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Article by David Lund

Hospitality Financial Leadership - Recording Average Length of Stay

The Hotel Financial Coach ·16 January 2018
The one thing I see time and time again with clients is just how poorly their financial statements are set up. The statements almost always lack basic information that is readily available and is critical information for maximizing profitability: poor design and missing features. If they were a car, I would want to call them a Lada. My apologies to any Russian readers.The flip side of this challenge is all the information that is needed to fix this reporting problem is at your fingertips. No new software is required. No real investment. Your team just needs to use what they already have and put it to work.Typical stumbling blocks to creating better more useful reporting are twofoldBefore I get into the two areas that typically hold us back from creating better reporting, let us remind ourselves why we are interested in having good and complete financials at our hotels. The reason we want to have great financial statements is that we want to use these instruments to make better decisions today for tomorrow's financial performance. If you cannot see the results of a certain critical aspect of your business, then how are you ever going to improve it? How will that ever translate into increased efficiency and profits? It always comes down to this simple reality: What you can't see you can't measure. What you can't measure, you can't improve.Imagine if you drove a car without a speedometer, and you kept getting speeding tickets.... The financial statement at your hotel is exactly the same.If it is not hooked up and working properly you have no idea how fast you are really going. Or better still, how fast you could be going.Back to the two stumbling blocksThe hotel business is more like the art world than real hardcore business. At least that is my take on it over the last 35 years. What I mean by that is most of our senior operational leaders are not financial people.They typically come from sales or operations and they have little formal training on the financial piece. This is not a slight to their experience or impact--it is just a fact.They are not programmed or predisposed to getting in the middle of the financial engine and ripping it apart, let alone asking or mandating reporting changes.Their modus operandi is the glitz, the spit and polish, the fun stuff, the art.They love this part and they dig in and put on the show. The show is what they get paid for, or at least that is what most leaders believe. So, they do not usually have any ideas or designs of the financial reporting piece.They take what is given and hope no one asks too many in-depth, detailed questions about the numbers.They are typically handicapped on the financials and they rely on a strong financial manager to make up for their lack of knowledge and experience with the presentation and breadth of the financial statement. This is a big mistake because getting comfy with the financials is not difficult. Once we are comfortable with what we have, we almost always see a way to get more.The second stumbling block is the somewhat typical financial leader who is not really interested in making their day or their job any more elongated or complicated: The fewer interruptions the better.They are already busy enough. Doesn't anyone know how busy I am?They want fewer questions--not more--and they certainly do not want people asking them to add more information to their financial statements.Why? Why is this the case more often than not? Again, I am not trying to paint the entire field of hotel financial leaders with the same brush. I am trying to make the point that most will not take it upon themselves to add financial statement features, or reporting statistics with an eye to having the best financial statements.Why is this the case? Well, I think it comes down to two elements: One, they usually have the attitude that operations people do not know what they need when it comes to the financials. Two, it is in their mind that it is just way too much work to stop the machine, pull out the gears, insert the new gizmo feature, re-boot and see what comes out the other end in the form of a change to the financials.In most hotels, it takes an act of Congress to make changes to the financial statements. Paramount to parting the Black Sea, it seems. But it does not need to be this way and it is certainly not complicated or expensive to make this happen. It is what I call evolution. We never really stand still. We are either hopefully moving ahead or we find ourselves silently moving backward.Back to the title of this piece: Recording average length of stayWhy would you want to have this in your financial statements? What purpose would it serve and exactly how do you calculate this statistic?The reason why you want to know the average length of stay for your hotel as a whole--and let's take it one step further, by major market segment--is to understand your different customers, their stay behavior and to ultimately maximize the average length of stay. Fewer arrivals and longer stays equal lots of good things for your hotel operation and profit.Fewer arrivals and a longer length of stay "usually" equalLess wear and tear in your lobby, hallways and room productLower labor costs at the front, in housekeeping and with your room attendantsLower amenity costsLower laundry costsLower linen replacement costsLower guest supplies costLower energy costsFewer guest requestsBetter capture ratios in your restaurants and barsLess congestion at peak times in your lobbyA better opportunity to capture a return guestLower online travel agency feesMore time to make a lasting positive relationship with every customerDon't forget for a moment that the hotel business is a game of inches. There is no holy grail waiting to be discovered that will save your way to prosperity. We are a high-volume transaction-based retail business. If your hotel has 250 rooms and you run 75 percent occupancy, you sell 69,000 rooms each year. How can you save just a little on each item on my list times 69,000? That is a nice number. Flip it around and ask how much inefficiency you can create and multiply that by the same number. That is kinda scary.Calculating the average length of stay could not be much more straightforward. You only need two numbers: room nights and arrivals. In this example last month, the hotel had 8,900 room nights (rooms sold) and 5,500 arrivals. Both numbers are readily available from your property management system or, heaven forbid, your daily reports. Just dig a little and you will find it.(8900/5500) = 1.62 nights as the average length of stay for the entire hotel last month.If understanding and maximizing the average length of stay is important to you then you will want to take it one step further and measure it by major market segment. In this example, we will use just three major segments. In your hotel, it might look different: tours, crew, sports teams, etc. If it does just pull the numbers apart so you can isolate the activity in the segment you want to measure.Transient, 2300 rooms sold and 1600 arrivals (2300/1600) = 1.44 nights - average length of stayCorporate, 3200 rooms sold and 2700 arrivals (3200/2700) = 1.19 nightsGroup, 3400 rooms sold and 1200 arrivals (3400/1200) = 2.83 nightsIncluding these statistics on financial statements is rather straightforward. You create a stat account in each department of your general ledger and an overall stat plug to zero out the P&L effect. If you do not know what this means, ask your financial leader. If they do not know or say they do not know, then get some help. Having these numbers magically appear on your financials requires a mildly skilled person to go under the hood and add the formula to your reporting application.Again, ask your finance person to just get it done!You will also want these stats in your daily reporting, so you can see in the month how things are developing. Another key aspect is including this information with your rooms forecast. This provides your operations people valuable information for their expense and labor forecasting.The last and equally important aspect of capturing the average length of stay by customer segment is how it should affect your marketing and sales plan.How can you design your M&S efforts to go after the most profitable business from an operations angle as well as wear and tear on your asset?What's the right balance between the different segments mid-week and on the weekends?How does seasonality play into this?How does demand in these segments affect this?These questions lack a definitive black and white answer. However, your ability to answer the questions better will be greatly enhanced with reporting on the average length of stay by segment in your hotel.What are you waiting for?Unlocking this information in your hotel is this simple. Go on, and get on with it already!If 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 SpreadsheetRooms 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 Hotelwww.hotelfinancialcoach.comCall or write today and arrange for a complimentary discussion on howyou can create more profit in your hotel.
Article by David Lund

Hospitality Financial Leadership - Any Monkey Could

The Hotel Financial Coach · 9 January 2018
A very colorful GM that I worked with many years ago had a lot of slogans he would use to get his point across. One of my favorites is, "Any Monkey Could Fill This Place When the Phones Are Ringing!"He would say this to our director of sales quite often, not only to ridicule their efforts but to remind them that the business is there-- and it's really about maximizing the opportunity and knowing that this telephone ringing condition will not last. It never does. So, what are they doing, and what is the plan to $eize the day?This is the tale of any and every hotel. "The rising tide lifts all the boats." This quote was made famous by JFK and it is said that he got it from the Chamber of Commerce in a small New England town, probably a resort town. The relationship from this idea to your financial leadership is one of opportunity. We all know that when we have a good month, season or year we know it is because the business is there. It all starts with that. Without the business being there and coming in like spades we are sunk. The reality in that statement is true, but we also need to see that we can have a much bigger impact when we have a high tide.We seldom examine the excellent results for ways to improve. Why would we bother to do that? We just had a record year, double-digit RevPAR increase and profits are off the charts. All indications point to the fact that we are doing an excellent job. But we also know deep in our soul that the volume hides a multitude of sins.The opportunity in all of this is to step back and look to see what these sins are and how we can correct them when business is good. We seldom or never do this exercise when it is actually the best time to do it. Imagine doing a staffing review in the middle of the best year we have ever had? That is right, doing the staffing review on a full tide will yield much more treasure. In addition to finding more opportunities, you will see that finding the money to do this is much easier when times are good. Why wait for headwinds in your business and your pesky asset manager telling you it is time?The same also true for an expense reviewLooking at your spending when you are spending the most will uncover the biggest opportunities. There is a reverse psychology that appears when you do things that all others miss. People are much more willing to adjust and change when times are good. Try and do this when your business is in the tank and you will meet resistance and bad morale.The same for looking at ways to increase revenuesDo this when business is strong and you will have more creativity and certainty. Being the leader that always looks for the opportunities to grow--especially when all others look away--is the greatest use of your talent.There is a quote by Earl Nightingale and it goes like this, "Enter a market and observe what everyone is doing and do the opposite." To sum this up, look at what everyone else is doing in business and especially when business is strong, and find the opposite. Do that, seize the opportunity.Creating this kind of culture inside your business and inside the hearts and minds of your team will have an amazing effect and create superior results every time.Any monkey can follow the crowd. It is the clever chimp that knows there are more opportunities when the house is full.If 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 SpreadsheetRooms 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
Article by David Lund

Hospitality Financial Leadership - Financial Statement Analysis and Your Hotel Career

The Hotel Financial Coach · 3 January 2018
If you google the words "financial statement analysis," you will get a long list of definitions like this one by Wikipedia:"Financial statement analysis (or financial analysis) is the process of reviewing and analyzing a company's financial statements to make better economic decisions. These statements include the income statement, balance sheet, statement of cash flows, and a statement of changes in equity. Financial statement analysis is a method or process involving specific techniques for evaluating risks, performance, financial health, and future prospects of an organization."What it will mean to you as a leader in the hospitality business is exactly the same and then some."What information can I get from my monthly P&L to understand my business and make better decisions?" and "What's going on in my business?" The latter is the better, more applicable, piece for an operations manager who has a healthy sense of curiosity and a leader who wants to make a difference.Anyone can look at the statement and see that one number is higher than another. Anyone can see the variance between the budget and actual for an expense line or departmental result. It does not take a rocket scientist to see the discrepancy between this year's result and last year's. It also does not take an accountant to see the variance between the actual and forecast results and do something about it.Seeing the variance is one thing. Doing something about it is quite another. Most leaders will do nothing about it unless they are specifically told to do so. Most leaders will not naturally go there. Why is this the case?Consider this:Leaders typically see that variance as someone else's responsibility. Maybe accounting or some other magical entity will swoop in and make everything all right. Someone or something will come in and sprinkle some fairy dust on things and clean this mess up.Leaders are too busy to bother with the numbers and what is the point anyway? They are just numbers someone else created that really do not have anything much to do with leaders and their performance.These are the problems and they really are masking the career opportunity you're looking for. These attitudes are problems because the messes do not fix themselves. The messes will only ever be corrected if there is a joint effort. The problems reflected in the variances on the financials run deep. Is it the budget or forecast that is inaccurate? Is it the actual spend that is wrong because of timing or changes in the business needs? Are there items that are miscoded due to errors in the data or source documents. Is the alignment of the expenses correct to the budget and forecast plan? All of this is like a big pile of cow dung and it usually reeks just about as bad.So, where is the opportunity for the operations manager?The opportunity is to become the leader that sees a problem, owns it, fixes it and ultimately becomes a star because of it! That is a big statement. I want to tell you I have seen it happen many times. Most operations managers are new in their roles and they are interested in one thing: Getting on their departmental horse and riding. That is one of the secrets in hospitality. We regularly "drain the swamp" and give a new leader a new shot at cleaning up the mess. The mess is always in need of cleaning up. That is the hotel business. Guest service and colleague engagement in that department you just took over needs your fresh set of eyes and heart. Well, guess what? The numbers need cleaning up, too, and the great news is it is not a difficult task to get the numbers working for you.If you just inherited a P&L section and it is a mess here is what to do:Make friends with your payroll, accounts payable and purchasing people. Show them you are interested in helping get things right. They will love this because you just went from being on their list of managers to chase to the much shorter list of managers who have their $@(! together. Now you have allies and they are going to help you.Stop the machine when it comes to the paperwork. Sit down with your invoices and POs and time sheets. Make sure that your processing lines up with the proper GLs. Your new friends in the administration will help you sort it all out. Just ask!When it is your turn to submit the next month's forecast, take the time to have a deep look at what you are projecting. Chances are you do not have the zero-based detail to work from. This is where you put your stake in the ground. What is in the expense accounts and what is the staffing formula for your department?First, look at the expense accounts. Most hotels do their budgets on a cost per room occupied/customer or a percentage of revenue basis. This will not help figure out how to control expenses. You need to do some research. Go to your accounts payable friend and get the details of the last three months for each of your accounts. Get them to run the GL details for you. Then pull the invoices and see what items and their corresponding quantities and prices were expensed in your area. Make your list. What will you need next month to operate? How many of each item and the price? This work will pay off in spades because you will see the inefficiency and what will emerge is a clear picture of what you need to run your department. What should be in your accounts and what is not?Payroll. You have two parts to master: fixed and variable. Fixed positions in your department are the salaried, non-scheduled employees like yourself. You need to know these positions and their pay and their holiday and vacation accruals. Next, the variable positions. What is the staffing formula? If you are running guest services you need to know the seven-day, 24-hour staffing guide. Arrivals and departures, bag pulls, rooms in the house and guest count, both on their own and in groups. From this structure, develop your schedule based on business levels. So many in-house + so many arrivals + so many departures = an 8-hour shift. Do the same for all parts of your day and week. This is where a fresh set of eyes can find gold. Redeploying inefficient labor to need periods and trimming the sails where possible can net you big savings.So, from the chaos, clean up the swamp and what emerges is a new and vastly improved department, including the service, engagement and financial piece. You don't want to be the leader that misses this opportunity.The second and more elusive opportunity comes from gaining perspective through financial statements. What is my business all about? How does what happens inside my business relate to what is on my financial statements? Here is a big clue for this piece and it takes curiosity again. What are these numbers for? Why is certain information that you do not understand included in your departmental financials? Have you ever looked at a map and said to yourself, that place looks cool and interesting? You want to go there and explore things, check it out? Well, your financial statement is exactly the same. Everything included in your statement is there for a reason. It is part of the statement because it is material to the mission of effectively running your department. Like your map, get curious and find out what that information is there for, what does it mean and how can you learn from it?As a leader, your opinion matters--I can guarantee you--and that is a bold statement. Here is what I mean. The hotel business is not a science. It is art, business and personality all mixed together. If I asked 10 of you what you would rather have: a point of occupancy or $5 in rate and why? I am sure I would have at least 12 different answers. If I asked you why your productivity slipped in the last month in housekeeping the same dynamic kicks in. What really happened, how did it affect my team's efficiency? What events and customer mix impacted my result? How about the newly renovated product and the challenges were having with visible dust? What about all the rain we had last month and the hallways needing more housemen hours? What about the flu that spread through the staff and management last month?This page could be filled with what ifs. The point is you need to have an opinion based on what happened and the result. Be the color commentator and tell us why something happened the way it did and on the other side of that coin is a clearer understanding of what you can do to get it just a little better this month.I once worked with a young lady that I will call Anne. She would come to me month after month with all the crap she found in her department's financials. It was really a mess and so was the rest of her department. She never really complained about the content, rather than that she set about doing her piece to fix it, and like magic her understanding of what it all meant arrived like a prime delivery. Before I knew it, she was telling me what it all meant--her version. Man, did it all get better fast in her department. Not long after that, she was promoted to manage another larger, more complicated, better-paying department. Today she is a GM. And she did not get there by accident. She got there through hard work, curiosity and a willingness to drain the swamp.These are the muscles you need to develop as a hospitality financial leader. It is not up to someone else (accounting) to chase you down and to get you on top of your numbers. It is the other way around. The sooner you see the opportunity in all of this the better for you and your career. It is not difficult. If someone stands in your way, find a way around them. Like I said at the beginning of this post, most leaders will not naturally do this, will you be one that does?
Article by David Lund

Hospitality Financial Leadership - A White Paper on a 6-Month Client Workshop/Coaching Engagement - Part 3

