book business but the rooms department generates the income when the guest actually stays in the hotel. Funny, the P&L is organized and laid out just like a hotel.Inside each department you will see the same layout: income first, then cost of sales (if required), then payroll and last, expenses. The P&L usually starts with a great summary or overall report. This is where you will want to start your review. Here you should find total revenues for all hotel activities and the total costs, leading you to the gross operating profit and net operating profit lines. The statement is usually laid out so you can see the results of the month compared to the budget and or forecast for that same month and a last year comparison. In addition to the month's numbers, you will want to see the accumulated year-to-date results, normally to the right of the monthly numbers.In the YTD you want to see the accumulated result--let's say for November vs. the accumulated budget values up until November and the accumulated YTD last year results for the prior year up until November. Always compare like periods of time in the budget and last year to the actual monthly and YTD amounts. A good summary P&L is probably the most read and highly anticipated financial statement in any hotel.One thing to always keep in mind is the fact that many miss. That is, we do what we do the way we do it in hospitality, because of the book.The 11th edition of the Uniformed System of Accounts for the Lodging Industry lays out in nauseating detail the standards for our industry. Here is a link:,_Eleventh_Revised_Edition_-_PRINT/It is a great resource for defining what goes where and standard formats, but it does not include several aspects like flow thru and productivity reporting that are incredibly powerful and useful tools. If you are serious about hotel financial knowledge, then I highly recommend you get yourself a copy.Leaving the summary statement, you will find the balance of the income statement laid out by department in the same order you see the top level. Each of these departmental statements will have totals for revenue, cost of sales (F&B, Spa, Telephones), payroll and expense that need to tie back to the summary statement. Once people make this connection it all comes together rather quickly. What you previously thought was so complicated and confusing is pretty straightforward.The profit and loss statement is the most interesting statement because it shows how you are doing as it relates to profit for a given period. It is a snapshot of what revenues and costs are for the period you are looking at. If you are looking at the June statement and it is December, it really is not relevant. The income statement tells how you are doing financially regarding operating profit. It is how you keep score relative to the budget (the promise) and last year. You can clearly see these comparisons for the most current month and year-to-date. You also can see where there are successes in operations and where there are challenges. This is pivotal. Seeing where you are not having the level of success you planned and having the ability to manage around that challenge is the highest sole purpose of the income statement.How can you improve your results? Is payroll too high? Are expenses out of control? Are revenues falling short of the budget? It all comes out on the income statement. Like a report card and a wake-up call to pull up your socks and your marks too. This is where the income statement transcends the black and white piece of paper and becomes the vehicle for change and ideas. Get your team involved and change the way you manage.That's the result that's possible using some financial leadership.Balance SheetThe second most common statement you want to be comfortable reviewing every month is the balance sheet. The balance sheet tests the fundamental accounting equation. The equation states that assets equal liabilities plus equity. Most people get quiet here when we start talking the mumbo jumbo but this concept is super easy and once you grasp it you are going to see the world of finance in a completely different light, like riding a bike.When I teach my students this concept in my workshops they often comment that they had no idea that the fundamental accounting equation was so simple.Here goes: I liken the explanation of the fundamental accounting equation to the ownership value relationship of a house. You--along with the bank--own the house. In this example, the house has a market value of $500,000 and you have a mortgage of $350,000 on the house through the bank. You subtract the two numbers and that's your share or, as described in accounting terms, your equity or sometimes called owner's equity:$500,000 (assets) - $350,000 (liabilities) = $150,000 (equity)This basic concept is exactly the same as the balance sheet mechanics. It is the "fundamental accounting equation."You can be the most complicated business in the world and it all boils down to the same concept: Assets-Liabilities=Equity. In the example of the house, you get the fact that the $150,000 is yours. That would be your right to the upside of the sale price less the mortgage. In business, the assets minus the liabilities is what the owner is entitled to, their equity. It is also important to remember that the equity can be a negative. Using the example of the house and given the recent financial crisis, you know houses can have bigger mortgages than value if the market goes down. In a business, you want to have a healthy asset to liability ratio but this is not always the case. So, knowing this simple equation you can now test the health of the business by examining the values of total assets and liabilities.The quality of those assets in a hotel should be relatively easy to measure. Cash, receivables, inventory, prepaid expenses. You use these items to make money, hence they are assets. The liabilities are all the commitments you have that you must honor. Vendors to pay, deposits for future guests, taxes collected that need to be paid, employee wages and vacations to honor. In simplistic terms, you have the good stuff, the assets, less the bad stuff, the bills you need to pay, and the difference is the equity. Same concept as the house above.The LinkThe link between the income statement and the balance sheet is an important and powerful concept.When you make a profit or have a loss in your business, you can see the bottom line number on the year-to-date column on the income statement.The link.What you also can see is that it is the same number you find on the balance sheet when you look at the current year's retained income line in the equity section.The other line called retained income from prior periods, is the accumulated profits and losses since that business was created. This is the link between the current year's profit performance and the lifetime of the business's accumulated results.The business gets created when it is bought/sold. A new set of books is created and you start everything from the purchase price values. Everything from that point forward moves from the income statement each month to the balance sheet and its accumulated profit or loss is found in the equity. Assets - liabilities = owners' equity. See? Not so difficult.I have written five other blogs on hotel financial statements and the powerful features you can incorporate into your statements, check them out if you have not read them already and learn how you can supercharge your financial statements. you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comEFTE and Productivity ExerciseHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"F&B Productivity SpreadsheetHow the Hotel Financial Coach Helped MeRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WHotel Financial Coach - "Speaking Sheet"Flow Thru Cheat Sheet - EnhancedVisit my website today for a copy of my FREE guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your


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