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  • HFTP Research Report: Pre-opening Expenditures in Hospitality

    A study of the pre-opening budget; the timeline for these expenditures; timeline for onboarding of staff; and the selection, installation and training of the technology component. By Agnes DeFranco, Ed.

  • New Global Directors Join the 2018-2019 HFTP Board

    The HFTP 2018-2019 Global Board of Directors was installed during the association's 2018 Annual Convention and introduces new directors Toni Bau, Carson Booth, CHTP and Mark Fancourt. These extensive director profiles give insight into the distinguished professions and personal goals of HFTP's newest association leaders.

  • Letter from the HFTP Global President: At the End of the Year, We Reflect on the Best of the Year

    As we prepare to transition to the new HFTP Global board at the 2018 Annual Convention in October, I would like to take the time to reflect on my year serving as HFTP Global president.

  • Members Only: 2018 HFTP Compensation and Benefits Report

    By Tanya Venegas, MBA, MHM, CHIA. Results to the biannual survey conducted by Hospitality Financial and Technology Professionals (HFTP). Information includes data on compensation and benefits trends for finance and technology professionals in the club and lodging industries.

Hospitality Financial Leadership Bring Multi-Tasking to an End for Hotel Leaders

The Hotel Financial Coach ·21 January 2019
I am going to begin this piece with a quote because I know there is BIG TIME pushback on the idea of multi-tasking. Being so popular in our modern work society the idea of multi-tasking is more than a fad, more than say IMU (Individual Business Units) or MBWA (Management By Walking Around). These are two of my personal all-time favorite business practices. In the hotel business, we need to be able to differentiate between when it is appropriate to do more than one thing at a time and when it is not. Here is a great quote."Studies show that the human mind can only truly multitask when it comes to highly automatic behaviors like walking. For activities that require conscious attention, there is really no such thing as multi-tasking, only task switching--the process of flicking the mind back and forth between different demands. It can feel as though we're super-efficiently doing two or more things at once. But in fact, we're just doing one thing, then another, then back again, with significantly less skill and accuracy than if we had simply focused on one job at a time." ~ Christian JarretMy opening comment is a bit of tongue in cheek; however, I'm very serious about putting an end to the idea that multi-tasking is a good practice to get into and stay with. The simple fact is the human mind can only entertain one thought at a time. If you don't believe me - just try it! Try thinking about two things at once: like what to make for dinner and how you can jazz up the monthly commentary next time around. It's impossible to entertain two thoughts at once. Back and forth works but never two together at the same time. We're not built that way and for some of you, that's enough to prove my point. For the rest of you, you're going to need more evidence and reasoning so here we go.I for one was a big fan of doing several things at the same time. Some of my personal favorites were: attending meetings and reading and responding to email, talking on the phone and signing checks, conference calls and signing off on daily operations packages, having a weekly staff meeting and signing purchase orders, and my all-time favorite was watching the news channel that constantly played in my bosses office while attending the weekly executive committee meeting. I was convinced that these mundane tasks were all being handled effectively and efficiently by me in a "more than one thing at a time" functional way. It is true that I was able to do all these things I described together with their "partner" activity and both tasks were seemingly done. However, on closer examination, the output or thruput on all of these was below par.To understand why we multi-task we must go back in time. We must remember what it was like to be given a new task and to understand why we think it's OK and preferred to mix it up with another one. The big clue comes from the quote when Christian points to humans being able to effectively do more than one "automatic behavior." For most of us in hospitality leadership, this is the perfect trap to fall into. This is because we come from the floor where it's imperative that we accomplish as many things as possible with each movement or trip. The old economy of movement or the modern-day version we call multi-tasking was imperative to being efficient. Never take a trip on or off the floor without your hands and tray being full. I can vividly remember my captain waiter following me around and telling me what I could and should be adding to each trip in and out of the kitchen/dining room. Same for anyone in our industry who has tasks to perform such as cleaning a room, stocking cupboards, delivering luggage or assembling a meal. All these tasks fall into that "highly automated" class of tasks.This positive and essential skill is one that can, and should, be taught to all service staff to ensure they are productive and work efficiently. It will go a long way in saving time, energy and minimizing stress. We all too often carry this ideal from our jobs that gave us a path to follow in hotels into our roles as supervisors, managers and executives. A short blurb I created for this piece goes like this: Once we were all about doing three things at once: a second drink for Mr. Howard, clean napkins for my station and the check for table 12. All of this was accomplished on one trip back to the dining room. At the same time we know we're two minutes out from the entrees being ready for table 9, we see Mrs. Smith heading to the restroom - better get her one of those fresh napkins in the next 90 seconds, table 7 needs clearing and table 10 is ready to order.We have this holdover from our service work in the hotel business that tells us we need to multi-task. Now we find ourselves in a different, new world of being a manager or executive and we need to change gears to function most effectively. We are now being paid to think. That's right, the most important function we perform is between our ears and that requires focus and discipline. The ability to concentrate on one thing from start to finish is what we are striving for. If you have a short attention span and continually interrupt yourself with competing thoughts you need to change that behavior now. How do you know you have a focus problem? Take this simple test: think for 2 minutes about the most important thing you need to do next. Commence that activity and see how long it takes you to lose focus and think about something else? That focus is a muscle and it needs exercise to remain focused for an extended period. Continue to practice this activity and push yourself to focus longer each time. Your reward will be tasks being complete and done, not half done and needing to be re-done again and again.Another telltale sign of the multi-tasker is that your work rules your day. Do you come to work with 100 things to do and you leave 12 hours later, and you have 110 to do? That's because you're trying to do more than one thing at a time and nothing really gets completed. Completed is what you want. Done and never to re-visit is your goal!Having a routine is also an essential part of your arsenal as a manager. Without the power to concentrate and a routine, you are underwater. Does this sound all too familiar? If it does don't panic. It's not a lost cause; you just need to shift gears and take your new role seriously enough to realize it requires a different approach. The good news is by putting new attention on how you work you can change all this nonsense. It only requires you to stop and be honest about how things are going and then do something about it. I also have an article on The Power in a Routine, check it out at closing remember this simple fact: Multi-tasking does not save time, it wastes time; and the good news is, it's only a habit. Like smoking, it's high time you quit.