The Hotel Financial Coach ·27 December 2017
The following is an overview of a six-month financial leadership project that I recently completed at a full-service hotel. The project consisted of six half-day hospitality financial leadership workshops delivered in house and monthly 1-1 leadership coaching appointments with the 15 managers assigned to the program. Each month of the project we completed a group workshop and each manager had a coaching meeting with me.The project goal had five measurable elements:Complete Forecasts--get the managers and leaders of this hotel to complete their monthly departmental financial forecasts.Track their results throughout the month.Adjust their spending on labor and supplies according to business volumes.Review their month-end statements for accuracy, and finally,Write their departmental monthly hotel management commentary.Get the core management team to do this each month, while improving these forecasts and the hotel's financial results.Part 3 of 3The new GM attended the last two months workshops. I must say that I was a little concerned that he might cancel the whole deal. No reason to think this way other than my own imagination. We completed workshop five and he participated. Throughout the morning I was not sure how he was feeling or what he was thinking. He stood up in front of the group with the talking spoon in hand at the end of the session. He said he had been skeptical about the project given all he had heard and he was not sure at all what was going on. (After all, this is Southern California and the Left Coast.)What he said next was incredible. He said he was totally surprised by the content and the outcome of the workshop."I had no idea what this was all about," he said, "I saw how much it cost and I want to tell all of you I was skeptical that the former GM was smoking the curtains, but I completely see the value and, David, I want to thank you for leading us with this project."He continued, "To me, nothing is more important than each one of you making your own contribution to our success and I see how this program is exactly what we need to help all of us do that with the finances."We finished all six months and here are some takeaways. First off, on our second to the last workshop, I had to stop short on our individual check-ins. People were just taking too long to tell their team all the wonderful things they created, learned and put in place in their department. At the right is the last check-in.I spoke a few times with the President and he reported great things back to me about what he was hearing and seeing from the property. He told me the forecasts coming out of the hotel were now the best and he attributed it to the project. He also reminded me that in the beginning, they were the worst.In months five and six the hotel missed their top line by more than $200K. In both months the retention (negative flow) was more than 75 percent. This was attributed to the team's ability to react to the revenue picture--in the month for the month.The director of finance reported to me that the hotel's performance in these months was much better because of departmental cooperation and communication with serious savings in expenses and payroll when the revenues did not materialize as planned.Making claims about numbers and profitability is impossible. There are just too many factors to consider. However, in a hotel, you know if the team has its act together with their finances or not. When we completed the project, it was clearly a different hotel with a strong foothold in its financial leadership culture.Here are some individual reflections on some of the managers in the programThe housekeeper was a tough nut to crack. He had created an amazing scheduling tool that really helped him control his room attendant labor. Right down to the hours per room occupied every day. On the schedule and the actual monthly results. The problem was he did not want to share his little secret and he certainly was not willing to tell the DoF what his monthly labor forecast was. He had his own financial reporting and he did not believe the hotel financials. He was also pretty sure he would be asked to cut even more. With a little coaching we got him to tell the world what he had created and now it is a tool that other departments use: Hours per room occupied.The chef told me he was very proud of himself. I asked why. He said, "Before the project, I was a good chef who knew how to cook and lead his team. Now, I'm a chef that knows how to run my department like a real business. I now understand what it means to be a real chef." One that can wrap his arms around the financials too. I asked him what was so tough. He smiled and said nothing was tough, he just thought it was.The front office manager was another star in the show. He caught on quickly and was one the first to get his forecasts complete and very accurate. He worked with what I call the back of the house coordinator with what he had created. She, in turn, worked tirelessly to get people's checkbooks and purchase orders lined up.She also worked closely with accounts payable to ensure checkbooks were up to date. He supported her and the system they created for the rooms side was adopted for maintenance, guest services, and housekeeping. These little "bonuses" were not part of the plan, but they were welcomed. I always find a surprise or three like him and her. Leaders want to learn and contribute and sometimes they just need the right invitation.The spa manager was amazing. After the first month, he returned to show me what he created to forecast his payroll. The last I heard it was being rolled out to the other hotels in the company with spas. He used a function in Excel that I had never heard of. It looks at historical data and your latest drivers and it predicts the labor you need! Who knew? This process and his forecasts helped the department to a plus-20 percent contribution margin.--in a hotel spa that had been open less than one year! That is amazing.The restaurant managers were another story. Full of positive intentions but their operation was just too--I'm searching for the right words here--OK, screwed up. In the six months that I was there, we had three different restaurant managers. There is still hope!The conference services and catering manager was a challenge. A challenge because of the business volumes and the structure relative to the sales department, but in the end, she came through. This position is the toughest to get on board. They want to but they are too busy. This department is critical to the efficient operation of so much of the F&B operation. The MO here was like housekeeping. They had their own system and what was reported in the financials was of little importance. We broke through this barrier, albeit much later in the project than I would have liked.The DoF's contribution to the project was significant. He was willing to take the time to work with the other managers as long as the other managers stepped up. It is an interesting dance to watch. Who is helping who? Who thinks they are more important? These are all behaviors that emerge when you are working to draw department managers into the financial game. If the DoF cannot make time for the leaders and do it in a way that is genuine and safe--game over. This DoF made the difference and the results were not 100 percent but the hotel went from zero participation to well north of 66 percent in six months. It is impossible to put a financial return on investment this way but I know the DoF is very happy with the results of the project.The original GM who left after month four was a steady hand throughout the project. He also was frustrated with the turnover, as we all were. He was very quick to point out the positives and the results his team was making via the comments from corporate and feedback from the DoF and department managers. We commiserated more than once over a couple of key players and how to get them to step up.I would ask, "Do you sit down in your 1-1s with these managers and remind them that the numbers are just as important as the guests and the colleagues?"He would smile and say yes, but, "That's also why we have you here, David."The triangulated fire was effective and I know if we had to do it all over again, knowing what we learned, we would have got a couple of more.The new GM was the one who inherited the hotel that missed the top line forecast on his first two months. He was very quick to point out that the retention was impressive. He also wants to circle back and start over with the new managers. To train them and get them on board. I reminded him that I'm available to help and he also has a core team that can do the same.From my perspective, the project was a big success. When I started there was zero participation in any monthly process other than the revenue manager's forecast. When we wrapped up the hotel had a solid process in place to produce monthly departmental forecasts, leaders that now had a new passion for tracking the financial results in the month for the month, managers that wanted to find adjustments to schedules and expenses when revenues did not materialize, a team that eagerly reviewed their month-end statements and GLs for accuracy, and team members who write their commentaries.These are the hotel financial muscles we found and exercised. You can do the same at your hotel. It is not difficult.It does require vision, commitment, and persistence-- but after all, that's the hotel business!If 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 SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WHotel Financial Coach - "Speaking Sheet"Flow Thru Cheat Sheet - Enhanced
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Hospitality Financial Leadership - A White Paper on a 6-Month Client Workshop/Coaching Engagement - Part 2

The Hotel Financial Coach ·19 December 2017
The following is an overview of a six-month financial leadership project that I recently completed at a full-service hotel. The project consisted of six half-day hospitality financial leadership workshops delivered in-house and monthly 1-1 leadership coaching appointments with the 15 managers assigned to the program. Each month of the project we completed a group workshop and each manager had a coaching meeting with me.The project goal had five measurable elements:Complete Forecasts--get the managers and leaders of this hotel to complete their monthly departmental financial forecasts.Track their results throughout the month.Adjust their spending on labor and supplies according to business volumes.Review their month-end statements and general ledger listing for accuracy, and finallyWrite their departmental monthly hotel management commentary.Get the core management team to do this each month, while improving these forecasts and the hotel's financial results.Go to my blog for last weeks, part 1. 2 of 3The DoF has three critical roles to play in this project. I worked closely with him throughout the assignment to ensure he stayed on track and to coach him on how to get the team to all produce.One, the DoF must really want to get their managers doing their forecasts. Not all financial people are comfortable with this. Many would rather sit in their office, do the forecast and speak to as few people as possible. This will not work. The DoF in this property was very willing to open up to the leader's needs. The first part of this process was to schedule monthly 1-1 meetings with each leader on the project. They met with the DoF and agreed which lines of the P&L they would manage and what exactly that meant as far as data and reports that the manager would need to do forecasts and the numbers the DoF needed from that manager and when. Each leader's needs are different, depending on the department they manage and their level of experience. It is key that the DoF take the individual approach to ensure no one gets left behind. These monthly 1-1 meetings are a mandatory part of the project for the DoF.Two, the DoF needs to communicate the monthly schedule and deliver on their dates and agreements. Critical cutoffs need to be understood by the management team and handicapped by the DoF.If corporate needs the forecast by the 28th, do not set the 27th as the internal forecast deadline. Give yourself time to go back to the department managers after the original forecast has been consolidated to make changes. Make sure the final numbers in the forecast are the numbers the managers produce. This is the number one challenge DoFs have.Here is how it plays out: The DoF schedules the forecast submissions from the department managers, these are consolidated, and the financial picture often does not add up. They are on a deadline from corporate, so they change a few numbers here and there to make the forecast work. You know what i mean, tweak a bit here and there. Meanwhile, the department manager gets the forecast back and someone has changed his or her submission. BIG MISTAKE. This is the number one "manager doing their own forecast" killer. Who would be willing to do this work to have someone change it in the 11th hour? DoF's need to give themselves the time to work with the departments to produce forecasts that will work.Three, the DoF must be comfortable with a little tough love and be able to hold their managers accountable. The monthly check-ins after workshop two are telling. I invited all managers to the front of the room one by one and they told their peers how they did the previous month."Did I do my forecast? Check or not? Did I track, did I adjust, did I review, and did I write?"Sometimes the managers think they delivered, and I want everyone to know it is a black and white answer.I asked the DoF after each person checked in, "Hey, DoF, are you in agreement? Did Chef do what he said he did?"This kind of accountability and the communication of it in a group setting takes a certain kind of loving action and reaction because we are human, and we do not always want to confront one another. This is something I feel is a critical step in the team getting its wings. Are we willing to hold each other accountable?The flip side of this is also key. Are my department managers willing to call out the DoF when they dropped the ball?This particular DoF and hotel were challenged with this confrontation. He moved the needle considerably with managers' accountability and his own responsibilities in the team setting. This was powerful stuff.Switching gears now... about workshops and coachingThe anatomy of the workshops is a 50/50. Half of the time and effort is spent educating managers on the financial system. I incorporate the hotel's actual current monthly statement in my content every month. I can fill the pages with what I teach over the six months, but here are a few of the menu items:Hotel financial statementsP&L and balance sheets--how to readAssets and liabilitiesPrinciples of accounting, the fundamental accounting equationThe accounting function in hotelsForecasting and budgeting techniquesREVPAR analysisFlow-thruEvery line needs an ownerROI analysisCapital planningManagement commentariesGAAP, SOX,F TAR WProductivity, EFTE'sThe 11th addition of the uniformed system of accounts for hospitalityTerms and acronymsThe link between the income statement and the balance sheetBasic business typesmarket segmentationDaily reportsPayroll and benefitsFood and beverage costsSchedulingCheckbook accountingBenchmarkingHMA's, etc. etc.The other half of the time in the workshops is spent in group leadership exercises where we play games and interact. This is definitely the fun part and it is also how people learn best. Teaching adults accounting theory and principles is tough. Hotel leaders are not wired for this. They are GO GO people. The interaction and play time is essential to bring the learning home and allow them the opportunity to express themselves. This connects them with the content and their own personal commitment to moving forward and doing their part.The one-on-one coaching time creates the catalyst to make the program much more effective.Trust. I build a 1-1 relationship with each of the core leaders including the GM and DoF. The coaching is a confidential exchange. I do not share the leaders' concerns or comments with the GM. I encourage the leaders to tell me what is going on and what is holding them back from their financials. What I learn I in turn use to "clear their path."The Want To. If you ask leaders if they would like to be "financial leaders" and have skills and confidence around the discipline, they are all going to say YES. I unlock their want to and turn it into how to. What do they need to do to take the next step in their journey? What do they specifically need to do in their department to get their forecast going? Payroll, expenses and their creativity combined with the overall monthly financial circle.Innovation. Managers of the various departments have an arsenal of tools that no one knows about. I have seen amazing ingenuity and creativity in scheduling and expenses that managers just want to keep to themselves. I encourage them to share their ideas. It always amazes me to see what people have created, but are not willing to share. I make the sharing happen and we celebrate this with the team, and it is contagious.Building a bridge. My coaching helps build the bridge that is always misunderstood in the hotel. That is the bridge between the operations people and the financial leader. They naturally do not understand each other and this masks itself in distrust. I remove this and build the bridge.The last thing I will say about the coaching is it helps your leaders get really clear on who they are being. In the beginning, there is finger pointing and victim thinking. We remove this way of thinking and replace it with what actions they will take. Action is always the remedy.With monthly workshops and coaching what we see is the team members starting to get on board with their financial work. They get on board because their team is counting on them and vice versa. They also get into the game because now they want to. Now they have a system to follow. They get their individual acts together because they see it is not so hard. Each month after the second month we do a check-in. Each team member is accountable for their individual contribution to the group. It is very interesting to see the team's dynamics change as members get on board...and not.The Only Thing We Know For SureI love teaching this part."The only thing we know for sure about the forecast is it's wrong." This is the truth about budgeting and forecasting. Knowing that the answer we produce is wrong is actually very good news. Why would you not want to take a shot and produce your department's numbers for the monthly forecast knowing the results you are going to produce are always wrong? Zero risk is the answer. This is quite often the game changer that helps managers get into the project with both feet. Just do it once. Produce your department's forecast--on time. Once this monkey is off their back, managers are on their way.Management turnover is a killer and at the same time, it is the lifeblood of any hotel especially one that is new. Turnover in the hotel featured in the above workshop, during the six-month project window, was almost 50 percent. The turnover included the general manager. Every month there was another departure, sometimes more than one. This was a challenging aspect of the project and it was also a good thing: A challenge in the fact that the investment of time and resources into that leader was now gone. A good thing in the fact that the standards were suddenly upped. New leaders were interviewed with a much greater emphasis on their financial skills and commitment. New faces attended the workshops and coaching to express all the positive things they had heard and experienced in the financial aspect of their new roles. They were excited to be part of a team that had this financial thing going on. They knew something was up--something different--and each one of them brought new life and energy to the team.The financial leadership bar had been raised.If 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 - Enhanced
Article by David Lund