Understanding the Importance and Use of The Reserve for Capital Replacement

The Hotel Financial Coach ·14 January 2019
The concept for the use of the reserve account is important to understand. It is also essential that hotel operators ensure the reserve is properly funded per the terms of the Hotel Management Agreement "HMA." The use of the reserve is an important tool to utilize to protect the operator's rights and long-term viability. Many people mistakenly think the reserve account is the owner's responsibility and therefore it's up to the owner to determine and ultimately control the funding. But not so fast, the manager has a right and a duty to ensure the proper transactions are performed on a timely basis using the clauses that are in the HMA. There are many important aspects to understanding the reserve and how it impacts the ultimate success of the hotel. This includes the hotel's values as well as the value of the management agreement. One could say that there is something for everyone here!First and foremost, the intended use of the reserve account is to ensure the hotel is kept looking and functioning at a high standard. It's essential that both the owner and the brand ensure this is the objective and the funds are set aside to properly maintain the asset. The reason it is not simply left to the owner to decide the amount to fund and when is because it's often the case that the money is not available. This is due to the hotel's profit performance or the owner's other needs, which can be many and endless. Whether the hotel is making its profit targets by way of the budget is irrelevant to the requirement to fund the capital reserve in most cases. Owners are usually quick to request or even try and demand the reserving be stopped when the hotel faces a bad year or a cash crunch. These circumstances are all too often and challenging for both the owner and the manager. Operators need to be on their toes so to speak and hold the owner's feet to the fire, to do what is necessary. Protecting the operator's rights is what is at stake here. Although it may appear counterintuitive to have the manager insist the owner fund the reserve when facing a cash shortage, it is what is required. It is in the agreement to begin with because it is essential for the ultimate success of the hotel, which is what everyone wants.The clause or clauses in your HMA will outline the amount to be set aside in the reserve account. In some cases, the cash must also be transferred into a special bank account. By doing so it ensures its availability and separation from the operating funds. Look closely at the exact wording in paragraphs covering the reserve account use. Look for "funding" and "transfers." Normally it is somewhere between three and five percent of total revenue monthly. However, it is common for a new hotel to have a period where less or even no funding is necessary until the end of the capital funding grace period.From the point of view of understanding the HMA's intent around the requirement to fund the reserve, the manager needs to ensure funds are available for future improvements. This is a must for the ultimate goal of keeping the property competitive. This helps to ensure the hotel's longevity, an important aspect for the operating company as it helps to protect the all-important management fees. If the hotel fails to stay ahead of its competitive set and loses its market share, the hotel management company can also lose the right to manage the hotel. The RevPAR test is sometimes included in HMA's for the purpose of protecting the owner should the management company be unable to perform. It is imperative that the manager ensures the capital is properly funded and ultimately spent to keep the asset fresh, helping to ensure that its performance is adequate.The other test that is constantly being evaluated is the annual profit target test. Most HMA's will have a clause that defines the profit test. When it comes to the hotel's performance everything is tied together. Customers want fresh hotel products, the hotel needs a constant supply of business, the competition makes improvements, and the hotel's profits go up and down based on the performance of the asset. Availability of capital is essential to maintain the profitability in the long-run. The proper use of the capital reserve is inexplicably linked to the ongoing success of the hotel and that means the funding cannot be played with. If it is, the operator risks shooting him/herself in the foot!Be vigilant when it comes to protecting the rights of the operator and know that owners will try and distract you from your prize. The enjoyment of managing a well-capitalized hotel asset is that prize.

Hospitality Financial Leadership The Matching Principle

The Hotel Financial Coach · 8 January 2019
I tell my Introductory Hospitality Financial Leadership Workshop participants that the concept behind the matching principle is "the most important concept today." Why? When it comes to producing financial information, it's the cornerstone of understanding why we do almost everything the way we do it in the business world. The profit and loss statement cannot exist and be in any way accurate without using the matching principle every step of the way. Grasp this and you are well on your way to understanding the other principles and most importantly putting these principles to work in your day-to-day hotel leadership role.Some of you are probably thinking this is for the bean counters and the propeller heads to chew on. Nothing could be further from reality. Being a financial leader means you understand and employ business principles. These principles are universal and without them, you're akin to a plumber who doesn't understand why water flows the way it does. So read on and get your schtick together.You most likely have endured the wrath of someone when the financial statement came out in your hotel and you had expenses that month from a few months back. This was probably because someone else lost the invoice or failed to put it through to accounts payable. That is the matching principle getting abused! Here is what it's all about and how to use it properly.What does the matching principle mean? Why is it so important to grasp if you want to be a leader who has or wants financial leadership skills? The matching principle, because of its name and the definition, is a bit confusing at first glance. The matching principle states, in order to have meaningful financial information we must match all revenues with their costs at the time the revenue was earned. Here comes the confusing part, match all revenues with costs "regardless of when the money exchanges hands."That's right! We want to consistently match the revenues with costs at the time the revenue is earned, regardless of when the money comes or goes. This is technically the definition of accrual accounting which is the polar opposite of cash accounting. Cash accounting realizes revenues and expenses when the money changes hands. You can compare the cash accounting system to the old shoe box. Money goes in the shoe box when people pay us, and money comes out when we pay for our costs. If there is money left in the shoe box that's our profit.The matching principle provides a much clearer and very precise picture of profitability because we don't need to take into consideration the timing of payments either coming or going. It's not the case that the payments are not important. It's just not necessary to take the payments into consideration when we calculate our profit using the matching principle and accrual accounting.So how does all of this relate to hotels? Here is an example from a client who I recently helped convert from the cash basis to the accrual basis in his four hotels. He was confused because his monthly financial statements didn't always make sense. We discussed why the statements seemed too good to be true certain months and downright awful in other months. He knew that he paid his people every two weeks, which means that every month you're only recording two pay periods. It also means that every six months you come across a month with three pay periods (that's just the way the calendar works). He also knew that annually, in June, he needed to pay the real estate taxes that covered the first half of the year and the next six months. Other items also made the statements wonky, like insurance, utilities, and benefits. What he knew was the statements were bogus because he had a timing problem. What he didn't know was how to fix it.Introducing the two stars of this matching principle show: Mr. Pre-Paid and Mrs. Accrual. These might sound like ominous characters but really they are simple and straightforward. Mr. Pre-Paid acts to allow the insurance payment to be paid now and then split the cost evenly into the next 12 months. This allows for a smooth ride of the profit and loss statement rather than having it all show up this month, which is what would happen under the cash system. Mr. Pre-Paid only goes one way, pay it up front and then spread the cost evenly into the months that are covered. This is the matching principle in action.Now let's look at Mrs. Accrual. She is a bit different in that she must go two ways. Any time she goes one way she must eventually go the other way. Let's use payroll as an example. Every month I have two pay periods and to properly match my revenues and expenses I need to accrue for the missing days. Well, guess what? Next month I need to do the same thing, but I also need to reverse the previous month's accrual, so I match that month's costs to the revenues. Accruals bring expenses into my month's statement before I have the actual invoice, or with the example of payroll into my P&L before I pay people. In both expenses and payroll, I need to include everything that has been spent this month regardless of whether I have paid for it yet. Once the accrual is booked I'm now matched and expenses line up with the revenue earned. Once the accrual is recorded it's normally reversed the next month because the actual invoice showed up and the payroll got paid.I'm going to repeat myself, but it's worth it because it is so important to understand this. The matching principle works on the idea that expenses and revenues all need to be included in each profit and loss reporting period, regardless of when the money is collected for the revenue earned or when the cash is paid out for the expenses or payroll.Get this into your DNA and make sure all your departments' expenses get booked properly or accrued each month. Those invoices and packing slips on your desk need to be sent down the hall so they are included in this month's results. Without the matching principle working smoothly and completely in your hotel you will be in for a rough ride.
Article by David Lund

The Top 10 Interview Questions About The Hotel's Finances for a General Manager and the Best Answers

The Hotel Financial Coach ·31 December 2018
Interviews are tricky, for both the candidate and the interviewer. A GM's job interview is a challenge for the incumbent because they need to be ready for just about anything. This is especially true as it relates to the financial picture of the business as seen through the interviewer's eyes. The opposite is also true as many times the person doing the grilling does not have a broad base of experience relating to the daily inner workings and nuances of the hotel world. Here is a list of common questions and good answers as well as a few bonus questions you can ask the person doing your audition.1. What makes you qualified to be the person in charge of the financial direction and health of my hotel? This is a wide open and leading question. Wide open because the health of the hotel is like your body and every inch counts and needs to be properly looked after because it all adds up. Leading because it's designed to catch up the fair weather GM's that think the finances are the Controllers baby. The best answer here is: as the GM, my job is to lead all aspects of the hotel. The finances are what I consider to be one of the three pillars of our business. The guests, the colleagues and the money are all what I come to work to manage every day.2. Who in your opinion is ultimately responsible for the finances in this hotel?Again, this is a leading question. The inexperienced answer is: the Controller or Director of Finance is responsible for the numbers since they run the accounting department and produce the financials. The correct answer is: as the General Manager I am ultimately responsible for all aspects of the business and in this case "especially the numbers."3. As the GM what is the most important thing you will do to ensure the hotel is a financial success? This is a pinpointed question and there are several good answers. The one that I like the best is: as the GM, my job is ultimately to ensure each department in the hotel has their financial plan. I am also responsible to ensure the plan is executed on a consistent basis with a high level of success.4. What exactly does each hotel department head need to do to be successful with their financial plan and how will you ensure this happens during your tenure? This is a vision and planning question. You already laid out the vision for the departmental finances in your answer to question 3, and the best plan is to ensure each manager is trained to F TAR W on a consistent monthly basis. That is - Forecast, Track, Adjust, Review and Write. For my complete F TAR W recipe read my article at Under your tenure as the GM what are each manager's financial responsibilities? This is a wide-open question that cries out for a cracker jack answer. Exactly what is it you will be asking each leader to accomplish with their financials? The best answer is: there are sometimes three things, but always at least two for which each manager is accountable to me. These are departmental revenues in some cases, but always their payroll and expenses. The answer is simple, but most people miss this because they don't see the effective strategy of having each person on the team charged with their own piece. Many fumble this one with mumbo-jumbo about the Controller and director/divisional organization; the simple and effective method and the response is if someone does the schedule or orders the supplies for their area, they are the ones with whom we will organize and create agreements on the necessary financial responsibilities.6. What will you do when you have a bad month and miss the forecast? This is a great question and one that you should expect. We will all have months when we miss the forecast; that's just part of the game. But what will you do when you screw up is a tough question to answer. The most effective response is: learn from what didn't work, analyze the areas where we missed, examine why and determine what we can do going forward so as not to repeat the same mistakes. There will always be challenges to overcome and learning from our mistakes is the best answer. Skip the Trumpesque answer that we never miss a month or get captured (sorry I could not resist).7. What are your thoughts on managing and measuring flow thru? This is a very technical question, but it's easily handled if you understand and utilize the concept. A super answer is: it's always our focus to maximize profits when revenues are higher in the current period compared to the last and focus on retention when revenues are lower. Each area should have a detailed plan for their payroll and expenses as well as utilize a monthly flow-thru analysis to determine exactly where costs are higher. With this information we can take the appropriate actions going forward to ensure we don't repeat the same missteps. The answer shows you know how to analyze the variances with the flow-thru concept and most importantly how to manage into the next month to continually get better.8. Can you tell me your specific ideas on controlling payroll in the hotel?These guys are tough and it sounds like they are really trying to nail you down, but again if you know your stuff the answer is right in front of you. Each department must have an approved staffing guide and formula in my hotel. An approved list of fixed positions by department and a formula for determining variable payroll should be provided based on rooms occupied or cover counts in rooms and F&B. From this a weekly schedule is produced that revolves around measuring productivity with the goal of always making or beating the monthly productivity targets. Wow - I think you just got the job!9. How do you go about writing an effective monthly commentary that the owners will find useful? This question is calling out your understanding of the "full disclosure principle" as well as your broader leadership philosophy. The seasoned answer falls off the W (Write) in #4. The commentary serves three main purposes to help your hotel move forward:To tell the stakeholders what you see coming in their business that the financial statements cannot reveal like: competition, impeding regulations, capital issues, human resource challenges, etc.It's an incredibly effective way to let your stakeholders know you're on top of the many challenges you collectively face, and you use these current variances to plan and manage future activities to mitigate negative impact and capitalize on the positive.By having your management team participate in the creation of the commentary you ensure that the future direction and challenges of the business are being met in all areas by your team.10. As the GM what would be your personal leadership style? This is a wide-open question that gives you an opportunity to demonstrate how you see your role and what you will bring to the table during your tenure, should you get the job. I think a great answer goes something like this and it's two-fold. One, my belief as the GM of the hotel is that leadership is about developing my team and communicating the wants and needs of all stakeholders. This is done while continually moving the business forward. Secondly, leadership in a hotel is about knowing that all three pillars of the business are equal. We all come to work every day with a high level of enthusiasm and energy all the while knowing that the job is never done, and things will never be perfect! Sounds great right?

OTA's and How Hotels Can Best Use Them

The Hotel Financial Coach ·18 December 2018
A lot gets said about OTA's and most of it is negative coming from the hotel world. I get it on one hand as I was the one having to explain to owners each month why our commission expense was constantly on the increase. However, on the other hand I also knew we had our backsides saved many months because we turned on the tap and let them in.What's the alternative - no OTA's at all? That's probably not on anyone's wish list at this time of the year. Would another alternative be lower fees? Absolutely this would be welcomed but it's a super competitive landscape out there with lots of different options for hotels to consider. I say the market sets the fees. How about a third alternative - getting the most out of the OTA?One aspect that I see all the time from hoteliers is a single focus on the elephant in the room, no matter what the issue. Talk about profit and they want to talk about increasing RevPAR. Talk about service and they default to negative Trip Advisor comments. There are always other ways to look at any situation. The elephant in the room with OTA's for hotels is the commission costs. What hotels could do to alter their perspective just a little would be to consider and take advantage of the other services offered by the OTA's. The services BTW are free! That's like the old glass of water in the restaurant is "free."When it comes to OTA's, hotels are fixed almost all the time on the same two things. The revenue generated by the room bookings and the commissions. What if there were more aspects to consider than just the immediate gratification and the hangover afterwards?Here is a list of what I think are very compelling value-adds from some OTA's that hotels could and should take advantage of. I also believe when they do use these services it adds bottom line improvements as well as long-term business intelligence, greater stability and market diversification. This longer term view is priceless, especially in markets where there is new supply and fierce competition.Work with your OTA's personal market manager to create a distribution strategy that works for your individual property.Look at the mix of guests and see where the gaps are. Then target these opportunities using OTA tools and promotions for only the segments and dates you need.Utilize their mobile productivity tools that allow you and your staff to work from anywhere and anytime.Optimize your content and photos to get the power of a free online brochure that can generate new direct business and referrals.Leverage the OTA's data by using property, competitive set, market and guest data to understand guests' travel motivations and booking behavior, allowing you to reach and convert travelers in a more focused way and then turn them into loyal returning guests that book direct.Hotels could stop paying for loyalty programs when OTA's are offering the same product and they are paying the bill for it. their free revenue management tools which can save you time and money and drive incremental revenue gains. Also, these free tools help you know the competition.Let the OTA take the risk for international currency conversions and testing out new payment solutions.Gain a better understanding of compression events in your location by working with your market manager who has a much better perspective of the overall market demand.Last, but certainly not leas,t is take advantage of all the value-adds the OTA's offer. Hotels are notoriously suspicious of outside services and new technology as if they were a permanent disease. OTA's are investing mega wads of cash to continue to be on the forefront of the travel worlds' evolution. Remember that's how it all started. Take advantage of their investment and don't be too concerned that the evil empire will have you hooked like a bad drug.Hotels that utilize a strategy that considers how they can get the most value from their partnership with their OTA's are going to be the most successful in the long run. This reminds me of a saying that an old boss of mine would use quite often. He would say this to the director of sales when he/she were full of himself after a good month's results on our RevPAR index or the revenue picture to budget.He would say, "Any Monkey Can Fill This Place When the Phones are Ringing" - "What are You Doing to Keep the Phones Ringing?"

What Is Leadership?