Hospitality Financial Leadership - A White Paper - Part 1

The Hotel Financial Coach ·12 December 2017
The project goal had five measurable elements. It was to get the managers and leaders of this hotel to complete their monthly departmental financial forecasts, track their results throughout the month, adjust their spending on labor and supplies according to business volumes, review their month-end statements for accuracy and finally write their departmental monthly hotel management commentary.In other words, get the core management team to do these tasks each month while improving forecasts and the hotel's financial results.Part 1 of 3Early in 2017, I was contacted by a hotel company president who read one of my articles in a hotel association newsletter. He asked me a little bit about how I worked with hotels and then he asked if I would come to his offices and meet with his people. To which I agreed. I went to his office the following week and the receptionist showed me to a well-appointed boardroom with a big table, beautiful art, and 10 chairs. I waited what I thought was a long time, probably no more than 10 minutes.The company president, the CEO, and VP of Human Resources joined me. We exchanged pleasantries, and then they asked me to explain what I do and how I could help them. I started by telling them my story of how I was a failure at a previous role as the controller of a large hotel some 10 years earlier. Not always a strong start but it usually gets people's attention. I explained that the reason I was failing was because I could not get the other managers to give me their monthly forecasts and as a result, I was communicating financial information that was wrong. I then explained that I discovered the cure. The cure to getting my fellow department heads to do their forecasts was to educate them on the hotel financials. I explained that the education was delivered in the form of a workshop that showed the leaders what the profit and loss statement was all about and why we needed their input.Then I explained the results of the work I did in the hotel and that in a very short period of time we totally turned things around and how the managers really liked the training--how they responded and the great results we created.The CEO asked, "In your opinion, who is ultimately responsible for the finances of the hotel?"To which I replied, "The most senior person, usually the GM."To which he replied, "So, not the financial person?""No," I said, "The financial person has a big role to play but the GM must set the tone and lead the team in all matters including the financial piece."With this 5000-pound rhinoceros on the table, my audience had a moment to huddle and the CEO then said to the president, "Well, that's it then, the GM must be the one to lead the charge and they are ultimately accountable for the financial results," to which the president eagerly agreed.I explained to the group the importance of having the senior leadership of the hotel firmly believe that the money is equally as important as guest service and colleague engagement. This conviction needs to be part of the hotel's culture. Leaders in their hotels need to see this, have a system to use and the proper support. Not that service takes a back seat to profit. Equal, that is the key!With my story told and their revelation out the president asked me when I could start and how much for my six-month program. We shook hands and I was told they would contact me shortly with the details of which hotel would be my first project.The revelation we danced around that day is all too common in our industry. Owners, brands, and executive teams are often confused and misaligned when it comes to putting the accountability for the financial results in the right place.I received an email the following week and the note contained the name of the GM, his hotel, and phone number. I called him, and we agreed that I would come and meet with him and his Director of Finance.We got together in a meeting room and I requested a whiteboard. I explained the same story of my failure and finding the cure. I then drew a chart with fictitious names down the left side with five columns: F, T, A, R, W across the top. Forecast, Track, Adjust, Review, Write. I then said to the gentlemen, I was pretty sure that on that day their department managers' report card probably looked something like that whiteboard--blank and empty.Next, I said, "I will work with your managers, educating them with the workshops and coaching them 1-1 to get them to willingly do their monthly forecasts, track their results, adjust their spending, review their statements and write their commentaries."To which I replied, "Just a guess."The GM was very curious about why a six-month program."Why so long?" he asked. "I get this question a lot", I said. I explained that in reality the project really never ends."The financial discipline in your hotel will never be completely mastered," I replied."It's just like guest service and colleague engagement, the job is never done. We use six months because that's how long it takes to educate your team with the workshops, coaching them individually so we can remove what's holding them back, practice for your leaders on their financials, time for your leaders to see your committed to this, time for your leaders to see that it is not going away, and finally time for your team to get their financial act together."In a hotel, each month equals one financial practice. Like anything in business this takes some practice and, if we are willing to stick with it, we will get results! The GM and DoF looked at each other and again smiled. With this out and on the table, I asked them both if they were committed to this plan. I also strongly cautioned them that if they were not committed to walk away! The GM's and DoF's roles in the process are just as important as mine.I explained this important aspect to both and told them we would be coordinating a "triangulated fire" throughout the venture. The three equal forces that need to be utilized throughout the project: My workshops and coaching, their commitment and support with this project from the top with their leaders and, the third piece, the element of time. Me, you and time will win this.The great thing about the monthly financial cycle in business is we get to start over each month. Take what we learned and fix what didn't work. Every month we are improving and that is what we are playing for.With that out, and clearly understood they made the commitment to the project.The first workshop was critical. I coached the GM and DoF on how to invite their team to the party we were throwing. Leaders will sit back and assess the situation and they can smell a rat a mile away. A genuine invitation to learn and grow with financials is what we created. A steadfast commitment to their personal success and prosperity.In the opening workshop, we were joined by three members of the corporate team. You know how the saying goes, "We are from corporate and we're here to help." In this case, they were a huge help. They provided the leadership their support for the project through their participation in the workshop exercises and debriefs. When we wrapped up the opening workshop everyone knew what we were working on, why and, most importantly, they all had the opportunity to verbalize any concerns they had and express their commitment to the project's goals, F TAR W.Another really important element in this workshop setting is the way we present the project. It is like an invitation to the hottest party of the year and you are invited. We make a big deal out of the participants, their learning and most importantly their contribution. AKA - you make the difference. No mention of corporate mandates, financial Armageddon or any other rat-like tactics.If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"F&B Productivity SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WFlow Thru Cheat Sheet
Article by David Lund

Hospitality Financial Leadership - The Trip to the Psychologist

The Hotel Financial Coach · 4 December 2017
In life I have always believed I should seek professional help whenever necessary: doctors, dentists, accountants, mechanics, coaches and psychologists too. My father always said, "If you don't know what you're doing with what you think you are trying to fix, go see someone who knows what the hell they are doing--you have no place messing around with it." He was a master auto mechanic and he was mostly referring to the cars that people had brought him after they tried to fix whatever was wrong and inevitably made it worse, much worse.So I have a similar belief, do not mess with it if you do not know what you are doing. The key word here is "know." Many people think they "know" and that can lead to bigger problems. My trip to the psychologist was a gut reaction to the programming I had: I have a problem and I need some help before it really gets out of hand.The best advice I can give to anyone going through a rough patch is to never be afraid to ask for help. -- Demi Lovato, Stay StrongSo. I had just left my career as a hotel executive. Thirty-one years invested with the same company and I walked out the door. I was not sure that I had done the right thing. I did what was in my heart. I did what I felt I had to do given the circumstances. But still I was questioning myself.Johanne asked, "Why not see someone to talk about what you're going through, a professional?"After a few days of being home and having some really dark days I took a look online with my health insurance and found the nearest psychologist. That was my criteria location, not gender, not name, but could I walk to the appointment. The address was less than a quarter of a mile away. Across the panhandle in NOPA. I made an appointment. Craig was a transplanted Michiganite who had the most eclectic Indian art collection and a very friendly and overweight pug.I went to see Craig four times. I explained how I felt and thought about losing my job. The sessions were 50 minutes and each one was good. I was able to articulate my feelings and mostly he just listened and had the occasional question or two.I vividly remember our last session, when the lid came off. I was telling him that leaving my job was like a river and its strong current was sweeping me away. I really felt like there was something so much stronger than me that was taking me in this direction.He asked, "What was it that was taking me in that direction, away from what was so familiar?"I explained my dream of creating a business around financial leadership, my workshops, my idea to become a coach and change the way an industry leads its managers financially. He asked me why I needed to do this, what was compelling me, and what came out of my mouth was an amazing statement, one that I had no idea was in me.I answered, "I guess I get to decide what I do with the rest of my life."I was stunned, shaken to my core and flying all at the same time. Who was I to say and believe I could decide what I wanted to do for the rest of my life? We don't get to decide these things, do we?The session concluded and I had such clarity and peace in my mind. On the walk home things looked different, clearer and vivid. The smell of the cypress trees in the panhandle was so intense. The sounds of the kids playing in the park was so energizing."There is a tide in the affairs of men.Which, taken at the flood, leads on to fortune;Omitted, all the voyage of their life is bound in shallows and in miseries.On such a full sea are we now afloat,And we must take the current when it serves,Or lose our ventures." Julius Caesar Act 4, Scene 3, 218-224Things happen for a reason in life. That is what I believe. If we fail to see the why and we get hung up on the obvious and misleading misfortune, we miss an opportunity to live the kind of life that is truly an adventure and one that is larger than life. We must be willing to look for and seize the upside.It is always there, you just need to look for it. If you cannot find it - get someone to help you find it.If 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 SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WHotel Financial Coach - "Speaking Sheet"Flow Thru Cheat Sheet - Enhanced

Hospitality Financial Leadership - Overcoming Challenges - Niki Lauda

The Hotel Financial Coach ·28 November 2017
I've been through a lot and I realize the future can't be controlled. I'm not worried. You can always learn to overcome difficulties. - Niki LaudaOvercoming a setback like divorce or losing a job is very challenging. Overcoming and moving on after nearly being burned to death must be incredibly difficult. Niki has always been one of my heroes.In 2004, while attending the Canadian Grand Prix in Montreal, I met the three-time world champion driver Niki Lauda at the bar in Jacques Villeneuve's restaurant. The restaurant name was Newtown. Meeting Niki was a completely chance affair. I was having dinner with Johanne and some friends and I went to the restroom. On my way back to our table--which took me through the bar--I saw a guy all dressed in red, Ferrari red from head to toe, including a hat. The patron at the bar all dressed in red was alone. I made my way in his direction out of curiosity.For a Formula 1 fan there is no mistaking Niki Lauda. His looks are incredibly distinctive. He was severely burned and subsequently disfigured at the 1976 German Grand Prix in Nurburgring. The old German Grand Prix track was a monster 23-kilometer-long circuit. In the two weeks leading up to the race the Austrian driver lead a group of drivers calling for the race to be boycotted due to safety concerns. With such a long track a driver is much more at risk from an accident because of the time it takes the safety and recovery people to reach the scene. A typical Formula 1 tract is 4- to 6-kilometers long.On the second lap of that race Niki's Ferrari crashed at the very fast left-hand turn before Bergwerk corner. His car swerved off the track, hit an embankment, burst into flames and made contact with Brett Lunger's Surtees-Ford car.Unlike Lunger, Lauda was trapped in the wreckage. Drivers Arturo Merzario, Lunger, Guy Edwards and Harald Ertl arrived at the scene a few moments later. Before they were able to pull Lauda from his car, he suffered severe burns to his head and inhaled hot toxic gases that damaged his lungs and blood.Because Lauda was wearing a modified helmet, the foam had compressed and it slid off his head after the accident, leaving his face exposed to the fire. He suffered extensive scarring from the burns to his head, losing most of his right ear as well as the hair on the right side of his head, his eyebrows and his eyelids. Later, he chose to limit reconstructive surgery to replacing the eyelids and getting them to work properly. Since the accident he has always worn a cap to cover the scars on his head.At the time of the accident Niki was leading the F1 driver points.Niki was back in the car in six weeks, missing only three races. He returned at the Italian Grand Prix and still had the overall season points lead. By the last race of the season at Suzuka, Niki was still in the points lead by three. The race was mired by incredibly hard rain at the beginning and the Austrian listened to his own safety concerns this time and retired after the second lap. With his eyelids severely burned and the tear ducts not functioning properly, he could not blink and he could not see. In retiring he lost the 1976 season title to his rival James Hunt by one point.Niki's relationship with his Ferrari team was severely damaged due to his decision to withdraw from the race. This cost Ferrari the title and that is a big deal. Eight years later he earned his third Formula 1 drivers' title and then retired as a driver.Back to the barI approached Niki, who was standing alone beside the bar, and we made eye contact. He smiled and I held out a hand. We shook hands and I told him I was a fan and how pleased I was to meet him. He thanked me and said, "Enjoy your dinner and the race tomorrow." I left and returned to my table incredibly humbled by my experience. Knowing his story well and meeting him gave me a massive sense of inspiration. How can a person endure such pain and pressure and still be at every Grand Prix? He could have had a comfortable retirement. Even today, some 12 years after meeting him and over 40 years since his accident, he is once again the center of the F1 universe as the non-executive chairman of the Mercedes AMG Petronas F1 Team.No matter what happens we can overcome the difficulties.Just look at Niki and compare your struggle or challenges with his.This is the best example I know of someone who trumps "the want to" every time over the "the how to."If you would like a copy of any of the following send me an email atdavid@hotelfinancialcoach.comEFTE and Productivity ExerciseHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"F&B Productivity SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WHotel Financial Coach - "Speaking Sheet"Flow Thru Cheat Sheet - Enhanced

Hospitality Financial Leadership - Testing vs. Trusting

The Hotel Financial Coach ·21 November 2017
"All of life is an experiment, the more experiments the better." ~ Ralph Waldo EmersonWhen you really want to do something, the "how to" shows up everywhere. Getting into and staying in action is the key. Having and holding onto the notion that we must have the answer first kills our endeavors. Let me give you an example.A client of mine hired me to help him grow his new real estate business. We did some sessions and something was revealed. He had a predisposed notion of how his business should grow. He was close to trying some new ways to grow his business. He had heard the stories of the other more established and successful agents, and he thought his path should be the same. I was able to get him to see this by asking him what else he had tried and acknowledge the fact that if heREALLY WANTED to grow his business he would be willing to try some new processes and get out of his own way.He said something very interesting in one session: He said he didn't trust an idea.We were discussing a door-to-door meet and greet strategy where every day for two weeks he would spend three hours going door to door introducing himself and giving the people he met a nice little note pad with his firm's name and his name and coordinates. Not rocket science but 10 days @ three hours would equal 30 hours of meeting people. What might that create?"Who knows until you try?" I asked.He said, "I don't trust the process, it seems weak and I'll be like a door-to-door sales person."I said, "You don't need to trust anything, take that step out of your to do list, don't trust it, TEST IT." This was a game changer for him. Get into action, stay in action and test. Be a scientist and do experiments and test, test, test.Testing means experimentingExperiments never fail because we are just experimenting. We learn from experimenting. How did you learn to walk? How many experiments did it take? Thousands. You just forgot.As adults, we think we need to have the answer: the trusted answer, the sure thing, the winner. That's what holds us back. If we are willing to suffer a little injury to our imaginary ego and put ourselves out there and get into action--stay in action--we will find our way. If there was a store where we could go to purchase the code to light our way to success, it would be a busy place. But, it does not work that way.If we are willing to drop the need to know that what we are doing will work and continually get into and stay in action with our business, our leadership and our relationships are going to succeed much faster and better. On the contrary, if we stay shut down and hold onto our limited beliefs of what should work, what should be the way, what worked for someone else, we are out of action and we get discouraged easily. This is poison for growth. Trusting is poison.Inside your business ideas either get blown up or shot down. We blow them up if we are willing to test, we shoot them down if we need to trust."Test! Experiments give you a way to play with the universe. They allow you to interact with the real world and get some interesting answers. What works, what doesn't. Let's try again. This is starting to kick in. You test, you learn, you grow."Steve Chandler - Crazy Good
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Hospitality Financial Leadership - Chasing Your Dream

The Hotel Financial Coach ·13 November 2017
Yeah, runnin' down a dream - That never would come to me - Workin' on a mystery, goin' wherever it leads - Runnin' down a dream - Tom PettyIn life, we think dreams, big ideas, and accomplishments are someone else's domain, but not ours. We think those people are special, gifted, magical. They were the ones who were chosen for that higher calling to be that explorer, the writer or the leader that made a difference and really had something special to do and share wath the world.Well, that is not true.We all have that something and it is right there, inside of us and we can see it, feel it and we know its power. Yet we almost always ignore it, run from it and diminish its meaning and potential. The thing we have inside of us needs to be worked on every day like we are polishing a precious stone. But ignoring it and walking away from it and not doing the work is the path we almost always take.Why?Why do we not follow our path to adventure, pure engagement, a calling of the soul? Why would we not want to have a life full of such enthusiasm and joy?My dream hit me like a big rock, square in the forehead at 4 p.m. I had spent the entire day giving a class inside my hotel to 40 department managers on hotel finances for dummies. I did not tell them that was the name, it was coined something else. I really did not want to do this workshop but my General Manager had made it a mandatory."No workshop, Mr. Lund, and no bonus this year," he said, "It is the right thing to do." He said this because I explained why my forecasts were so weak."The other department managers give me crap information, always late and I end up changing 90 percent of it," I asked, "Why can't they send me good quality information and why do I have to hound them every time?"Well, at 4 p.m. that day class was over and I had a lineup of leaders wanting to talk to me and thank me for the day. I heard some amazing compliments:"Finally I know what you do with my stuff.""Had no idea that my numbers were sent to corporate.""No one has ever shown me the P&L this way.""When are you going to do another class on the financials?" and on and on.Unbelievable. I was elated and stunned. I felt like a celebrity, not the controller that when seen people would normally run in the other direction. These were the same leaders that were always late with their forecast or budget or month end commentary information. That evening I reflected on what happened and all I could think of was, this is a game changer. I am on to something. I remember telling my wife how much I liked giving the workshop and she said, "Do it again!" So I did.Fast forward seven years. I am now the regional controller in another country, having accepted a transfer four years earlier. My workshop had won my company an international innovation award the year after I created it. I had delivered the workshop many times in my hotel and inside my region, and refined its content and practiced my delivery. Every time I gave the workshop my students would line up and give me the most amazing comments. I loved spending the day lighting up these leaders. I also realized that my job as the chief collector of financial information in the hotel got easier and easier the more I educated my peeps.This was magicThe class changed my life and theirs, too. Now they saw the financial piece as not scary and not difficult. Remember your version of the boogie man when you were a kid? Where was your boogie man: under your bed or in the closet? You can insert your version. One day you turned on the lights, looked under your bed or in the closet and GONE! You no longer believed in the boogie man. Well, this belief, "I'm not a financial person," is exactly the same thing. The leaders believed this was something hard, beyond them and scary. The workshop showed them this was not true and, like the boogie man, they stopped believing they were incapable of being a financial leader. This was magic.I often thought about my workshops and dreamed of taking this idea to the world. Be careful of what you dream.One day my job came to an end. When it did I had a choice, go find another job like the one I had or go on an adventure. The idea of the adventure was very scary. So much uncertainty, I did not know where to even begin. But for me the other side of the coin was unacceptable. To go back to the grind, to return to the politics, the greed, was not in my cards. I remember going to an interview for a similar roll in another brand, I nailed the interview, said all the right things. I left that interview, got in the elevator and loosened my tie, and by the time I made it to the street I was pretty sure I was going to puke. I was freaking out. Why am I doing this? I know this is not what I want, damn it!That was it for me. No looking back - just looking ahead. My adventure was now underway. There was no way I was going back to the corporate world. I knew I had an idea that lit me up. I believed it would work and from that day forward, every day when I would wake up it was my mission to put wheels on this workshop and change the way hotels work financially. I could see my path.Funny thing is, the more I worked on my vision the more the path became clear. I know some days I would question my idea. Was this really going to work, would it be successful, would hotels hire me to change their financial leadership?I did not know the answer but I believed there was nothing else in this world that I wanted to do.That is what keeps me in action. I do not want to go back so I better make this work. That is a powerful incentive - to not want to go back to prison.If 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 SpreadsheetRooms 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 guidebook:The Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotel
Article by David Lund

The Four Things My Hospitality Financial Leadership Workshop Taught Me

The Hotel Financial Coach · 6 November 2017
By creating and delivering my hospitality financial leadership workshops I learned 4 very important lessons. The lessons center around how this workshop helps leaders change and become financially engaged.

Hospitality Financial Leadership - Measuring and Using EFTE's

The Hotel Financial Coach ·30 October 2017
If You Can't Measure It, You Can't Improve It. Management thinker Peter Drucker is often quoted as saying that "you can't manage what you can't measure." Drucker means that you can't know whether or not you are successful unless success is defined and tracked.In the hotel business payroll is the number one cost. STR recently reported that labor made up 50% of revenues for a sample of over 4,000 hotels of all types and sizes. Having an efficient and reliable way to measure payroll is critical in any business. In hotels, the impact of payroll is amplified considerably and the need to have something you can measure is the key. May I introduce the secret weapon and the star of the show? EFTE's!!!!! defines the acronym EFTE as "Equivalent Full Time Employee". I know from my experience that most hotels do not use EFTE's on their daily reporting and the use of EFTE's on their financial statements is not prevalent. The creation and use of this powerful statistic is not difficult. All the information you need, you already have, it's all at your fingertips. You just need to organize it and let it tell you what's going on inside your hotel. Measuring the dollars of payroll in your hotel is very important but understanding productivity is the most powerful tool you have. Getting to understand and measure productivity leads to the comparison of like data, this is where the EFTE is so powerful, it's like a power tool! Many industries use this statistic, and therefore it's not unique to the hotel world.First off let's define the use of the EFTE. EFTE's measure the number of "equivalent" full time employees. This is where most people get hung up. In the hotel business; we have full time employees, part time employees, salaried employees, hourly employees, unionized employees and even contracted labor. What the EFTE calculation lets you see is what's the total of these pieces of our hotel labor by area, department and in total. It also allows you to see the same information for a day, month or year in a comparable way. This is very useful and once you get started with EFTE's you're going to be hooked.Second, lets define the calculation. This is the second most common place where people get hung up. If you can manage a little multiplication and division then this is very straight forward. Remember the first work in the acronym is "equivalent". To calculate one EFTE we need to start with the annual calculation. Once we understand the annual calculation we can reduce the same calculation for any month in the year, a week or and a single day. Now, don't go south on me with the following math vomit. Once you run this through your internal bio computer you will get it. I did and I as one good friend like to remind me, I am not always the sharpest knife in the drawer.For the basis of calculating an efte we use 40 hours as the "equivalent" work week, 5 days * 8 hours per day. In hospitality, we all know most managers and leaders work more than 40 hours so don't let this part confuse you. The second part is the number of weeks in a year. (365/7 = 52.14) Leap year we use (366/7=52.29). We then take our 40 hours and multiply it by our annual 52.14 which equals 2086. Which is simply the number of hours a person working 5 days a week at 8 hours would work in an entire year. Note here we don't factor any holidays or vacation. We just want to know the number of hours one would work in an entire year.From this magic number of 2086 we can figure out the daily and monthly EFTE values.For the daily its 2086/365 = 5.715.For a month, it's the number of days in the month times 5.715.A month with 31 days is 31 * 5.715 = 177.1A month with 30 days is 30 * 5.715 = 171.5A month with 28 days is 28 * 5.715 = 160.0Now we know the basis for calculating the Equivalent Full Time Employee statistic for a day, any month and a year. Let's put it to work for your hotel.There are two key areas in your hotel where you will want to see EFTE's in your reporting. The two areas are daily labor/productivity reports and your monthly financial statements. For the daily reporting, we only need to get the report from our time clock or if we have a manual system the departmental hours worked summary is what we need. Taking the daily hours worked by department and major classification and dividing this number by the daily divisor of 5.715. The second part of the daily EFTE measurement is to divide the month-to-date hours by the month-to-date divisor.Daily hours worked in housekeeping in this sample is 185/5.715 = 32.4 daily EFTE'sMonth-to-date hours worked in housekeeping as of the 18th of the month 3725/ (18*5.715) = 36.2 month-to-date EFTE'sWe can use this statistic for any payroll calcification, big or small. From the number of EFTE's in the room attendant classification all the way to the total hotel EFTE's it's all the same math. We will also want to apply this same view to the forecast, budget and last year values, especially for the month-to-date results.With the monthly financial statements, annual budgets and monthly forecasts we also want to incorporate EFTE's. The report writer in your system needs to be messed with here and you will need the right person to go under the hood and write your financial formula. In addition, you will need to incorporate hours reporting on your monthly closing process. Create general ledger accounts to match each payroll classification you report on your financials. Run a monthly report from your time clock or post each pay period's hours and don't forget to accrue the stub period and reverse last months. Once you get into the swing of booking the hours on your financials its business as usual and now you have EFTE's on your financial statements.Imagine how much more insight you can gain on your business with EFTE reporting. With one glance, you can see the total EFTE's for budget 2018 compared to the latest forecast for 2017. Look no further now we can see the A&G EFTE count, the food preparation EFTE count, the EFTE count for the actual, budget, forecast and last year laid out side by side. Things are now much, much clearer in your financial reporting thanks to the super tool EFTE's.With hours reporting on daily reports and monthly financials we can now introduce productivity reporting. If you want a copy of my article on Rooms or F&B Productivity reporting send me an email and I would be happy to send it to you.EFTE use and reporting is going to change your world. Don't let anyone tell you it's not possible or practical. Your prosperity depends on good financial information and organizing what you already have into highly intelligent reporting is just around the corner.If you want a copy of my excel EFTE exercise send me an email and I will send it with my compliments.If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"F&B Productivity SpreadsheetHotel Financial Coach - "Speaking Sheet"Rooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WFlow Thru Cheat Sheet - EnhancedEFTE & Productivity ExerciseVisit my website today for a copy of my FREE guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your
Article by David Lund

Hospitality Financial Leadership - Food Cost and the 80/20 Rule

The Hotel Financial Coach ·24 October 2017
We have all heard of the 80/20 rule. But I am willing to bet most of you have not heard it in conjunction with the words "food cost."A good friend of mine who was an executive chef explained it to me and I am going to share it with you.So first off, the 80/20 rule states that 80 percent of any result comes from 20 percent of the activity. In food cost, what Chef taught me is the 80 percent of the food cost comes from only 20 items. That's right--the top 20!What he explained was so simple and powerful. Identify the top 20 food items your hotel buys using the dollar value of those items. It takes a bit of work but once you have your list it is impressive. In the hotel we worked in, the gross food purchases were over $10 million.We did the test and we identified the top 20. Here is our list: Bacon, sausage, cream, butter, OJ, dinner rolls, beef tenderloin, shrimp 16-20, individual yogurt, tomatoes, eggs, ground beef, halibut, chicken breasts, French fries, smoked salmon, coffee, lettuce, rib eye and brie cheese. Sure enough the 80/20 rule was right. We had over $7 million worth of these items purchased in one year.His way of managing the costs of these items is magic. Each month on a rotating basis, everyone focuses on one of the top 20 items. The sous chefs, purchasing department, stores, catering, conference services, outlet managers and purchasing service all focus on that one item. When the entire team focuses on one food item and how to improve on buying it, storing it, cooking it and serving it, positive things almost always happen.So, every 20 months, he turns over the list. This keeps everyone on their toes, including the suppliers. When they get in on the game, they come up with new and innovative products. Everyone knows the food item of the month and it is like a mini competition to find savings. He sends our suppliers a note each month with the annual quantity of the "monthly focus item" we purchase with a request to have the suppliers look for a better product. Suppliers love to help and really respond, especially when they know other suppliers are receiving the same request.Some months ago he told me, with the changes he made one month, the hotel will save $100K next year.Once you see the volume of your top 20 and find ways to innovate, your savings are multiplied by huge volumes.Some of the ideas come from the strangest places. Catering suggested the tenderloin be tested. The director of catering bought AA at home and did not think the AAA was worth the difference. Would a grade less be just as good? They brought in samples and did a blind tasting and, Voila! 60,000 lbs. of tenderloin just went from $12.99 a pound to $10.69. You do the math.Another month it was orange juice. The idea was: Why can't we get it in a bigger portion that the 2-liter containers? Sure enough the supplier came back with a 4-liter container from the same supplier. The switch equated to savings of over $30K.Be careful not to make this a math exercise. A lower price is good but the quality and consistency needs to be there. Let the chef decide and also allow a higher priced product if they feel the product is superior and desirable.Your vendors need to work for youContinually ask them to seek out new and better items from their suppliers. That is their job to keep you happy and buying. Know your top 20 and pull your team together to innovate. Find out what your competitors are using. Pick up the phone and call three of your competitors. Have the chef call the other chefs. Ask them what coffee they are using for banquets. I bet you will find a better more cost-effective alternative. Call your supplier and have them send in samples. Do the blind taste test. Always be looking to your top 20.The other side of this is your vendors work in reverse. They know what you buy in volume, and they look to increase your spending not to decrease it. That is their game so be better at the game than they are. They know who has their ducks in a row.80/20 does not mean you ignore the 20 percent. You continually look for better pricing and quality. Just do not lose sight of where the big opportunities are.
Article by David Lund

Hospitality Financial Leadership - Continually upgrade your system

The Hotel Financial Coach ·16 October 2017
The flip side of this is: Don't change or make the people wrong--it is the system that's wrong and the system needs to be changed. Then we will get another result. Keep working the system five percent at a time. Always be re-programming your system, i.e., what version of Windows are we on?We tend to look at the chaos at work and in our own lives and we want to blame someone or something for it. It is the victim crying out that we have been unjustly punished and sentenced to suffer in the mess we are in. We need to rise above this and look at the system we use; see the system that exists and change it.Unlock the systemWhat is the next thing in the system that needs to be re-programmed, what is the next thing that needs upgrading and strengthening? Do not play the fool's game and expect a wholesale complete re-vamp of your system. Constant incremental improvements win the race.In the following situation I will use the example of the monthly commentary:As it stands now, department managers are providing useless information on what happened last month and the upcoming month's information is the same. It seems they write in a different language that I can't understand. I am held hostage by their lack of commitment to this and they do not care. Do you hear the victim? Let him out of his cage.Back to owning it:The system I have is one where the department managers are made wrong on a regular basis because they are not living up to my expectations. Really, this is the case. What have I done to strengthen my monthly commentary system? What new software releases have I made to "our" commentary system? I own this mess and I am going to straighten it out and strengthen it. Make changes every month to make the commentary better.Owning it:My new system release this month entails a 1-1 with three of my biggest commentary customers (department managers) where we review the basics of a good commentary, one that does not regurgitate the numbers. A commentary that explains the variances based on a review of the assumptions for the month and what actually happened. Ah - a little light.... We agree to the format. The managers are actually relieved to have a blueprint to use. Why didn't anyone tell me about this before? Next month I will do three more customers.My system just got 5 percent better. What will my next system upgrade be? Maybe I will co-host a 20-minute workshop on creative writing. I know my public relations manager is a keener and this is something he would love to do. I just need to ask him to help me....Systems are everythingDo not ever stop releasing new versions of your system. Every month we get to upgrade and strengthen our systems. The window opens every month.What upgrade will we release this month?What! A month goes by and no new software release. Come on! Be Microsoft, release an upgrade!If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"F&B Productivity SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WEnhanced Flow Thru Cheat SheetVisit 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 howyou can create a financially engaged leadership team in your hotel.Contact David at (415) 696-9593.Email:
Article by David Lund

Hospitality Financial Leadership - Banquet Plate Covers

The Hotel Financial Coach · 9 October 2017
As the Regional Operations Analyst in the mid-90s in the West, my boss and I reviewed the financial performance of all of our hotels pretty much on a quarterly basis. The reviews consisted of a trip to the hotel, a tour of any capital projects, and a sit down with the core executive team to review the financials.We quickly developed a reputation for being somewhat thorough--always digging--and a little confrontational. One such review uncovered a little screw up that caused the GM a ton of embarrassment. It was one of those deals where the victim buried himself with his own BS. The zingers on this one continued for years and people still recall it some 20 years later.One of the hallmarks of our hotel company's brand at the time was the existence of the Pac-ManTM china. The china was used predominantly in banquets and room service. The china was nicknamed Pac-Man because it had little black symbols that resembled the figures in the Pac-Man video game. It was also completely indestructible and ugly as can be.Most hotels were in the process of replacing the ugly pac man china and the hotel we were visiting and doing our latest review on had just switched out the banquet china.Doing a P&L review with the boss is fun. At least fun for him and me. He asks the questions and the team answers. If he likes the answer, we move on. If he does not like the answer, we dig. When we dig, we often find the dirt.One thing that everyone knows in the hotel business is just how expensive china can be. Usually a hotel picks a pattern and it does not change for years. The hotel adds to the quantity annually to replace the breakage. As I mentioned earlier this hotel had just replaced the banquet china. In fact, we reviewed the selected pattern a few months earlier and the hotel was given the approval by the boss for replacement china. Which was a big deal--probably like $35K.The earlier review of the replacement china finished with a verbal approval by the boss, meaning send him the paperwork. He also issued a cautionary comment to the GM, "Make damn sure the dinner plates are the same size." To which the GM replied, "Of course, we know." It was almost to the point of the GM belittling his boss because of his mothering statement.The GM was a relatively young GM, this was only his second hotel. He had the reputation of being a "screamer and shouter" when things got tense with his team. He also had the reputation of being just a little arrogant.In our review, we were making the usual finds: slipping productivity here, a slightly higher cost of sales there, some question on expenses here, and then...BANG! We find it. F&B other expense: $40K for the month. This must be a mistake. How could anyone spend that much on miscellaneous? It is usually $1,000 or so because it contains chef's hats and wooden spoons costs.The boss asks, "So what's the story with this one?" Silence ensued. "I guess no one knows?"The boss glanced across the table at the controller, who looked sheepishly at the food and beverage manager, who in turn looked directly at the GM and said, "I wasn't here then." My boss looked at the GM and said, "Out with it, what's going on?"The GM cleared his throat and said, "It's the new plate covers." There is now a deafening silence and the air is quickly sucked from the room."New plate covers, why the hell would you need new plate covers?"The GM looked around the room for a friend, but there was no one. The GM then said," The new banquet dinner plates are the wrong size."The boss looked at him and smiled, "Why the hell would they be the wrong size? Send them back then."The GM grinned a silly smile and said, "Apparently we forgot to measure the sample and the spec we were sent was somehow wrong." Apparently and somehow are not words you want to use when you are running a hotel.The boss looked at him and said, "You must be kidding me, didn't you check the sample when it came back, to see if your plate covers fit?" Silence.Well, suffice to say the boss had a field day with the situation. As it turns out metal plate covers are more expensive than the new china. Like the carpenter says, measure twice and cut once.The P&L review is like an interview with a panel of inmates. Sooner or later the truth comes out. When it is the GM that is left holding the bag and he or she has not come clean before, it is very telling and damaging. Bravado has an extremely short shelf life and it will blow up in your face.Be the first to tell the bad news and the last one to tout your victories. Let someone else take the credit for those.I learned a lot about leadership from these meetings and a lot about our business.Watching the boss in action was better than two degrees from Cornell.---If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"F&B Productivity SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WFlow Thru Cheat SheetVisit my website today for a copy of my FREE guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your
Article by David Lund

Hospitality Financial Leadership - Turning Savings Into Asset Value 400x Their Original Worth