The Hotel Financial Coach · 4 December 2018
Leadership can be a confusing application. Just google leadership and you will get so much information it can make your head spin. I am going to try and simplify the definition of leadership in this article. I am writing this because I believe the idea of leadership and how it's applied is very straightforward and quite practical when its used effectively. I also know that when a person has a clear vision of what's required to move ahead, the trip speeds up.I have learned, over the past 35 years in the hospitality industry, that leadership is about two things. These two things are communication and development. We don't need a longer list because these two nouns encompass everything we need when it comes to being the person who leads in their world. This being is an important distinction from the typical doing part. I learned much of this from the people I have worked with, some great examples and some rather poor ones too. Let's start at the beginning with communication. Being an effective communicator means you are faultless with your words. This ideal is one that will separate you from the field. Every word you say, in every conversation, with the entire universe, forms your personal DNA. If you say disparaging things about another person or situation, that's how you will come across. Make promises or commitments you don't honor, and you instantly and forever lose credibility with your network. As a leader, being able to communicate effectively boils down to being a positive influence in any situation, making a positive environment even better by adding to the situation in a positive way. Even more importantly, don't jump on the negative wavelength and perpetuate the gossip or the complaining. Find the good in everything. My mother would always say, If you have nothing good to say, then say nothing at all. This is what she meant: when you repeat something negative, everyone in your world sees you as part of the problem, not part of the solution. To be a good leader, be the one who has a solution or an idea that can move situations/problems in the right direction. Don't follow the sinking, smelly ship of complainers and criticizers. Try this the next time you are in a business conversation. Replay what you said and ask yourself, Did I contribute anything positive to this situation or was I also negative? Either way, its just a habit and being aware is the first step to correcting it.The other side of communication is what you are talking about. Its critical that the people you lead get the essential information they need to make the best decisions. Talking about the core values mission, strategy, competition, innovation, and numbers is important. But speaking to the individuals wants and desires is essential! Again, don't blame the home office when you get some tough assignments. Find a way to make it a positive challenge. Just thinking how can we pull this off and still make our numbers this quarter is so much more empowering than the office version. They would have you marking your spot with a diatribe of superlatives directed at those clueless people from head office. They have the nerve to say they're here to help. Going down the path of being a victim is not what will motivate people. Having the can-do attitude is the formula that is required. It does not mean you're not realistic with your team, but it does mean you are the one they can count on for a positive direction toward the situation, ALWAYS!.As a leader, developing your staff/team is a way to move forward. The more you work on bringing others up onto the stage, the greater the impact you will have. People want to work and be involved with organizations that are going to help develop them, especially in hospitality where the competition for talent is so narrow. What you do to help people succeed in their own careers is the difference a good leader has on their radar every day. The key to your leadership success is your team continuously growing with personal prosperity! It's that simple. There is a saying that I use often at my speaking engagements: If serving is beneath you then leadership is beyond you. Serving your team is a tough pill for many to swallow because we think its the other way around. We typically come out of the box in our leadership positions and think that I'm the boss and people need to listen to me, they need to serve me. This is the wrong approach, and it will not work effectively. Sure, having your expectations and layering in some fear with your team sounds like the classic recipe for leadership, but its the cowards way and it's not effective...Developing your people means serving them. Service in this medium means helping people succeed. Don't get all squirmy at the idea of service. It does not mean you are laying down and abdicating your role or responsibilities. Your service delivery is, first and foremost, accomplished by your communication. Someone comes to you with a problem and you don't tell them what to do. What you do is help them find their own solution. The result is so much more powerful if it comes from them. It's just your communication delivery that accomplishes this. Ask great questions and don't give orders and directions. Another powerful way to communicate is to become good at making agreements. The flip side of the agreement is the ugly cousin from out of state: the expectation.Leadership is about helping others succeed. You accomplish this by being impeccable with what you say and always putting the team's needs and development above your own.

Hospitality Financial Leadership Going Down The Road - Part 1

The Hotel Financial Coach ·28 November 2018
This title belongs to a classic 1970 Canadian movie about two guys from Nova Scotia, Joey and Peter. They moved to Toronto to seek their fame and fortune. As luck and the writers pen would have it, they found little of either. My story is about my trip from New Brunswick to Alberta, my version of trying to make a go of it in the big bad world.It was 1983 and I had finished two years of hotel school and two years of working at the resort in my home town. My position both summers and winters was working in the bar and then I became the hotel receiver for my final summer. Upon finishing my final year of hotel school it made sense to move out of the bars into a real job." The advice from my culinary teacher when discussing this idea was sobering. He said, You're no different to any potential hotel when it comes to getting hired. Your hotel paper means nothing." He continued, "What will set you apart is how you show up to the job interview and what difference you can make." I thought at the time he was mean spirited, but I now know how true his words were.I applied for two positions: one at the front desk and the other in stores and receiving. I knew the Controller and his assistant because they helped me during the winter months with my supplies, time sheets and deposits. During the two winters I worked there, the only position available in the hotel was in the bar, aptly named Sir Williams." In early April, I learned I would become the receiving and storeroom clerk during what was most likely my last summer in my home town. Because my home town is a resort town, only busy for the warm months, I knew I had to make a move if I wanted to kick start my hotel career into second gear. Staying in my home province was not likely as there were just no year-round jobs as everything was seasonal.The new job was great. I learned a lot about food and beverage products. I was exposed to food preparations that I had never seen on my plate at home. My typical day started with filling the requisitions from the main kitchen, loading up the carts and then delivering them to the main kitchen. There was always some politics around the delivery." My boss, the Food and Beverage Controller and the Purchaser, told me it was the kitchen's responsibility to pick up the carts from the storeroom, but the Chef told me it was my job to deliver the food to the kitchen. Well, two things won the contest. One, the Chef said, When you're done with the morning orders, go see the ladies in the pantry and they will feed you! The second part was just how nice the pantry girl was. Free food, good food and a pretty smile was a small exchange for the trip up the elevator.I learned about the cardex system and the month-end closing process. Albert, the F&B Controller, taught me how to calculate the food and beverage costs.Step 1: Opening inventory plus purchases.Step 2: Subtract the closing inventory. Step 3: Subtract any credits (like cafeteria and bar food).I worked from 6.30 am until 3:00 pm with a half hour break for lunch. The mornings were spent on the food side and the afternoons on the beverage side. Mornings consisted mostly of delivering food to the kitchen and receiving food from several suppliers at the back door of the hotel. It was the same door the staff used to enter the hotel. Incidentally, I was also directly across the street from the General Managers house.One aspect of the job that I found very interesting was the weekly visit from the General Managers wife. You see, she got most of her groceries and all of her beverages from the hotel. She would show up and "go shopping" in my storerooms, which consisted of a huge walk-in refrigerator/freezer and a dry goods storage room. She would supplement her shopping with me. She would give me a grocery list, which she also delivered to chefy for all the items she needed that were too bulky to remove from my storerooms. The requisition she gave me for the liquor, beer, wine and minerals was impressive. When the "shopping" was done it was also my job to deliver the goods to their house. I didnt mind this one bit as the GM had two daughters who were always happy to help unload the cart.Having this inside look at how the hotel subsidized the General Managers household was fascinating stuff for someone as green as me, especially at month end when the head controller would come by to review the month-end cost calculations. He was most interested in the "credit to cost" for the General Managers house. I remember the first month the head Controller asked to see the copies of the beverage requisitions. I also remember how the discussion between him and the cost controller was quite interesting given the rather large sum of dollars being delivered across the street. The controller was questioning the accuracy of our figures, but not for long as he looked at the requisition book and it revealed the quantities and description of the items being ordered.You see, it was part of the deal, in those days, to provide the GMs household with food and beverages. The problem was this cost needed to be reported to the owners and to corporate. Politics being what they were, having such big dollars to run the GMs house must have been a problem. I am not sure at all what happened on the books, but I am sure that my part was not the end of the story.The summer I spent as the storeman and receiver was a great education. I think I learned more that summer than I did in two years of hotel school. Midway through the summer the Personnel Department (thats what we called people resources back then) would post available jobs from other hotels on the information board. There was no email, the fax machine was just a toy for the elite and the video cassette recorders, beta and VHS, were still battling it out. Heck, CDs were not even on the scene yet. As the summer went on, the job postings were the topic of a lot of "after work and evening" beverage debates. All of my hotel friends were in the same boat as I was, just trying to figure out the next part of their migration. We had all spent the summer out east and our next move was to head west to the mountains and the ski resorts. That was the path most of us were looking toward.Applying for several jobs, I was disappointed to not receive an offer until mid-September. It was for a job at the biggest resort as a dining room busboy. My schooling, the two years of experience in the bars and the Receiving Department, didnt amount to anything when it came to my next job. I was upset and those "mean spirited" words of my culinary instructor came back hard. He was right, my college training and even my work expertise didnt mean crap. I was back at the bottom of the ladder.