The Hotel Financial Coach · 3 October 2017
That's right, your eyes and the headline are not fooling you. I learned this from a client in a backward kind of way and now I want to share it with you. It is a powerful way to justify and prove a return on investment (ROI) for financial leadership training. I use this story as well to show my clients what they are leaving on table in the way of profits and asset value if they are not using financial leadership in their hotel.I had just finished a half-day hospitality financial leadership workshop for a client, one of a series of six that they had contracted me to do. The General Manager got up and thanked me and asked the audience, about 35 managers and leaders from two different hotels, to give me feedback. I got some great comments and a couple of good suggestions."I want to thank all of you and before we go I want to make an agreement with all of you, would all of you like to make an agreement with me?" she asked.She then put her hand up, like she wanted to ask a question in a classroom. Like a well-oiled machine, all 35 hands went up. This was kind of spooky.Then she said, "Thank you, I want to pay for David's fee today so what I want to ask all of you to do is find at least $250 in savings in your department next month."I want you to be able to absolutely identify the savings," she continued, "and I want you to tell Paul, our Director of Finance, where you found your savings. I am also asking that each of you reflect the savings in your forecast next month."Will all of you agree to do that?" she asked as she once again put up her hand and every hand in the audience went up again!What just happened here? In the matter of a couple of minutes, she got every manager to "agree" to find a minimum of $250 in savings in their department.The first and perhaps the most powerful part of her management style was the request for an agreement. Look closely as she did not tell her managers what she expected; she did not give them a directive. She asked to make an agreement. That is an amazingly powerful distinction. What is the $250 to each of those managers? Where will they find it?The answer: Everywhere we lookYou know just as well as I do that there are literally a million ways to waste money in the hotel business and the opposite is just as true. There are a million ways to save money. What are you helping your team focus on? The $250 dollars is a few hours of labor, a case of supplies that do not get wasted, a smaller chafing dish on the buffet after 9 a.m. for the bacon, the lights turned out after 6 p.m. in the office. We could fill the following 100 pages with ideas on how each one of us could save our $250. It is what you focus on that gets results.The next thing that happened was nothing short of astonishing. Almost like magic. She thanked her team for the agreement and then said, "One last thing before we go, would all of you agree to find the $250 every month this year and reflect it in your next forecast?"She once again put her hand up and in turn every hand in the audience went up as well. I was flabbergasted, dumbfounded and in awe. It took me a little while to see what just happened. To comprehend the results of her $250 in savings, I did a calculation on the flight home.I was thinking about what had gone down and here is what I came up with:35 managers x $250 = $8,750 in savingsThose were savings to GOP in the next month that each manager would find and communicate to the Director of Finance and most importantly, execute. Not too shabby and more than my fee that day.Remember she asked if they could find it every month. It is a fact if you can find it next month and do the same the following month the savings compound.$8,750 x 12 = $105,000That is $105k in GOP in the next year. By the way, that is a lot more than they paid me.At this point I needed my phone, the calculator on my phone to be more precise. I wanted to see what $105k in GOP savings means to the value of the business.Now, do not stop reading after you see the following two words: CAP RATE. I will explain this financing concept if you do not know what it is. It is super straightforward and a very useful gizmo for your toolbox.CAP RATES are established as the result of a commercial real estate transaction. It is the net income for one year divided by the sale price. Right now, cap rates in North America are low. The lower the cap rate the higher the purchase price becomes relative to the net income.Let's use an example to demonstrate this:The hotel across the street just sold for $125,000,000. Its annual net income at the time of the sale was $10,000,000. We divide 125/10 = .08 In this example, we would say the CAP RATE was an 8. We purposely drop the decimals.Now, there is one more step to see how powerful this tool is:We take the answer to our question .08 and we divide it into 1. (1/.08 = 12.5) What this means is the value of the business is 12.5 times the next income.Now that we know the multiplier we can use it to see what impact our savings have on the value of the business. Our $250 in savings times 12 months times 35 managers will give us an increased net income of $105,000. We now multiply those savings by 12.5 and what we see is ASTONISHING!$105,000 x 12.5 = $1,312,500That is the impact on the value of the business from finding $250. It is a fact that an increased profit of $105k drives the business value - the sale price - by more than $1 million.If you did not already know this little secret, it is why your owners are after you every month for every dollar you can find in profit. It is because of the multiplier. The same inverse relationship applies when you spend money and profits go down. The multiplier is used and $105k in decreased profits results in the asset value dropping by $1.3 million.That is enough finance for nowBack to the 35 managers and what they actually found. Most of them found a lot more than $250. Ideas are like fashion. Things catch on. Competition is healthy and managers and leaders are watching each other.Make a big deal out of an idea that improves your bottom line. I have seen single ideas produce $30k in annual savings. I have seen leaders come up with innovative and ground-breaking ideas that mark their careers. Your leaders ride ideas like rocket ships. Remember we get results based on what we focus our attention on.Focus your management team on what they can do and what they can create financially. Give them the tools to understand how the car drives and let them loose.---If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"F&B Productivity SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WFlow Thru Cheat SheetVisit my website today for a copy of my FREE guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your

Hospitality Financial Leadership - The Third Pillar

The Hotel Financial Coach ·26 September 2017
In the hotel business, we have three pillars, the guests, the colleagues and the money. They're not equal. They're not equal because we ignore the third pillar and we do so at our own peril and out of ignorance to what we can do to manage this cagey and slippery bugger. There is a fundamental disconnect in our industry, and it's high time it changed. It's no longer acceptable to throw our hands up in the air and say the numbers are the accounting department's responsibility as if the rest of us are 5-year old's without a clue what to do. If you're one of those it's time to move and get some financial leadership game on. This article will show you what's possible and point to a fantastic model that has your owner happily paying for the whole deal.Pillar 1 - Guest Service We manage guest interaction with an understanding and belief that we're all invested in good guest service. Even the departments that don't have direct guest contact help support the colleagues and departments that do. We are all responsible. Good guest service is a no-brainer for anyone in the hotel business. It's the very moral foundation that our business is built upon. Finding ways to increase guest service is just good business. We invest in guest service at all levels in our hotels and we take the function of providing great service very seriously. In branded managed hotels, the management company typically has guest service programs that they have either created or they provide in alliance with a vendor. In addition, we spend serious dollars asking our guests how we are doing. Guest service scores are critical to the operations of the hotel. In every instance the brand mandates the guest service programs inside their hotels and the owners pay 100% of the tab, for everything related to creating and maintaining guest service. Many owners question the management company's programs, these can be very expensive and the results are hard to nail down. Annually the brand will send their hotels the yearly programs via the budget documents that outline all the programs the hotel needs to add to their upcoming year. Even if the hotel adds labor for training the owner, in the end, pays 100%. When we think about a brand and its service reputation it's interesting to see through this mirage, to look and see that ultimately the owners of the hotels are paying to create the brand's service promise. This is largely a secret to most people. Understanding the relationship between the brand, the owner and what is created via this dance is an interesting segway. In most branded hotel's, the annual guest service score forms part of the executive team's bonus criteria and achieving the targeted number or better is a direct link to their pocket books. The last thing I will say about guest service is we do not tolerate leaders or staff that does not provide excellent service.Pillar 2 - Colleague EngagementWith colleague engagement, it's the same: We're all involved and implicated in managing departments and creating hotel teams that have high-colleague engagement. No leader or department manager is excused from the mission of colleague engagement. We have a myriad of tools to engage the staff, from employee newsletters, town halls, monthly colleague meetings, seasonal parties, special celebrations, sports teams, long service awards, employee of the year, employee opinion surveys, whistleblower lines, employee assistance programs, employee benefits, employee meals etc. etc. I could go on and on, this list is very long. The irony in all of this is the owner pays 100% of the cost of any program or event. Once again having an insight into this dynamic between the brand and the owner is an interesting dance to watch. Owners question many expenses related to "creating" colleague engagement but in the end, they pay. So where is the benefit of good employee engagement? It's obvious, good engagement coupled with great service equals a fantastic opportunity for our guests to have a wonderful experience. It used to be the case that human resources were "responsible" for creating colleague engagement, but not any longer. Each department has its own employee opinion survey score and a bad apple in the bag will not last long. No leader is excused from the necessity of a great colleague engagement.Pillar 3 - The MoneyThe money, the P&L, the owner it all boils down to the same thing, providing a superior return for the stakeholder. How is this pillar different? Well, really it isn't different we just treat it differently. When we talk about the money and we ask ourselves what do we do to create financial leadership inside of our hotels the answer 19 times out of 20 is NOTHING. We do nothing to lead and educate our management teams on the matter of financial skills. I am not talking about the accounting department and the financial function; I am talking about the education and the skills of the non-financial leaders in your hotels. What do we do inside our hotels to create management teams that have a solid financial foundation? The answer, NOTHING. Why may you be asking is this the case? There are three reasons that I will point out. One, we still live in an owner operator mindset that still echoes the idea, "look after the guests and the money will look after itself", but the reality today is that we manage hotels and as a management company we sell expertise to owners. Brands need to slow down long enough to realize they need to evolve. Two, the finances and talking about the money for many people is still "Taboo", the idea that we share the P&L and the managers get to see the financial results is a sacred cow for many people, to this notion I can only say, "get over it". If we want to have mature responsible leaders, we need to trust them and share the financial information. Third, we seemingly don't know how to lead and educate our managers financially. We hide behind the numbers and push it off as the responsibility of the finance department. This is really the opportunity in all of this. We have the ability to train and lead our managers financially and it's not difficult to accomplish. In fact, the owner will pay 100% of the cost to create the financial leadership in your hotel. Just as we have discussed in the other two pillars the brand can mandate the training program and the owner will pay 100% of the cost.Leaders want to be educated finically and they want to have financial responsibility. The idea that leaders don't want to do this work is nonsense. Today's leaders are literally dying to get financial leadership skills, they know without these abilities their career is limited. There are some conditions to this. First, the leaders need to know your there to support them, to provide the education and the training to facilitate the creation of financial leadership as part of your culture. Giving your leadership the responsibility for the numbers is not enough, you need to give them a system and be there when it counts, be there when it's a mess and support their efforts, be there when it's a win and celebrate their success. The brand and the general manager need to get behind this initiative, it's not a finance and accounting function it's one of the three pillars, therefore, it's a front-line management function for every single leader, it is not someone else's responsibility. Hiding out behind the numbers is not a viable strategy. Leaders need to know you have a system for them to follow, a predictable process with defined timelines and accountability for all. Leaders want to produce their own budgets and forecasts, not be given numbers that someone else has cooked up and then their told "good luck here are your numbers". Lastly, leaders need to see that you are investing in them, in their career and in their success. Once they see you're committed to their success it's a game changer. If they sense in any way that it's anything less that you are offering, you will not succeed.The benefits of finical leadership are everywhere. First leaders that know what's happening financially in their departments can plan and execute better. Imagine a leader who knows their expenses and payroll and he or she tracks the sales and volumes in the month and adjusts spend and schedules accordingly. The flip side is flying by the seat of our pants. We have all been there. What will happen the next time we have financial headwinds in your hotel? If you have created a financially engaged team you will have choices and buy-in when it comes to cost reduction. The brand also benefits from financial leadership training, building bench strength as leaders move throughout the organization. A brand with this kind of talent would quickly make a name for itself. The owner benefits big time. Having a financially engaged leadership team means the team is all in when it comes to maximizing resource and profits. We all know that in our industry we have a million ways to waste money, it's literally everywhere, on the flip side with a financially engaged team we have a million ways to save money. It's all about the culture you create, and it's fun! Like building a great service culture or a colleague engagement machine, financial leadership teams are every bit as possible. How do you grow a garden? You plan seeds and you nurture and care for it. The financial leadership piece in your hotel is exactly the same.
Article by David Lund

Hospitality Financial Leadership - NASCAR

The Hotel Financial Coach ·19 September 2017
We are all familiar with the American Sunday ritual of turning left several hundred times, cold beer, BBQ and t-shirts. I have long been a big fan and there is a great story and parallel to financial leadership I want to tell you about. It relates to one of my favorite drivers, Mark Martin.It has just been announced that he will be inducted into the short list NASCAR Hall of Fame recipients in 2017. Funny thing: He has never won the super bowl of the sport, The Daytona 500, and he has never won a season championship either. So, why the Hall of Fame?"To be gritty is to keep putting one foot in front of the other. To be gritty is to hold fast to an interesting and purposeful goal. To be gritty is to invest, day after week after year, in challenging practice. To be gritty is to fall down seven times, and rise eight." ~ Angela Duckworth from her book Grit.Mark's NASCAR career started in 1981 when he participated in only five races, won two poles (qualified fastest and started first) and had one top 5 finish. Pretty good for a rookie in an incredibly competitive sport. The next season he started 30 times had two top 5 finishes. His third season he started 16 times and had one top 5 finish, fourth season: five starts and no top 5's or poles, fifth season: only one start and no results. Things were not looking so good. Five years of going backwards on a young career would be enough to pull the plug, but not for Mark. If there is or will ever be a driver with GRIT it is Mark.For 33 seasons (years) he battled it out. 882 races. 255,000 laps. 40 wins. 271 top 5 finishes. 453 top 10 finishes. 56 poles. Yet no championship and no Daytona 500 win. He finished in second place for the season championship five times. How does someone keep going? Well, he looked at it this way.How can I get a little better with one small accomplishment at a time?That's Mark's motto. He would think all night long before a race: what about the shocks, what about the carbs, the tires, every part of that car. That is a great way to look at anything you are trying to accomplish. What is the next thing--the next little thing--I need to do? Do not be waiting for the BIG thing--look for all the little things--they matter and they produce the big thing. The same is true with your financial leadership, do not look for the magic solution; look to make lots and lots of continuous adjustments."I'm not good at looking in the rearview mirror, I like the windshield." ~ Mark Martin"How would it change my life?" he was asked in a recent interview if he had won the 500 or a championship.He replied, "I'm not bitter, I'm proud of my accomplishments and my career. I worked hard and that's what mattered, I didn't ever stop being a winner."This is it. What has happened in our past is history, it is not an indication of what is ahead. We do ourselves no favor by regurgitating our first 5 seasons.What are you looking at? The rear-view mirror or your windshield. So what if the events of your past are not victories. Don't go there.Keep moving forward and you will find your hall of fame. If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"F&B Productivity SpreadsheetRooms Productivity Spreadsheet Financial Leadership Recipe F TAR WFlow Thru Cheat SheetVisit my website today for a copy of my guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your
Article by David Lund

Hospitality Financial Leadership - Global Hotel Revenue Management

The Hotel Financial Coach ·12 September 2017
Global is a big word and now that we have your attention I want to define global in a hotel setting. Global refers to all sources of revenue and their corresponding profit picture. A global perspective on revenue management yields the highest possible profit because we understand and apply a BIGGER view to our business.I think the title and buzz word that has our industry locked on "revenue management" is entirely the wrong way to look at it. It is not revenue we are after, it is profit. Revenue is where we start but it is always profit that we end up with. Understanding what happens to the room revenue and resulting profit from different segments is the starting point to a much more effective outcome.We essentially have three types of customers in hotels: leisure, contracted individual and groups. Let's have a look at the profitability profile of each major segment of the rooms business.DO NOT PUT ALL YOUR EGGS IN ONE BASKET. Warren BuffettUnderstanding this lesson and applying it to your hotels "global revenue management" strategy in turn helps you understand your hotel's DNA. Knowing the DNA and how we can affect it is the highest and best use of the profit maximization strategy.Leisure, on the surface, is the most desirable customer in most people's eyes. They normally pay the highest rate and we like to think they spend lots in F&B, parking and the spa. But not so fast on this one. What we need to examine is the cost to get the leisure customer. First, they book through an OTA (online-travel-agent) or the company website and both are very expensive sources of distribution. Typically, 15-20 percent of the rate comes back to the operation as a commission or reservation expense. Second, most leisure customers will use the hotel's facilities, but they also are busy seeing local attractions, including restaurants and bars. Long gone are the days when leisure guests stay put.Third, it is hit and miss with leisure guests and how they treat their room. If it is a multi-occupancy family stay, the housekeeping department better have lots of supplies and staff for service. This segment as a whole is the hardest to service. We do not know when they will arrive but it is often early. We do not know when they will leave but frequently it is a late checkout and they always pay with a credit card that attracts a nice two-plus points of total spend. The last aspect of leisure we need to be aware of is they are predominantly weekend or seasonal customers. I say the leisure guest is at best tied for second place in my preferred customer profit profile.Next up is the contracted individual or, as some hotels describe it, corporate individual traveler. In many hotels, the contracted traveler serves as a base for the rooms business. Hotels pop up all over the place and in many instances, they want to plant themselves close to other businesses and offices. This location effect attracts business travelers to the hotel. Business travelers are a desirable element for hotels to nurture as they have several positive attributes. Generally, they use the hotel throughout the year, less holidays. They typically arrive late, after 6 p.m., and leave early, before 9 a.m.Housekeepers love the corporate guest because usually it is just one customer and he or she uses the room very lightly. The use of the room cannot be overlooked. With renovations needed as early as 5-6 years in some properties, a good mix of corporate business can push the renovation out a year or more.On the distribution side, there are costs but almost always fewer than leisure because there is ability to negotiate the distribution. Corporate customers are normally hotel breakfast customers and quite often you will see them in the hotel bar having a beverage after the business day is over.Another very positive aspect of the corporate customer is he or she has the potential to bring other corporate customers, as well as small to bigger meetings, to your hotel. So, nurture your relationship with these repeat customers. Let's just say the corporate customers are easy. Overall the preferred customer rating I would assign the corporate individual traveler is tied for second. In this case, like baseball, the tie goes to the runner and the runner is the corporate individual traveler.The big cohune in most hotels is groupsAt first glance at your rates, you might conclude that the group average rate is low. Do not stop looking there. When you look at the sheer economics, groups often win the top prize.First, take the distribution costs. If the hotel is well run the group is booked through a rooming list or another low-cost reservation method. No OTAs or central reservations need be used. In effect, this adds 15-20 percent to the group rate. The group may come with a commission from a third party, but many do not, especially if you have your own sales team.Second, consider the group movement. The group arrives, moves in-house and they leave together. This is very desirable from a labor and efficiency perspective. On third base is F&B. Groups meet, eat and drink together at the same time. This effect is the most powerful profit combination. A good group with breakfast, coffee breaks, cocktail receptions and dinner are the perfect profit combination. In demand situations, hotels can place groups perfectly in their need periods. In addition to the room and F&B revenue, groups almost always need AV, display space, drayage and best of all meeting room rental.Third, the cherry on top of the group cake is they almost always pay their invoice with a check. Groups business is the number one desired customer in my book.How does a hotel measure these different sources of business and decide which way to go? The easy answer is you need all of them to be uber successful. Like Warren said, "Do not put all of your eggs in one basket." Having a diversified customer segmentation means you can better manage when one or more segments faces headwinds. If you were running a hotel in the last financial crisis, you know what I mean by customer segment diversification.Knowing what each piece of business is likely to spend and where is key. Most hotels have tools to analyze the spending and the profit to come from that revenue. Global hotel revenue managers are looking at the profitability of each piece of business, weighing the operational challenges with the economic benefits.Hotels are a pure example of the supply and demand principle.If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comPolicy Inventory OutlineF&B Productivity Spreadsheet Rooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WFlow Thru Cheat SheetVisit my website today for a copy of my guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your
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Hospitality Financial Leadership - How to Set Up and Report Food & Beverage in Your Hotel Financials

The Hotel Financial Coach · 5 September 2017
That is a long title and it is fitting because F&B reporting in your financials is the longest part of your hotel financial reporting process. Every other department except for benefits is a single shot. In F&B you need allocations and a roll up of all outlets into a total F&B profit statement. This is the single biggest area where I see hotels get their statements wrong. In this article, I am going to lay out how to set up your statements and general ledger to provide you strong financial reporting for your food and beverage department.Food and beverage is differentThis is the first thing to grasp. In complete contrast is the rooms department where there is a single revenue and cost structure neatly wrapped up and standing alone. With F&B there are multiple revenue and cost centers.On the revenue side, there are banquets, room service, and other outlets. Each is its own revenue center and a separate department within the general ledger. Inside the revenue centers:FoodLiquorBeerWineMinerals...are types of revenue at a minimum.Revenue from outlets should be recorded by meal period--at a minimum breakfast, lunch, and dinner. Brunch is lunch and depending on the nature of the outlet, you may want to see cover charges, gratuities, and miscellaneous revenue categories. In all the different food and beverage segments capture the number of customers and report the average customers spend. Today it is average customer revenue: total food and beverage sales divided by the number of customers. Within banquets, you will want to see group and local sales separated (see my post titled - Separating Group and Local Sales in Banquets). Additionally, in banquets capture revenue for receptions, coffee breaks, room rental, labor charges, freight/transportation, utilities, gratuities and miscellaneous.After payroll in each outlet, you will want to see the cost of sales next. Cost of sales for food, liquor, beer, wine, and minerals are all separately recorded with the dollars of cost and a percentage. Here is where so many hotels get off the road and into the ditch. Many hotels try to capture the actual cost of sales by outlet. This a noble idea but not at all practical. Allocation is the way to record and distribute the cost of sales. The most efficient way to produce food from a cost of sales and labor point of view is to have a main kitchen, banquet floor kitchen and satellite kitchens for the outlets. The main kitchen prepares the bulk of the base of food: soups, pastry, sauces, butcher, etc. The satellite outlet kitchens finish and assemble the food for their outlet at the time of service. Banquets are a little different as they often prepare the bulk of their protein and vegetables and assemble them en masse.Having one food cost is efficient because the food in the hotel moves around more than the people. I recall a study that we did in one hotel I worked in. It was to study personal individual yogurt container portions. We bought a lot of these. We concluded they were being refrigerated and used in more than 2 dozen different locations. We had one vendor for the yogurt and one invoice. To try and capture this by outlet is sheer madness. The same principle that applies to the yogurt is the same with all dairy, bread, soup base, butchered meat, salad dressings, pastries, etc. If you do not believe me, just stand in your main kitchen by the service elevator and watch the food move.Beverage is different when it comes to recording the cost of salesYou want to see the individual cost of sales by type: liquor vs. beer, etc. Doing this by outlet is much more practical than food, however, I also know from personal experience that it is largely a waste of time and effort. Why?Two reasons: First, the booze moves around your hotel. Transfers between outlets are frequent because the par stocks are a single bottle for most liquors and expensive spirits unless you want a bucket of money sitting in inventory. From my personal experience of trying to track transfers in a large hotel, this is a waste of time. Set up your par stocks, sticker your bottles, do bottle for bottle requisitioning on your spirits, insist on transfer forms and forget about tracking them. Blind controls. P.S. Do not tell anyone what you do with all that paperwork.Second is the secret most people do not get. Your beverage cost does not depend on requisitions, transfers, and potentials. It comes down to the total opening inventory, plus all the purchases for the month, less the closing inventory. NOTHING else you do is in any way part of the calculation. With beverage set all the controls that make sense, but know in the end it comes down to the cost of goods calculation. The basic calculation is also used for your food cost. Everything else is smoke and mirrors.In a large hotel that is doing millions of dollars in F&B sales, allocating the cost of sales based consistently on revenue is the way to go. Having one reliable overall cost of sales is key. Chasing your tail with outlet costs is a waste of valuable resources because, in the end, it is all for not. To capture and allocate the cost of sales have a journal entry that captures your outlet sales by type and total for the entire hotel. Once the cost of goods calculation is done at month end the gross cost by category gets allocated based on revenues by outlet. Everyone knows banquets have a lower cost and fine dining is much higher. To that, I say the efficiency of one cost and allocation far outweighs the alternative. If you want to understand the costs in the outlet, then do the analysis based on the food that enters the cost center by capturing all the food that comes to the outlet via the outlet's kitchen door.Next is payrollI wrote a separate piece on setting up F&B labor using management and hourly positions and having outlet direct payroll as well as allocated departments for the kitchen, stewarding and F&B management. See my post titled - Measuring Labor Productivity - Part II. It explains in detail how to set this up including the use of hours of work.With payroll, it is the same scenario we want to avoid in the hotel like the food chase described above. If you try to assign cooks, cleaners and F&B department management to an outlet, you are either way over staffed or splitting hairs again. The pastry kitchen, gard manager, and butcher are examples of this--every large hotel has these departments in their kitchens. They produce a large part of the base food for the hotel and this includes handling the "brought in products." The most efficient way to produce all of this is in the main kitchen. There might be outlet chefs but in large part food preparation, payroll is all lumped together. Capture all food preparation payroll for the month in an allocated department on your GL and then portion it off based on food revenue mix. The same applies for cleaners and F&B department management.In contrast to the allocation described above, there is direct payroll in each outlet. Direct positions are defined as people contact positions:WaitersBussersHostsOutlet managers, etc.Separate the outlet labor into two buckets: management and hourly.The last area to set up is expenses. The best way to do this is to have the ability to direct expense and have a process in place to allocate expenses. You want to be able to allocate expenses in F&B because much of your efforts are pointed at driving efficiencies. Can you imagine if every outlet had its own china, glassware, and silverware? Can you imagine if each one purchased its own cleaning supplies and paper goods? On the other side, there is a unique single attribute you can capture for outlets. This is where the direct mechanism comes into play. You want to directly expense items like outlet specific entertainment, uniforms, specialty china, etc. Having a choice with each purchase to either expense it directly or allocate it is the way to go. You accomplish this by having expenses accounts set up in your GL by outlet as well as an allocation department that gets zeroed out at month end with a nice allocation based on total outlet revenue to each F&B revenue center. Note there is no transfer to the kitchen or stewarding as they are not a revenue center. Matching principle in action.The final part to lay out is how statements will look. This is where things get exciting. First the order of things. You want a top-level food and beverage consolidated report. Inside your financial reporting system, you will need to design a report that pulls together all the revenues and costs for all F&B departments into one report. Here at glance, you can see the food and beverage profit performance as well as the makeup of the result. You will be able to see the total sales for the entire hotel in each area outlined above. The total cost of food and beverage including the percentages. Payroll for both direct and allocated including hours of work and EFTE's and total productivity. All payroll related benefits in total. Payroll as a percentage of revenues. Total food and beverage expenses by category and viola - food and beverage profit. All this on one page. In addition, you can draw out:Average wage rates by management and hourly, direct and allocatedAverage pricing by meal period per customerTotal expenses by customerF&B revenue per room occupiedF&B revenue per sq. footF&B revenue per hour of workFood and beverage cost per customerIf you include the customers as well as the hours of work, plus a couple of other statistics you can produce an incredibly effective F&B total financial picture for your hotel.The second thing you will see reporting on is each individual outlet performance. Your GL is set up with a department for each outlet and the beauty of this is you only need to design on chart with the appropriate accounts for revenues, cost of goods, payroll, benefits, expense and statistics. Once it is complete for one outlet you simply copy the same chart to the other outlets that have a different department number or dimension. Now each outlet reveals its actual revenues, direct labor, allocated labor, allocated benefits, expenses and outlet profit. The sum of these outlets ties back to the F&B consolidated statement and your top line profit and loss report. Each outlet will also reveal its sales and average pricing by meal period. Labor productivity for direct and allocated. Cost per customer for expenses.The final piece is a cross-view report on your biggest expense in food and beverage: labor. By designing the labor with direct and allocated as well as management and hourly, you can generate a very effective report. This report details the dollars, hours, EFTEs and productivity by outlet, by hourly positions, and management positions.There you have it. This is how you design and report F&B in a hotel in an efficient and practical way.If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comPolicy Inventory OutlineF&B Productivity SpreadsheetRooms Productivity Spreadsheet Financial Leadership Recipe F TAR WFlow Thru Cheat SheetVisit my website today for a copy of my guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your HotelCall or write today and arrange for a complimentary discussion on howyou can create a financially engaged leadership team in your hotel.Contact David at (415) 696-9593. Email:
Article by David Lund

Hospitality Financial Leadership - Leadership vs. Technology

The Hotel Financial Coach ·29 August 2017
One incredibly challenging aspect of hospitality is the ever-changing technology. In a modern full-service 500-plus room hotel you have more than 50 different systems and apps to manage, integrate and upgrade. Most people do not see the massive amount of technology being used in hospitality and this article is about leadership in the face of that ever-changing landscape.I remember when we upgraded from Micros 4700 posting machines in the front office of my hotel to an IBM System 36. Back in the late 1980s, the PC was just coming into widespread use in hotels but networks and programs were almost nonexistent. The System 36 was the size of a bathtub.In those days, we did not have email; we had Merlin. Merlin was an email type of system but only for people within our company. I still remember my Merlin code, LUN0007. We had just installed a back-office GL and AP system that was PC-based and not on a network. All the GL files and data were on the one PC in the accountant's office and the AP data was on another PC. At month-end, we needed to take the AP data on a disc from one machine to the other. Accounts receivable was an out service. We input data and when we were done the data disc came out of the machine, the courier picked it up and a day later we reviewed the paperwork to see if our fingers made all the right moves.Payroll was the "one write" system where you used a peg board and carbon paper paychecks. We hand wrote each check and simultaneously recorded the details - en masse - via the carbon paper. When we finished we totaled each column of pay and deductions to balance the payroll sheet. Completing approximately 30 of these sheets equaled the hotel bi-weekly payroll. Adding them all up was a pay period journal entry. Talk about complicated and tedious.I also remember every time we upgraded systems just how stressful it was for most people. I vividly remember our accountant Walter keeping a complete manual general ledger while the "system" ran parallel books. He was not asked to keep the manual books but he did so because he did not trust the PC. He is also the same guy who welcomed hockey legend Jean Beliveau in his office for a friendly visit on a regular basis. He was an incredible individual with great knowledge and a wonderful sense of humor.I remember asking him why he kept the paper ledgers and he smiled, took a big puff of his cigarette and said, "One day it will all stop working and I'll still have the score." I have often thought about his comment in that moment. He was near retirement and the thought of change was so frightening he was willing to double his work to try and compensate. Not only did he double his work but, by not trusting the technology, he did not see that it would allow him to do other things.That is always the driver or the road block. It is the driver if we believe our lives and our personal well being are going to improve. It is the road block if we are afraid of our own redundancy and self-worth. He really believed the GL and the PC were against him. Why could it not have waited another three years until he was retired before it had to be installed?Where is the lesson in all of this?I believe Walter suffered in this situation because of a lack of leadership. His leadership, yes, but much greater leadership was missing. It is always what is missing when it comes to change, with technology and the way we embrace the human aspect of change management. What did Walter need in that scenario to successfully navigate the PC's GL system and go from paper to automation?People need to think that change is at least partly their idea. Who asked Walter what he thought and what he would like to do, or what he needed? Quite literally the box arrived, a few days later a technician, and the following week the PC was alive and blinking on a desk in his office. Nobody asked Walter for his thoughts. The decision was made to automate the GL and he was going to change how he worked. It was that simple. But wait a minute; he had over four decades of knowledge and skills.Why didn't anyone stop to make sure he was part of the technology change? He could have liked the idea if it was his idea to start with. How can we get people to like the things we need to change? Answer: Get them to think it is their idea to start with.How do you do that? You can accomplish this most of the time by putting more effort up front before the box arrives. What would Walter have had to experience to get him excited about the new system? What would it have cost and where is the ROI on that?A few years later I experienced a similar event in a completely different way. We were replacing System 36 and moving to a PC-based network (LAN) system with new modules for the GL, AP, AR and income. To get us ready for the change we were sent to Florida for a week of training and I must tell you I was scared before I spent that week in Tampa. I was scared because I did not know what this new system was all about. I could navigate the old system and - as mechanical as it was - I knew each piece and how it all came together.By the end of the week in Tampa I could:See there was something emerging that I could work with.See that some thought had been put into this.Ask lots of questions and do much of the setup of the new system.Be part of the process.Bingo! for change management and technology upgrades.Get your people involved from the get-go."People don't resist change. They resist being changed!" -- Peter SengeIn hotels with so many systems and upgrades to be managed, the act of getting your staff involved is not only necessary it is the silver lining. Many hands make light work, my mother would say.That is the battle cry when embracing technology change in hospitality.If you would like a copy of any of the following, send me an email at david@hotelfinancialcoach.comPolicy Inventory OutlineF&B Productivity SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WFlow Thru Cheat SheetVisit my website today for a copy of my guidebook - The Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotel
Article by David Lund