Expectations vs. Agreements

The Hotel Financial Coach ·19 November 2018
In life, few things make us less productive and more distant than other people's expectations of us. Expectations are everywhere, at work and at home. People detest others expectations.Uncommunicated expectations were not productive, especially when real work and strong relationships were required. Yet uncommunicated expectations were cast everywhere and they were weak.If I had a complaint in my world, it quickly became an expectation that someone else needed to fix. I tended to fixate over the injustice and in doing so I created my expectations. What I saw was that this was completely ineffective for getting things to change. Complaints were very easy to ignore and diminish; however, requests were not easy to ignore. Once we made a request we were heading in the right direction, because on the other side of a request we now have the ability to make an agreement.Let's take a hotel example. Currently, I was having a very hard time getting other managers to prepare detailed monthly forecasts and get these to me by the 30th of the month. I sent a schedule and reminders. I spoke at the department head meetings about the deadline, but I still didn't get a high success rate on submissions. It was always a struggle to get others to do what I expected. Without the forecast, I was left with two very unattractive options: do it myself or go without it. Both options meant I was shortchanged because others were not living up to my expectations.Now, I had two alternatives: 1) Complain about it, which I had done for years without results, or 2) Make another request. This was the pivot point.If I was willing to admit that my current status was due to my expectations, and I could bring myself to ask the other party for agreement, the conversation might go something like this."Peter, will you help me? I want to include your numbers, not mine, as part of the detailed forecast. Will you complete your part and get it to me by noon on the 30th?"Now it might not be easy for Peter to say, "Sure, no problem."But now the exact expectation was known because it was what was asked for. Or the request might get reviewed in a different light like, "I could, but that means I'm going to have to rearrange my week because my assistant is on holiday and our second office computer is dead."This was what I wanted to hear. This was the foundation of an agreement as now both parties asked for something. It was no longer the case of my having a single expectation. Now there were multiple balls in the air; some were mine and some belonged to other people.Turn the unmet expectation into a request and the request into an agreement like this: "OK, so I will send the systems person to your office today to switch out the second computer, but I'm not sure what I can do to help you rearrange the rest of the week."To which Peter replied, "No worries, with the computer replaced I can manage. I will gladly get you my forecast by the 30th."Let's break it down and figure out what happened in this example:I changed my language from a tired, self-centered expectation into a request.Peter asked for my help with meeting his department's needs and then, in return, he will complete my request.I committed to help him with the computer issue.He, in turn, was positive and in agreement in his response to meet my request.This communication exchange was the foundation of an agreement. It passed the test of an agreement because it had four parts, two for me and two for Peter. The test was "give and get." In this example, Peter got his computer fixed and gave me the information on time. I gave the resources to fix the computer and I got the report on time.Before the request and the agreement, it was just me asking. I wasn't giving anything and what it boiled down to was I had an expectation of Peter, but no agreement. That was a weak negotiating position to accomplish any task.Now, some people are reading this and thinking, "I'm the boss and people need to do as I say" or "I don't have time to make agreements with everyone". These issues are partly true. But if expectations aren't getting met, there is nothing to lose in trying this technique.A commitment to drop expectations and start making agreements instead worked best. Yes, it took time to make agreements and find out how to help other people, but it was well worth the investment.

What's Missing with Labor Planning Tools?

The Hotel Financial Coach ·12 November 2018
I'm looking for an end to end solution to labor planning and I have yet to see one that brings it all home.Let me explain what I mean. In a hotel that budgets and forecasts labor hours, productivity, and business volumes and uses a labor planning tool to generate schedules, we need an end to end tool or set of tools that ties everything to do with labor together. Budgets, Forecasts, Schedules and Variance Analysis all need to be geared to the same measure.So now that you're confused, let me paint you a picture. For me to paint this for you it's imperative that you use productivity measurements in all your financial reporting - hours per room occupied and hours per customer served in F&B. If you don't use these in your budgets, forecasts and actual financial reporting - you should. If you don't, I'm sorry to say that the rest of this article will probably be of no use to you. If you use labor as a percentage of revenue or as a cost per room occupied that's OK, but not nearly as effective as hours per.Here is the scenario. You're in the last throes of budget 2019. You have all your numbers together and you are proud to say that the rooms and F&B labor productivity budgeted next year are better than the 2018 re-forecast. You made sure of it and your year-over-year statements prove it. Well done. You have taken the approach that you will run your hotel more efficiently next year than this year. After all that's what you get paid to do, right? Who would put forward a budget that says to the owners, "By the way my plan is to have the hotel operate less effectively next year wasting resources and consuming more costs." You're just not going to be the one who makes that kind of fatal move.Now let's imagine it's January and the budget is approved. You need to move into the new year with the business plan for 2019 in hand. With labor, you turn the ideas that are in your budget into reality with your Operation Managers. They need to put into action the ideas you conceived in the budget to achieve the increased efficiencies. This is where the rubber meets the road. You have a quick look at the month of January and you see the budgeted productivity for rooms is 1.255 hours per room occupied. Last January the productivity was 1.291. You have some work to do.Let's move from 10,000 feet down to the ground. In your hotel, you have a labor planning tool. Your departments use it to generate their schedules and they measure their schedule to the labor standards. Here is where it all falls apart. This is the missing piece and the missing link to your budget. The labor standards are essential to produce the schedules, but they must also produce an overall productivity by the same key areas we track on the financials. The labor planning tool must be programmed to spit out the scheduled productivity and analyze the actual vs. the scheduled and the budget/forecast. End to end we must always be using productivity. I have said this before and I'll say it again, "We need to be fascinated with productivity!" If we were making cars it would be hours per car; in the hotel business, we're focused on rooms, F&B, and non-operating department productivity.I am sure someone out there has put this all together in their financial modeling system and it also seamlessly feeds their labor planning tool. I would love to see your system in action. If you're not 100% sure about what I am referencing, that's OK. Call me and I can explain further.In my past life, I worked with a great financial modeling tool and a "so-so" labor planning tool. The stewards of the labor planning tool could not, or would not, see the value of having the productivity as another measure in their system. They were firmly stuck on the labor productivity standard, which ultimately meant nothing because the standard changed frequently. All that was missing was a simple additional measure which would have divided the hours worked by the anticipated and actual volume of business and voila, it would have been magic! What we ended up doing to work around this was to dump the data from the labor tool into Microsoft Excel, analyze it and see if the schedules were producing equal or better labor productivity by area, department, and division. We messed around a lot with this and very often the labor standards were producing less. This is ultimately where the labor tool sucked wind.Build productivity into each part of your reporting, planning and scheduling processes. Always be measuring productivity. Always challenge your department managers to find ways to improve productivity. Show them how the simple measurement works and have them find ways to make it better. The hotel business is a game of inches. Every day we sell hundreds of rooms and we service hundreds if not thousands of F&B customers. To do this we expend thousands of hours of labor. It all boils down to the volume of business and the hours worked and how can we get just a little better tomorrow.This article is dedicated to Dan Araujo, who analyzed all that data not so long ago. He was taken from us way to early!
Article by David Lund