Hospitality Financial Leadership - Creating Hotel Financial Policies

The Hotel Financial Coach ·22 August 2017
Having a policy manual that covers all the important aspects of your business that relate directly to the financial function is a mission-critical building block for your hotel company. Not too many people would argue with that statement.Why then do most small hotel companies still not have a financial policy manual for its hotels and what do they need to do to create one? In this article, I will lay out why this project is on the backburner, how to construct a policy and a process for getting this project completed in short order.There are two main reasons why the creation and completion of this policy manual are so elusive:One, there is just no time. We are too busy buying hotels, repositioning them and running around from meeting to meeting to sit down and get serious about putting this manual together. Tomorrow is the word. But ultimately, we know tomorrow never comes. Things are changing so fast we do not have time to stop our world long enough to capture what should be the correct governance for our financial function. We know it is an important project but it never really gets to a boiling point, not to the point where we must act.The main reason there is no time is that we do not make the time for it and - let's face it - the COO and CEO are not exactly killing you daily because it is not done. It is kind of like your underwear drawer, out of sight and largely out of mind.Two, there are just too many cooks. That is right, too many opinions and not enough certainty about all the various aspects of the operational minutia of your business. You know what it is like when we get 10 people together to discuss how we should do something. We get the 10 people in a room and we have 12 different ways to do the same thing. Everyone has an "opinion.""It's not about making the right choice. It's about making a choice and making it right." -- J.R. RimThis is where your leadership needs to pivot. You know all the noise and ideas are great but what you need is to leave the conversation at the right point and have concrete direction. With policies, it is important to be brief and concise. Stay away from the procedural aspect of the exercise. If the discussion is on the policy for the bank reconciliation, you do not want to slip into "how to do a bank rec." You do want to state the purpose of the policy and the policy itself.Something like this:PURPOSE - To properly handle, control and process the monthly bank reconciliations.POLICY - All bank accounts are to be reconciled by the 25th calendar day of the following month.The standard reconciliation from an Excel spreadsheet is to be used.A paper copy of the reconciliation is to be produced each month.Review and approval in writing are to be completed by the 25th of each month by the controller.All supporting documentation is to be included with the reconciliation and/or the location referenced for bank statements, outstanding deposits, outstanding checks and all adjusting entries.The reconciliation must be complete and all relevant documents that support the reconciliation must be attached or easily found via reference, i.e., bank statements.The reconciliation is not to be completed by any employee that has bank account signing authority.The reconciliation is not to be completed by anyone who prepares the bank deposit.All outstanding checks are to be reversed once they are 180 days old.All bank statements are to be mailed to the attention of the controller.Here is a simple and straightforward way to get your policy manual project done and won. The motto for this project is "many hands make lite work." Give your project a fun name, like "Mission Possible." Get creative with this. Make it fun.First thing, put together an inventory of policies that need to be incorporated in your manual. Just like you did in college, you are going to start with an outline of major topics to cover:CashInventoryPayment Card Industry ComplianceEtc., Etc., Etc.In all, you want to have 25-40 different sections. Email me and I will send you a copy of my policy inventory outline and you can use it to get started.Once you have the outline, add the names of the policies you want to write and include in the manual. Here is where you can get democratic and get the buy-in up front from others. Strike a policy committee from within your company's structure. Include the relevant individuals you want and make sure you have good representation from the hotels and your corporate office. Eight to 12 people (not including you) is ideal.Once you have the group put together, organize your first call. Prior to the first call, send the list of policy sections to each member. In the email tell the members that you will assign each participant two-three sections of the policy manual and ask them to think ahead which sections they would like to head up. Also, ask them to think about other important sections that might not have made your list. Request these additional section suggestions be emailed back to you before the first call.Convene the first call and just prior to that call send out the latest enhanced inventory of policy sections. Include in the latest inventory of sections a player draft. In this draft selection, you have organized the players by your own last season points rank. The most junior or newest members get to pick their first section just like the major leagues do in sports. Complete the rotation until all the sections have been assigned. This should take about 15-20 minutes top. During this call, you can also review the purpose of the project and lay out a plan for the completion of the project.Once all the sections have been chosen by the players, let them know the next step is for them to populate their sections with policy titles. The call the next week will be to have each team member submit their policy titles by section. One section at a time with no discussion or debate at this point. The goal is to get a first draft list of policy sections and policy titles. The second call should take no longer than 20 minutes. Have each member send you their policy names by section through email after the call.In preparation for the third call, it is your job to get the list of policies consolidated. Here is where you take the lead and review, edit, discard and add policy titles. You communicate back to the individual owner of each section your approved list of policy names for their sections. This requires communication to each member ensuring they agree. They also get to hear from you firsthand on the policy project--especially the method for policy creation. Lay out the "purpose" and the "policy" template, framework and follow-up with each member and send them a policy sample like the one above for "bank reconciliation."This is the most critical step so far.It is an essential step because you want to be very clear with each member on the structure for policy creation. Brief, concise, and not a lengthy procedure. Ensure each member has an opportunity to express their concerns and suggestions. Be open to new ideas and individual concerns. Have approximately 150 policies. If you have too many, consolidate some. It is essential that each team member owns their list of policies.The third call is to share the edited list of policy sections and titles and the sample template. Prior to the call send the final policy sections and policy title list to each member and include their names with each corresponding section. At this point, you are turning over the creation of the policies to your team. You have organized the team, the list, and the standard template. Using the math above with an average of 10 members who have 15 policies each to write you set up a schedule for 15 calls. I suggest you do not allow this to extend beyond 5 months or 22 weeks. With holidays, reporting schedules and other business it is important to lay out a calendar that makes sense. The format of these calls is each member presents one policy to the group by reading it. The members can add their verbal comments, suggestions, and ideas but the debate is limited to five minutes per policy.You call the order of presenters and you are the timekeeper and gatekeeper. This call can be completed in one hour. The call is recorded and all members get the link after the call. Each week each member edits their policy and sends it to you for your final review and approval. If members cannot be on a call they have the responsibility of completing their policy and ensuring that another member will read it into the record. That member is still responsible to edit their policy and send it to you. Just stick to the timetable and week by week you will assemble a great policy manual that your team complied. Ownership and pride in the result in less than 6 months. As the quarterback of this project, you need to make sure each member has their ball and that they stay on track week after week.From this point, you have the makings of a powerful tool.With this power tool policy manual, you can now create an Internal Control Review process. More on creating that in a future article.If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comPolicy Inventory OutlineF&B Productivity SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WFlow Thru Cheat SheetVisit my website today for a copy of my guidebook:The Seven Secrets to Create a Financially Engaged Leadership Team in Your

Hospitality Financial Leadership - Measuring Labor Productivity Part 2

The Hotel Financial Coach · 8 August 2017
In food and beverage, you want to get obsessed about a similar measurement like you do in the rooms division. In F&B it is "hours per cover served."Right out of the gate you need to understand the definition of a cover and it has recently changed. A cover is now properly labeled as a "customer" and it is now calculated by dividing the total sales in all food and beverage items by the total number of customers. Before it was only food sales and you divided the number of people who consumed a food item by the total food sales. Now it is the total of warm bodies divided by total F&B sales. See Uniform System of Accounts for the Lodging Industry Eleventh Revised Edition(Hospitality Accounting/Financial Management) for more on this change.With productivity, the measurement is "hours per customer." That is what you want to get obsessed about. Unlike the cover in the rooms division, a "customer" is or can be more challenging to record consistently and correctly than a room sold. Be diligent with the food and beverage service staff to ensure they record their "customers" correctly in your point of sale system. Reviewing point of sale guest checks will tell you very quickly if this is being done properly and consistently. One other tip is to closely review the daily revenue report and look for average covers by meal period that do not make sense.Productivity in food and beverage is also best measured by dividing hours worked by customers served. Operations managers have no control over wages or pricing, but they do have control over schedules and this is where they should focus. The percentages and per cover/customer costs are important but the trump card is "hours per customer served." What you need to see is this measurement in all budgets, forecasts, daily reports and schedules. What is the F&B total productivity and how does it breakdown by outlet? You need stacks in each outlet that can stand on their own and you also want to see the consolidated results.In F&B there is a bigger challenge than rooms with productivity creation. In F&B because of the multiple departmental structures and the allocation of management, food preparation and stewarding, things must be set up a little differently. Again, you are going to need your payroll dictionary and different classifications based on job title.The first delineation is the people in operations who work on the floor vs. behind the scenes. All service staff for an outlet, both management and hourly, are considered "direct." The hourly and management for food preparation, stewarding and F&B administration are considered "allocated." To design stacks in F&B, use the following structure.Direct and allocated both need hourly and management positions:Any Outlet Hourly DirectAll Wait Staff, Host, Bussers, Bartender, Bar Waiter, Cocktail Servers, Sommelier, Supervisors, Bar Backs, Captains, All Floor Guest Facing Non-Management PositionsAny Outlet Hourly AllocatedCooks, Dishwashers, Helpers, Apprentices, Supervisors, Pantry, Attendants, Porters, Cleaners, Chef D'Partie, Butcher, Garden Manager, Secretary, Administrative Assistant, Office ClerkAny Outlet Management DirectOutlet Managers, Outlet Assistant Managers, Maitre D, BeverageManager, Assistant ManagerAny Outlet Management AllocatedExecutive Chef, Sous Chef, Pastry Chef, Outlet Chef, Banquet Chef, All Chef Positions - Executive and Jr.In banquets, there will be several additional hourly and management positions; however, the same hourly and management "allocated" positions will apply. Banquets Hourly DirectAll Wait Staff, Porters, House Person, Bus Persons, Bar Person, Bartender, Banquet Supervisor, Banquet Captain, Banquet Bar Supervisor, Office Coordinator, Payroll Coordinator, Revenue Clerk, Host, Hostess, Cashier, Banquet Secretary, Catering Coordinator, Administrative Assistant Banquets Management DirectDirector of Banquets, Assistant Director of Banquets, Banquet Manager, Assistant Banquet Managers, Conference Services Managers, Assistant Conference Services Managers, Catering Managers, Assistant Catering ManagersThe results of these groupings and classifications are well worth the effort. On the chart below see an example of single outlet productivity; banquets would also look the same:In food and beverage, you cannot get away from the allocation game. In your hotel, the most efficient way to manage your food cost and food labor is to have one main kitchen that prepares cold food, sauces, soups, pastries, banquets, and butchers the meat, etc. Then outlet kitchens prepare the final product, usually the protein through a combination of resources from the main kitchen's efforts and their own.The same idea is applied to stewarding and administration in the F&B division. Hotels that try to capture all the costs for food and labor directly for each outlet are ultimately not successful. They either spend too much time creating the separation and resulting duplication of efforts that the main kitchen scenario provides, or they pretend that they can capture the actual costs. Either way allocations of labor and cost of goods are inevitable.In the end the allocation method is ultimately the most efficient way to manage the labor in food and beverage. What you need is an effective way to measure and manage in food and beverage. The "direct and allocated/management and hourly" is the way to go.Inside the F&B consolidate statement you can see the individual outlet results, as well as the total for the allocated areas.What you want to see in your daily operation is productivity. Have a daily labor analysis produced so you can track and monitor the productivity. Include these summaries in the financial statements each month. From that analysis, you can see where the hotel is winning with productivity and where the hotel is not.In the scenario above for the month of May, I see the following:Banquets had a great month and are ahead of budget and last year, both hourly and management productivity is better with lower volumes of customers, well done.Room service had a poor result for May, lower volumes and more hours worked. This requires attention. What are we going to do about this ongoing challenge we have? How else can we provide our guests F&B services?The all-day restaurant also had a challenging month with the volume of customers flat to last year and below budget. I need to ensure my floor managers are adjusting the schedule where possible, sending people home early where possible. I need to emphasize again that every hour counts.The results in fine dining were mixed with an improvement over last year but below budget.Sundays are the problem and we need to look again at our need to be open on Sunday.Food prep is creeping up and it appears that little adjusting is being done. The new chef is more concerned with keeping his cooks happy with their hours than he is managing his productivity. I need to remind her again that labor productivity targets are part of her core responsibilities.The information segregation and the framework outlined above give you a lens to see what is happening in your operation. It is up to you to use it and to manage the team and move in the direction of incremental improvement. To get a copy of my F&B Productivity spreadsheet send me an email david@hotelfinancialcoach.comTo get a copy of my Rooms Productivity spreadsheet send me an email david@hotelfinancialcoach.comTo get a copy of my financial leadership recipe F TAR W send me an email david@hotelfinancialcoach.comTo get a copy of my Flow Thru cheat sheet send me an email david@hotelfinancialcoach.comVisit my website today for a copy of my guidebook: The Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotel www.hotelfinancialcoach.comCall or write today and arrange for a complimentary discussion on how you can create a financially engaged leadership team in your hotel.