Understanding Flow-Thru

The Hotel Financial Coach · 6 November 2018
A good analogy to grasp the concept of flow thru is to compare it to your paycheck. Imagining I give you a $1,000 a week raise, the question then is how much will end up as your pay vs. how much got eaten up by higher taxes and other deductions?The same goes for additional revenues in your business. If revenues are $50,000 higher this month than the same month last year, how much of the $50,000 will make it through to the profit line? How much will flow?"It's great that you increased the rate and overall revenues in my hotel, but what I really want to know is how much you will keep and give me in profits." - Anonymous hotel ownerManaging flow thru in your hotel is a key attribute to understanding the profit model for your hotel. The reason it is so important to understand is the different characteristics that emerge when revenues go up or down in different departments. Measuring flow thru by department and by the key driver is the basis for understanding your hotel's real financial results and most importantly its financial potential.Here are some motherhood questions to get your flow thru imagination going.The overall revenues year-to-date are up by 1.3 million dollars. How much should flow in GOP?Occupancy is up over last year by 5% and the rate is up $15 as a result. Room revenues are up $720,000. How much should flow in room profit and GOP?Restaurant average check is up by $2 and as a result food revenues are up $10,000. How much should flow in F&B (food and beverage) profit and GOP?Liquor revenues are up over last year in my lounge by $7,000. How much should flow in F&B profit and GOP?Banquet food sales are $50,000 higher this month than the same month last year driven by higher volume and average check. How much should flow to the F&B profit and GOP?The way we calculate flow thru is straightforward:Step one - Subtract the revenues from two different periods.Step two - Subtract the profit from the same two periods.Step three - Divide the difference in revenues by the difference in the profit.All the revenue streams in your hotel have two attributes: pricing and volume. Understanding the difference and measuring the impact is the key to understanding and measuring departmental flow thru.Measuring flow thru to the prior period is normally a stronger comparison than measuring flow thru to budget or forecast. The reason being when we compare the flow thru from one real period to another real period it is more of an apples-to-apples comparison. When we compare flow thru to the budget we are comparing a real result to a projection.A word of caution, when comparing the flow from one period to another it is important to include any events that may have had an impact on the results. This is where a good memory and a great monthly property commentary come into play. Let's say that last year in the month of May we had a great group month, off the charts because of a citywide. That fact will skew the flow thru to this month. Being able to articulate the impact of past and current events is very important.Negative flow is also an important concept and calculation to master. When revenues decrease, we want to be able to mitigate the impact to the profit lines. We want to be able to retain the profit loss. If we do not act, we run the risk of losing 100 percent or even more of the lost revenue in the form of decreased profits.Rooms FlowThe rooms department is the engine in 99 percent of the hotels in the world. The greatest contributor to performance is rate and then occupancy. If my rate goes up $10 over the same month last year and I sell 18,500 rooms this month, the same amount as last year, my room revenue just went up by $185,000.The question is: How much should I be able to keep as profit?What we need to examine is what else would need to increase to compensate for the additional room revenue. This is the magic in the hotel business as very little needs to go up when my rate grows. Whether it is a transient increase or group the impact is largely the same, i.e., Very Good!Depending on my segmentation, I may need to spend some of this increased revenue on third-party commissions. I also may need to spend more on my reservation expense from my brand, depending on the mechanics of the chargeback. Other than these two cursory items no additional expense or payroll in the rooms department need be spent.Other costs that will be impacted by the increased revenues are credit card commissions, centralized fees, and management fees. A good rule of thumb is I should see 90 percent of any additional revenue flow in rooms profit and 85 percent in GOP that result from the increased room rate.Your hotel manager may take it upon himself/herself to spend a little more this month to catch up on some cleaning or other expense but it is not directly related to the increase in rate.On the other side of the equation is occupancy. Let's say my hotel this month saw an increase of six points in occupancy over the same month last year. This resulted in an additional 300 rooms sold and an additional $45,000 in room revenue. The question is how much should flow? With occupancy, it is a bit more complicated.Every time I sell a room I have both fixed and variable expenses associated with the sale. Taking the 300 extra rooms, that is an average of 10 more per day. I do not need huge amounts of additional resources at the front desk in reservations or in guest services. I will, however, need additional room attendants and housekeeping labor. I will consume more amenities, guest supplies and probably should pay higher commissions to third parties and more in reservation expenses to my brand. I will also pay higher credit card commissions, centralized fees, and management fees. So, as a rule of thumb, I should see 85 percent of any additional room revenues from increased occupancy as increased rooms profit and 80 percent in increased GOP.F&B FlowWhat is the increase or decrease in F&B revenue and where did it come from?In the food and beverage department, we need to have a much bigger calculator to see what happened and what the results should be. We want to be able to measure the increase or decrease in all the dimensions that drive our business.Profitability characteristics are very different from food sales and beverage sales. Within food sales the profitability of all the different meal periods, as well as distinguishing the relationship between outlet sales and banquets, is key.What would you rather have, dinner revenue increases or the same revenue increases from coffee breaks? Would you like to see sales increase in your outlets or in banquets - what would have a bigger impact on profit?With beverage sales, the profit margins for liquor, beer, and wine need to be understood as well as the portion of our outlets vs. banquets. When we look at the average customer price for food we also need to understand the contribution margin. It is nice to see the average cover increase but what profit do I make from the different type of sales inside my F&B operation?All of this looks complicated on the surface but it really is not. With a little analysis and some patience, we can build a model that will help us see the optimal picture for profitability in our F&B operation. With this picture, we can strive to create the optimal recipe for our food and beverage success.That is the key: Understanding what the optimal mix is and getting our sales and conference services people selling that. Getting our outlet managers and servers to understand what items have the biggest contribution to profit and have them sell accordingly. If we were selling cars, we would know the model that generates the biggest margin, and the accessories that drive profits. Our business is no different. Flow-thru and its impact is at the heart of understanding this profit model.Minor operating department flowSame principles as above: What is the difference in the top line and how much did we make in additional profits? This is valuable information for spa, golf and retail operations.The last part is sometimes the most important - in this case, it is non-operating department flow. I cannot tell you how many statements I see where there is a nice hit on the top line revenues only to have most of the potential profits chewed up in non-operating departmental creep.Administration costs, sales and marketing and maintenance flow needs to be measured and managed. If you cannot readily see this you are missing a powerful tool.Creating the flow thru measurements in your financials is relatively straightforward. Pulling out the numbers you want to see, like the change in revenue and the change in profit from the two different periods and dividing the two, is it. Display these on your financials and you will have a whole new understanding of your business and be much more effective in your ability to hold others to managing their departmental flow thru.Mastering flow thru is the key to the hotel profit maximization.Understanding where we win and pointing the team, the sellers, the operators in that direction. Creating alignment around the business model.
Article by David Lund

Why OTA's are Uber Successful

The Hotel Financial Coach · 6 November 2018
Have you ever wondered why we all hear so much complaining and downright all-around annoyance being expressed from hotels about the on-line travel agents? You would naturally think that because there is so much protest being made that hotels would simply not use the service and opt for something else? Right? Well - not so fast as hotels are reportedly using OTA's more than ever.There are three key reasons why OTA's are so successful and, in turn, why hotels and customers all flock to use them.One. Hotels, brands and franchisers all benefit from using OTA's and they do so without making a single dollar of investment to create this ever-expanding marketplace that the world loves to use to book travel. The OTA's have created an incredibly powerful platform to feature hotels including photos, comments and descriptions. What other industry has such a parallel set of conditions? Imagine, if you will, for a moment that an industry popped up and aligned itself with the fashion world. This imaginary industry existed for one purpose only and that is to advertise and allow the clothing manufacturers, retailers and brands to list and advertise their products for free; the trade-off was each retailer had to pay a commission for sales through this medium. The only time the fashion world pays a commission is when there is a sale. The fashion world gets to decide what clothing products need additional exposure. I am willing to bet that the fashion world would jump at the opportunity given someone else is willing to pony up the development and ongoing operational cost.Two. Variety is the spice of life. Right? We all love choices and the OTA's have put this love of selection into the stratosphere. I just did a search for accommodations for an upcoming long weekend in Chicago and guess what? There were only 1108 options. How is this possible? Everyone hates the OTA's...I don't think so. With this kind of selection why would anyone what to shop anyplace else? Surely if you know your favorite hotel in the windy city and you're not looking for a deal then just pick up the phone and call and make your reservation. But for the rest of us, the one-and-done traveling public, we're interested in "getting a deal" and "finding the hot spot." The OTA's provide a great view to location, amenities and the sheer variety of selection that ensures a lineup of products to satisfy a longer line of travelers. I remember working in San Francisco almost 10 years ago and our reservations manager telling us at the department head meeting that Tom Hanks had just booked his room in our fancy hotel using Expedia! I guess even Tom appreciates a deal and I say, "Good for him." Third and perhaps the most compelling aspect of the OTA's popularity. People love getting a deal or the idea that they received a good deal especially after doing their homework. When was the last time you were at a party or social gathering and someone told you about the deal they got on a vacation, hotel or airline ticket? People are always bragging and why not, they did the work and found what they believe is a deal. I totally get this and, as someone who heads straight for the clearance rack at Barney's, I know all too well how much getting a deal means to me. In the travel world people are naturally suspicious of the big players and the very thought of paying the rack rate makes most customers run for their laptop and the next thing you know they are searching out their version of a bargain. Another powerful attribute the on-line travel agents bring the consumer is a wider choice - an ever-expanding set of possibilities. Using my recent search in Chicago in a very short moment or two of looking at hotels, I was fascinated to see the options from different downtown neighborhoods to the adjacent suburbs and many offered locations and amenities combined with favorable pricing that was very attractive.Without the OTA visit I would be left without an informative guide to help my search. We all love choices and when we are presented with options we were not previously aware of we often see the value proposition in a unique and powerful way - our way - because we discovered it. When was the last time someone just had to share their secret travel tip with you? Travel is one of those experiential things that humans love to talk about and when we find something we perceive as exceptional we love to share it.Hotels can, and many do, find a win/win with their OTA's. Here are some examples to think about:Hotels can get absolutely free advertising on the OTA's site. Add some great pictures and descriptions of your services and property and you have a wonderful marketing piece - free!They can take advantage of free revenue management tools that OTAs offer that help hotels drive more revenue, including recommendations for when they should price lower to take more business and price higher when they are able to.They can also work with market managers who are experts in the industry and trends for their specific local markets.In my opinion, hotels need to get onboard with their OTA partners in a more wholesome and collaborative way. The hotel's success is in many respects a product of a mix of business; treating the travel agents with anything other than the respect that a partner deserves is shortsighted.

Trading Places

The Hotel Financial Coach ·30 October 2018
Circa 2009. Late September. I'm the regional controller for five hotels. Sitting at my desk minding my own business, doing my own work when the phone rings.It's an old friend, one-time assistant, and now the regional controller based at a hotel in another city. He explained the desire to move back to where I was but was not having much luck finding a job. His homesick wife really wanted their children educated at home. We chatted for a few moments and caught up on different topics.Then he said, "Hey, David, how about we trade jobs?""Can we do that?" I asked.Then I thought, "Wow, it's 28 years after the high school summer I planned to spend in California and didn't get to go. Now I might get the chance.""Well, there's only one way to find out," he said.We both got to work to make the job trade possible. First, I got my work visa to go from Canada to the United States. The next positive step was his application for my job was approved. It now depended on me passing mustard with the owners of the hotel in the states.A date was set for me to attend and participate in the annual budget review meeting scheduled in early November. I was briefed on the hotel's operations and finances by my friend. As the deal hinged on making a good impression on the hotel's asset managers, it was prudent to discuss how these managers operated. A total of three asset managers were scheduled for the meeting. There were two companies that owned this hotel. Convincing one of the companies was an expected breeze. The second company had two ladies managing the asset. They had a reputation for being difficult to work with.Finally, the big day arrived. I flew to the U.S. and my friend picked me up at the airport. We enjoyed a nice dinner while discussing the two ladies and the possible objections, questions and overall hot buttons to avoid.The next morning after breakfast I headed back to the room before the meeting. In the elevator I pushed the button for my floor, but as the door began to close I saw someone entering the elevator foyer. Out of habit I selected and held the door open button.I casually asked the lady, "Going up?"She smiled and replied, "Yes, thank you. What a gentleman."What a great way to start my day. I asked her, "Where is home for you?""Los Angeles."As the doors opened at my floor I said, "Have a great day.""You too," I hear as the doors closed again.Thirty minutes later in the board room, with the Hotel's Executive Team, in walks the three asset managers. Introductions were made.Who do you think the lead asset manager was? She was the one with all the clout I found out later. Yes, it was the lady I held the elevator door for. A good decision perhaps.We reviewed the budget. The hotel was not doing well as a result of some issues from the last few years and the economy. The review was painful. We were getting cut to pieces, as was the budget. "Cut this . . . You didn't need that . . . Why so much expense here . . . This should be higher . . . That was too low."The last thing on the day's agenda was discussing my appointment as hotel controller. The three asset managers, hotel's executive team and I listened as the general manager went on about all the experience and expertise I possessed. He finished his pitch. There was silence for what seemed like an eternity.Then the lead asset manager said, "I can't believe you can't find a controller in this city! Why the heck do we have to move him from Canada? With this economy do you have any idea what you're doing with our money?"I couldn't breathe, like someone sucked all the oxygen out of the room.The general manager was a talented negotiator. To defuse the discomfort, he smiled and said, "It's been a long day for us all. I suggest my team leaves the four of us to finish this discussion."Fine!" she almost stomped her foot, somewhat perturbed.Then I spoke. I didn't plan this, it just came out, like opening a champagne bottle, pop: "Please allow me. If you bring in a local person without the brand experience, he or she will be at a great disadvantage compared to me. I see from our day together how I can save you 10 times what it will cost you to move me here. Knowing how to navigate inside this hotel brand is invaluable."With that, the general manager excused the team for a much-needed drink. The day culminated with a reception and dinner in the hotel's largest suite. It felt like a celebration after a boxing match where the opponents took time to kiss and make up. For the next 30 minutes the verdict hung in the balance. My friend was sure the deal was dead. So was I. But the tiniest bit of hope lingered. The hope wasn't based on anything tangible other than our need and want for this deal to happen.The general manager arrived at the reception with a somber look. I was sure I was heading home tomorrow empty handed. Instead I heard, "Welcome aboard, Mr. Lund."San Francisco, here we come!
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RevPAR And RevPAR Index Are Different And I'm Going To Explain Them Both In This Article