Hospitality Financial Leadership - Reviewing the Hotel Budget

The Hotel Financial Coach · 1 August 2017
Budget season is fast approaching and I am writing this article to highlight some areas to look at when you are reviewing a hotel financial budget. Maybe you want to make sure you have all your ducks in a row before you submit your 2018 numbers to the corporate office or perhaps you are the one doing the review. This article will give you some ideas of what you need for your review, what to look for and where to find it.The only thing we know for sure about the budget is, it's wrong. ~ AnonymousBudgeting is first and foremost a business plan with numbers. It is the culmination of all the wants, wishes, aspirations and ideas laid out in nauseating detail for the coming year. Budgeting is also a game played by managers, executives and owners at all levels. Under promise and over deliver is the hotel's game because their incentives are linked to the budget. Missing the GOP (Gross Operating Profit) target for the year in the hotel is a big deal. Miss it two years in a row and--depending on what is in your management agreement--your brand might be out in the street.Having a good budget, one that is a stretch but not too much of a stretch, is what you want to have and in order to get it you need to know what to look for.If you do not have a map any road will take you where you want to go. ~ AnonymousThe first thing you want to have for review when looking at the budget is a P&L style report that lays out the following from left to right: next year's budget, the current year's latest re-forecast, the current budget and last year's actual. In addition, you will want detailed level data on the prior three-five years. What have the trends been on occupancy, rate, revpar, average F&B customer spend, expenses per department, productivity, average wage rates and year-over-year flow-thru in rooms, F&B, non-operating department and GOP? Your system should be able to produce this as long as you have the actual history under your belt. Take the time to prepare this report in advance of your review schedule and it will make life much, much easier.Something that looks like this example:xxxNext, you want to examine the YTD actual performance relative to the current budget and last year. This is where you will find the most common bait and switch routine coming from many of your constituents. Let's say you are reviewing budgets in mid-September. You will need the YTD August P&L with a detailed comparison to YTD last year and YTD budget. In this imagined scenario, the hotel is doing well in relation to last year with revenues up YTD August by $1 million and GOP is up $600K. The same kind of comparison shows up relative to the current year's budget. That is the bait.Now here comes the switchWhen you look at the year-end rolling forecast for the current full year and compare that to a full year, last year and the full budget, you will often find the prosperity you have seen YTD stop or, even worse, it will reverse. This is the sandbagger's biggest opportunity to tell his or her tales of woe. In defense of poor performance in the last four months of the year, you will hear amazing stories about one-time windfalls last year, events and business that were a once-in-a-lifetime deal, rebates and credits galore last year. In defense of the slippage to the current year's budget at year end, you will hear whining about expense timing, cleaning projects and lite accruals. These are the sandbaggers' stories and you have been warned.One sure-fire way to throw some water on the budgeting sandbaggers and their YTD performance vs. the Y-End numbers is to have last year's scenario laid out. What was their story at budget time last year relative to that year's performance and how did they finish the year? Sandbagging the budget is an annual event and it can be well worth the effort. If a sandbagger can downplay the last quarter's performance by $200K in GOP, next year's budget target is at least $200K less. A great way to deter the sandbagger is a final review of the budget mid-January. Most hotels can swing this with their brand and ownership should insist on it.Another tool you want at the ready is your group rooms report. What is the pace? In many hotels groups form the base of business. Understanding the group rooms picture is critical to the budgeting process. Where are you YTD with our pickup for next year, where were you last year at the same time? What is the year end crossover group rooms on the book's target for this hotel and how far do you have to go to get there? How does this compare to last year? What are the definite and tentative numbers each month? What are the associated rooms rates for each month? What about the banquet spend with minimums required? Where are the opportunities to yield and where are the need periods? What is the forecast for citywide events? You will want to have this group rooms report checked against the reservation/sales system. Sandbagging the group rooms is not uncommon. One way to test this is to look at last year's performance in the final quarter with the production of group rooms on the books. Hotels are notorious for busting the dam on group contracts going firm in the final quarter. Do not be sold on the story that next year's group performance is down. Dig into the details.Corporate room nights serve to provide base as well in many hotels. A corporate rooms production analysis is what you need to see. Who are the top 20 contracts? What was their production last year and YTD this year? What are the rates and what is the strategy for next year? Who are the top performers? Who is not producing their committed room nights? Who has last room availability? Who do you need to be aggressive on the rate with?Having a firm strategy on your corporate rooms business is a key component in many hotels. Adjusting this base up where possible in a market that is going up is what you want to look for. If your market is tight or retracting, preserving this base is very important.An incredibly valuable piece of information you want at the ready is the report that details all the corporate and regional brand related expenses that are included in the budget. The programs must be laid out along with a comparison to last year's actual spend and the current Y-End forecast by individual program. If you are reviewing a branded, managed hotel this report is critical. Brands sell management services. Brands endeavor to mandate programs and they want owners to pay. What is baked into your operating budget that the brand will end up charging you back for? Do these programs make sense? How much was in last year's budget by program and how much is the forecast spend for the current year? What programs are optional and which optional ones are included in the budget? Which programs are mandatory, how much are they and why?Understanding what is layered into your budget that comes from your brand is mission critical if you are an owner. If you manage the hotel you will want to have a firm handle on this as well. In many scenarios money is budgeted and never spent on corporate programs. Hotels love to include budget items per the brand's direction and sometimes when the rubber hits the road the hotel will not spend that money. It is a great way to inflate the budget and use the reason that it is a corporate program.In any hotel budget, the biggest cost is labor. To review any hotel labor budget, you need to be able to measure productivity. Is next year's budgeted productivity better that this year's performance? You better hope so. Why would anyone present a budget for their hotel and project lower labor productivity? How many rooms will we sell next year and how many hours of labor in the rooms department? How many customers will you serve in F&B and how many hours of labor will it take to serve each one? How many EFTEs do you have in each non-operating department and how does this compare to the current year and last year? Hotels are in the habit of adding bodies. If all you are looking at in your budget is dollars of payroll without the corresponding hourly statistics, EFTEs and productivity measurements, you are flying by the seat of your pants. Even if these stats are not included in your budget and actual financial statements, they are easily found and a supporting analysis of the budgeted labor with productivity is a must. If you need to review and ultimately approve a budget, you need to understand the productivity.On the other side of productivity, look at the average wage rates. Do they line up with reality? What is the plan for wage movement next year? Union contracts, local wage laws. It is all there. You just need to know what to ask for and where to find it.REVPAR index is another key document. What is the properties index YTD and last year? What is the relationship between rate and occupancy, groups and leisure? How does this relate to the 2018 growth projections for the hotel and the hotel's current REVPAR index position? Are we talking share or are we giving share? Are we gaining or losing share from occupancy or rate, groups or leisure? You should see a direct correlation between the hotel's strategy and the REVPAR index predictions for your market. The second report you will want to see and have a detailed look at is the supply and demand index for your market. What is the picture for the total market and how does the hotels position correspond: historically in the past three-five years, this year, next year and beyond? This report should also include new inventory for planned new hotels in the market place. You will want to see a picture that shows your hotel making gains in its marketplace. If not, then what are you doing to fix this?The staffing guide is another must-have document. What are the fixed and variable positions in the hotel? You will want to see this report laid out for the entire operation, both operating and non-operating departments. Look at a department like the front office and see the staffing formula laid out each day of the year. Look at an example: At the desk, you operate 7-24 and the first step is start with the fixed positions you require daily. Then add the incremental staff and hours needed to handle the arrivals, departures and occupancy at the different levels, separate group and leisure rooms. In this example, you have a 300-room hotel. You need two overnight staff regardless of occupancy and three AM and four PM staffs. That is your fixed front office staffing. After 100 arrivals, you need to add a fourth PM. After 165 arrivals, you need a fifth PM. With your AM staffs, you only need a fourth after 100 departures. With your overnights, you only need a third when weekend occupancy is above 200 rooms for additional security. A detailed staffing guide should be developed and the daily activity in your hotel serves to populate the drivers and, "Voila!" you have a powerful tool!Expenses need to be zero based. The biggest sin I see is hotels presenting a budget with low-balled revenues and poor flow thru. Depending on your market and its current performance and its historical performance you should see a picture emerge for next year well before you prepare the budget. An old GM of mine was fond of doing the budget in 5 minutes. He would know the historical annual revenue gains for the past three years, he understood the current market conditions and that no one knows what will happen tomorrow.He would say something like this, "In the last three years we have grown the top on average 7 percent each year and our flow to GOP over the same period has been 56 percent. So, let's not waste any time here. Next year I want to see 6.5 percent revenue gain and a 50 percent flow to GOP and let's let corporate and the owners tell us where we can find more."Simple, really: Produce a reasonable positive picture based on good performance and good overall management. Why would you produce a dog and try and sell it? So many hotels make this mistake on their first-round budget. Corporate and regional teams usually find these and get them in shape before they are presented to owners.More than anything your budget speaks to your ability to manage. How you manage the sales team, catering and banquets, the entire operation and ultimately deliver the GOP. If you do a budget and it lacks growth and/or flow, this simply points out where you need to get to work.Do not present your problems, present your solutions.To get a copy of my Rooms Productivity spreadsheet send me an email david@hotelfinancialcoach.comTo get a copy of my financial leadership recipe F TAR W send me an email david@hotelfinancialcoach.comTo get a copy of my Flow Thru cheat sheet send me an email david@hotelfinancialcoach.comVisit my website today for a copy of my guidebook: The Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotel (
Article by David Lund

Why You Should Not Outsource Your Hotel's Accounting

The Hotel Financial Coach ·26 July 2017
Stupid sounds like a harsh word. Webster's dictionary defines stupid as, "Given to unintelligent decisions or acts," along with a few other more colorful options.Outsourcing your hotel accounting is an unintelligent move, that is my opinion and I am going to make my case right here. When I refer to outsourcing, I am talking about a third party provider, not a centralized function.Any good decision comes down to more pros than cons I often work with clients on decisions and we often make two lists. Good things that can come from a decision and how we can amplify them, then the bad things that could and would happen and how we can minimize them. Here goes my list on outsourcing your hotel accounting. Rather than two lists I will alternate between pro and con.One good thing that comes from outsourcing is being trendy. Many brands are doing it and it is the trendy thing to do. I spoke with a CFO recently and he explained that the board had decided on outsourcing."Why would they do that?" I asked. He smiled a little and said, "We need to keep up with our competition, other brands are outsourcing so we are going to as well."Inside his smile I detected a slight amount of political discouragement. My take on this exchange: It is a political thing and the CFO was going to pick his battles. This was not going to be one of them. Why should he care? His company does not own the hotels; they simply manage them for someone else. He knows ultimately if there is a service problem it falls on the hotel's lap, not the management company's problem really.In business, especially one that has multiple stakeholders, the pressure to keep up with the Jones's is stiff. Companies feel compelled to move, to innovate, and sometimes these changes are not in their best interest.There is a quote that speaks very nicely to this, "If you enter a market and don't know what to do, watch what everyone else is doing, and then do the opposite. The majority is almost always wrong. " ~ Earl NightingaleA negative aspect of outsourcing is the reduced level of service. Good service in a hotel is everything, not only for external guests, but also for internal guests. In a full-service hotel, the accounting department provides a long list of services: receivables, payables, payroll, revenue control, cash management, systems oversight, audit, food and beverage controls, purchasing, receiving, general accounting and budget/forecasting to name but a few. When a hotel outsources they typically outsource payables, some parts of purchasing, general accounting, sometimes accounts receivable and almost always the daily audit and revenue functions.Where do you lose the service? Hotels are a high-volume transaction retail business. Every day a hotel sells hundreds or thousands of rooms to many different customer segments. In addition, it services thousands of food and beverage customers. At the heart of all of this is understanding the sales and segments, pricing and the corresponding settlements. The service a good accounting department provides is to keep it all together, find the errors, correct them and, most importantly, work with the operating departments to get it right.These functions in a hotel are like filters, collecting all the errors and working with operations to get them back on track. A good AP clerk is worth their weight in gold. A revenue auditor is equally as valuable. What these functions ultimately provide is a service well worth having. If it is outsourced, it is hidden over there - the volume turned way down. This in-your-face service provided by a whining accounting clerk is an extremely valuable business process that ensures a smoother and more profitable outcome.I said I was going to alternate between the pros and cons. The second pro is cost savings. Typically, when outsourcing, a few colleagues with lots of tenure are gathered up and, depending on the jurisdiction, and whether union or not, they are bought out. Usually the hotel will lose the assistant controller or accountant as well. From this point on their functions are performed in large by the outsourced vendor for a monthly fee. From the numbers I have seen, the costs savings in the short run are completely upside down - in other words - no savings. To get the outsourcing going there is usually an upfront one-time fee. In the longer-term picture, the savings are forecast yet they are extremely slim. We all know what happens with cost creep. Before we know it, we have added something that looks almost exactly like what we used to have. Water will always find the lowest point.I spoke with a very experienced controller recently that had her AP outsourced as part of their project. She said there were several very negative aspects. Department heads and managers hate the additional paperwork they are given, namely scanning documents. The hotel loses track of so many invoices so they start logging the scans and cross referencing these with the outsourced company. Cost creep. Vendors are up in arms. Payments are not timely and several vendors had demanded payment or no delivery. A hotel without vendor credit is not pretty.She also expressed concerns about USE tax being improperly assessed. There was also confusion on her part with the paper. The hotel still must maintain the paper for the state and municipal audits and with the outsourced company it is a paperless system. What will happen when the auditors show up and ask for documents? The last thing she said was the most damning. The hotel had been late paying its retail taxes and had been assessed a fine.Brain DrainAnother very negative result of outsourcing the accounting function is brain drain and the resulting challenge it creates in succession planning. If much of the internal accounting process is carved out and sent it to a third party, the hotel loses the development people/positron aspects that propel careers in hospitality finance and accounting. If there are no entry level positions, no revenue auditor and no middle management, then how does a hotel grow controllers and directors of finance? I have asked this question many times and I still do not have an answer. This will bite our industry hard.If hotel accounting departments are going to take an ax to the development pipeline, they are not going to have financial leaders that understand the hotel business and all its insane nuances. I have seen several attempts to bring in financial leaders from other industries to lead hotel accounting functions and the rate of failure is extremely high. They simply do not get the culture, the work ethic and the spirit of the hotel business.Hotels are grinders. It is not a 9-5 white collar accounting gig. It is a full on heavy metal jacket, boogie until you puke, get back up again and start all over love affair with the biz. If not properly trained, super conditioned, a bit little crazy and slightly brainwashed with the Kool Aid, an accountant is not going to make it. He or she will not make it through those crazy month ends, a four-month budget season, never-ending meetings, surprise audits from friends at corporate, the GM who needs a financial babysitter, the revolving door of department managers and assistants to straighten out, not to mention the relatively small size of the paycheck. Hospitality already has a huge challenge finding, developing and retaining financial professionals and now the already wobbly legs have been taken right out from underneath it. What are people thinking?An old GM of mine had a saying that he would fire at us from time to time:"I can tell you people have a lot of common sense, because you're not using any!"I think this would apply here.On the positive side, another idea about outsourcing accounting is the creation of a different kind of finance and accounting leader; one that is not focused on the "accounting" but one that is a business manager, thought leader and people developer. Having a leader with a strong knowledge of the financial mechanics that goes on under the deck of the ship, helping to steer the other non-financial managers toward greater levels of their own business understanding and success, is a good idea. This in theory is exactly what I think hotels should be doing - developing the business skills of the non-financial managers. The challenge with this idea in the outsourcing scenario follows:Modern day hotel accounting is a huge bunch of systems, numbers, transactions and entries. Every time an employee sells something, schedules someone, buys something, cooks something, turns on the lights, takes a payment, collects sales tax, gives credit, checks in a room, receives goods, uses something, takes vacation, serves someone, cleans a room, checks out a room, takes a reservation, makes coffee, pours a drink, fixes a sink - I could fill the page. These "things" I just listed result in transactions that need to be captured, kept, managed, budgeted, forecast, measured and ultimately reported on. That is the mega city-sized mess that lies under the deck of the ship, tucked away from sight. If that mess is not managed extremely well, then your financial manager is dead on arrival. He or she will have less time to be the leader you want.It is a given that the re-coding and management of all the processes and systems used in the hotel need to be right. The data that comes from these processes is what must be captured, measured and reported. The reporting of this information drives the business and decision-making process. The fact is these systems and processes are always in need of constant and diligent attention. There is always someone new to train.There is a never-ending lineup of systems to upgrade to replace the old ones - hotels are always playing catch up. The staff and positions that no longer exist really handicap efforts to keep it all organized and working properly. In hospitality, the hotel prospers on service propelled by good information and communication. This means training and the training, and most importantly the follow up, needs to be provided by people. Colleagues in the operating departments need constant oversight and this boils down to finding out what is wrong with the data and communicating back to these areas. When there is no one to attend the next front office communication meeting to explain the proper way to do a rebate, no one to follow up on the invoices that do not match the purchase orders, and no one to chase down the waiter who did not balance his remittance properly, the hotel is really sunk.I know what you are thinking. You have outsourced all the mundane stuff so now the financial leader and his or her downsized team can handle all the training and follow up communication. No. They Can't.They cannot do this because they now spend just as much time in meetings, more time corresponding with a revolving door of associates of the third party, and usually this means it is already tomorrow where they are. Not to mention a large portion of the remaining staff now spend most of their time on the mindless task of scanning documents.Documents that someone used to read, check and make sure they were right before they were paid or entered in the books.I said I would list the pros and cons. In this case the pros are very light and the cons are a big deal but only if you have your attention on the details. It is easy to overlook the mess if you are not below deck.If you are thinking of outsourcing your accounting, think again. It is not a good decision. It will cost you dearly and your investment will suffer. If you have already outsourced and you have seen or heard some of what I have written about, then you need to believe it. Change the course today.It is never too late to say uncle! What are you waiting for?To get a copy of my Rooms Productivity spreadsheet send me an email david@hotelfinancialcoach.comTo get a copy of my financial leadership recipe F TAR W send me an email david@hotelfinancialcoach.comTo get a copy of my Flow Thru cheat sheet send me an email david@hotelfinancialcoach.comVisit my website today for a copy of my guidebook: The Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotel
Article by David Lund

Hospitality Financial Leadership - Ego is Not Part of the Recipe

The Hotel Financial Coach ·17 July 2017
"If you want to be more than a flash in the pan, you must be prepared to focus on the long term. We will learn that though we think big, we must act and live small to accomplish what we seek. Because we will be action and education focused, and forgo validation and status in their pursuit, our ambition will not be grandiose but iterative--one foot in front of the other, learning and growing and putting in the time." Ryan Holidays - Ego is the EnemyIn the financial leaders' world, ego will not serve them well. Ego will put distance between them and their audience. Ego would have a leader being the star of the show and there would only be one act in the play.A secret weapon: Knowing how to get non-financial leaders to produce amazing results through their creativity and leadership support to manufacture this product on a continuous stream.If one succumbs to ego they take themselves out of the game as if they were once a star but now they are too important to engage and really find out what the other leaders need. Being ego driven means the financial leader is hiding out. He or she wears the ego like a thin suit of armor to deflect any legitimate acknowledgement that maybe they do not have all the answers after all. Ego serves to tell them they are too important to go to that level of engagement. This is a big mistake because they miss seeing what is really going on and miss the opportunity to change it. "Can't fix what we can't see."Einstein said, "More the knowledge lesser the ego, lesser the knowledge more the ego."This quote really sums things up quite well. Egotistical people really lack the knowledge because they have shut down. They are closed for business. They cannot learn and grow if they are shut down. The game is an incremental day in day out, conversation after conversation, idea after idea, support after support, financial leadership is a relationship-building deposit-based enterprise. Leaders out-give constituents. That is what makes them tick successfully. Ego has no place in this environment.I once worked with a financial leader who made it a point and even verbalized the fact that he only spoke with members of the executive team. He was too important to speak to anyone else. According to him the idea of communicating with anyone else was a waste of time and beneath him.Well, the truth was he was hiding out. He was not comfortable communicating with anyone who might challenge his way of seeing the world of his business. What a waste to leave out so many inputs that are there to help shape and grow a vibrant, continually evolving and growing business landscape!The other interesting aspect of this example is the chief executive allowed and even condoned this behavior. Information is the currency of leadership. If leaders want more currency, they need to embrace leadership practices that allow for its accumulation.Ego and hiding out will not produce more currency.What are egotistical people afraid of? They are afraid of the very real possibility that they do not have all the answers, some of the answers, or even the answer. Rather than giving up their fake self-image they hold onto it and believe in it. Ego is not who they really are and inside they know this is the case. Yet it is too scary to let go, or seemingly to scary. However, ego is only a habit. This is the good news. Let go and have that next conversation and acknowledge that maybe "I don't know everything and I'm willing to learn."If you want a copy of my Rooms Productivity spreadsheet send me an email david@hotelfinancialcoach.comTo get a copy of my financial leadership recipe F TAR W send me an email david@hotelfinancialcoach.comTo get a copy of my Flow Thru cheat sheet send me an email david@hotelfinancialcoach.comVisit my website today for a copy of my guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your


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