The Hotel Financial Coach ·16 October 2018
Let's start with RevPARIt is the cornerstone of the hotel world and rightfully so. It is the product of occupancy and rate smashed together. The acronym stands for "revenue per available room." In a simple example: If my hotel was 60 percent occupied last night and my average rate was $100, my RevPAR would be $60 (100 x .6). The other way to calculate this would be to take the total rooms in my hotel--in this example it is 500--and divide that by the total room revenue last night. At 60 percent that means I had 300 rooms occupied and I will multiply that by $100 to get my room revenue (300 x 100 = $30,000). To calculate the RevPAR, I divide the room revenue by the rooms available. ($30,000/500 = $60). I can calculate the RevPAR for any period--week, month or year--the same way.One last thing I will say about calculating RevPAR is that it is a relatively new thing. I do not want to draw too much attention to my age here but when I went to hotel school RevPAR was not on the menu. It was only occupancy and average room rate.RevPAR index is a concept that was developed about 30 years ago as best I can tell. I remember being introduced to it at a budget review meeting and I thought it was pretty cool. In those days we would do a call around to find out what the other hotels in our city were doing each month for occupancy and rate. I am pretty sure some of the hotels fabricated their results and I think a few others thought the same.Somewhere around the mid 1990s a company started a business based on capturing and sharing the occupancy, rate and RevPAR for hotels. They sold a subscription and the hotel shared their results every day on the previous day's occupancy and rate. The company now gathers this information for your hotel and your competitors and then they share the information, so you can see how well you are doing vs. your competitors.Let's now look at how we calculate RevPAR index. The reasons why we want to calculate the index are important to know.The first reason is this calculation will allow you to see how well you are executing your sales and revenue management strategies relative to your competition. Given the current product you have, how well are you selling the hotel?The second reason is the index shows you what your variance is relative to your competitors and what the gap is worth. Let's say your index is 15 percent below the set. This means that with a potential investment in your product y ou could close or beat that gap and that translates into potential dollars of profit to justify your investment.The third reason is to continually be aware of how your hotel is positioned relative to its competitors, so you can see if your rate and occupancy strategies are working. Maybe you want to lead on rate because you feel in the long run this is the best game plan for your asset, the index will tell you the answer.Choosing a competitive set of hotels can be difficult and it needs to make sense. If you are in a busy city setting, this can be easier because there is a large available selection of hotels to choose from. If you are in a resort setting, look at hotels that are similar in product and service to yours. Once you choose your set, you are not going to want to change it unless there are very good reasons to do so--perhaps a new hotel in your market place.Having a positive index, which is an index above 100 percent, is where you wan t to be. The bigger, the better.In many HMAs (hotel management agreements) having and maintaining a positive index is an important test. In some HMAs the manager is required to maintain a positive index, or they can lose the contract to manage the hotel. This can be a costly problem for the management company because losing the flag means you just lost all the fees from that hotel. You might even find yourself in a situation where you have to make up the lost profit and pay it to the owner.Above is the chart that lays out the RevPAR index calculation. Think about the index like a dessert that your mom made. She is placing that pie on the kitchen table and you want to make sure you get your fair share. The chart shows you what your slice is really worth.Looking across the top of the chart:* We start with each hotel's Room Base, the number of rooms in each hotel.* We then multiply the number of rooms by the days in the month to get Total Rooms Available.* Next, we enter the actual Rooms Occupied for the month, followed next by the percentage of occupancy for this month for each hotel.* Following those are the potential and actual share based on occupancy. This is the first point where we see the individual performance of the properties in relative terms on only occupancy to their competitors.* This produces the net capture index.* The next step is to add the monthly average rate which produces the property room revenue in the column on the far right.* Once we have the room revenue we can calculate the individual hotel RevPAR.* Once you have the RevPAR, divide it by the overall RevPAR of the sample set to produce the RevPAR index.That's a lot of math but it's really a simple set of calculations.When I was growing up it was very important to get my fair slice of the pie at mom's dinner table, how about you?

Your Department Managers Really Want to Do Their Monthly Financial Forecasts

The Hotel Financial Coach · 9 October 2018
One of the most powerful distinctions in the world is the difference between wanting to do something and knowing how to do something. There is a saying that goes like this: If you can find the 'want to', the 'how to' is everywhere. The meaning is twofold. One, it's almost always counterproductive to tell someone to do something. People hate to be told what to do. Think for moment. Ask yourself when was the last time someone told you what you needed to do and you really appreciated it. Two, as human beings we're typically very good at getting what we want. If we're clear about our desire and we're willing to commit to go after it, we usually get what we want. When we want something, our motivation is high. When we see that it's not difficult, our actions increase. When we are given support for our attempts, we're much more willing to try again. When we see that it's safe to try and we won't be criticized if we fail, we're willing to experiment. When we see the opportunity for greater prosperity, we tend to get excited. When we see the possibility of having a bigger impact in our world, we naturally want to move in that direction, if it's safe. Does any of this sound familiar? I mean, who would want to attempt something if getting it wrong or not quite right means personal judgement and embarrassment in front of one's peers? No one. And because we don't like feeling this way, we avoid the possibility all together.If you want to create the kind of environment that has your leaders and managers wanting to do their monthly financial forecasts, commentaries or budgets, then you need to work on the following:Stop using the financials as a tool to embarrass and ridicule your managers and leaders. If your practice is to call people out on their financial results at your department head meeting (or any other occasion) stop this bad habit. Your managers will never step up financially unless it's 100% safe to do so. You need to create the kind of environment where it's ok to fail. What's unacceptable in this environment is not trying. Failing to get your forecast right is a given. The only thing we know for sure about any financial projection, budget or forecast is that it's wrong, it's always wrong and it will never be right. What's unacceptable is not doing your forecast. This simple distinction is the starting point for your journey to turn things around with the financial leadership in your hotel. Don't think about sending your troops into battle without the necessary resources. We would not plan a mission without knowing what we need to make the mission a success. In any mission, we know we need supplies, training and planning. With your hotel financial planning you need to have a system that your leaders can follow and you need to train your managers on how to use that system. The great thing about hotels and the financials is that every month we get to start over again. Every month we get a chance to work the system, to practice, to improve and to get better. We can't expect to do this once or twice and get it "right," it's a continuous process. Just like service and colleague engagement, the job is never done. Your mission with the financials is a never-ending process that you get to restart each month. This is great news! Show your managers and leaders the engine room. An old boss of mine was a bit of a character. I remember once he told me to stay after our executive committee meeting for a conference call that he had scheduled with corporate. The call was the monthly succession planning call with the company president and all the VP's. In less than 30 minutes they talked about all the executive positions that were open in the company, who was ready to move into these positions and who wasn't. In mere seconds careers were made and lost. He or she is ready for a big move, not quite there yet, or they are forever a B player. I was flabbergasted. After the call he said, "You're in, you're out, on top one moment and gone the next, all because of what someone says about another." I was not surprised with what I learned from the call--this is how things were done. What I was blown away by was that he thought enough of me to share this with me. He could have given me a $20,000 raise and it would not have had anywhere near the same impact. Sharing the financials with your non-financial managers has the same impact. Especially when it's done in the right way. Your leaders want to be on the inside. Show them the engine room and watch them become engaged. Watch them want more.Preparing the forecast for a department in the hotel is not terribly difficult. Showing your leaders how the financials work and how to pull together the information you need to prepare a financial forecast is like teaching your leaders how to fish. The proverb saying applies here, "Give a person a fish and he is fed for the day, teach him how to fish and he is fed for a lifetime." Educate your managers and leaders on how the financials work. Once they see inside the P&L, explore how other departments work, and see how it all comes together, they will realize it's not so difficult. Expenses can easily be estimated using a zero base. Payroll forecasting is just an extension of preparing a schedule. Revenues are an estimate based on trends and indicators. The trick it to start. The next trick is to repeat. Your leaders will see it's not difficult. Each month equals practice. Each month it gets clearer. Each month we learn more about our business. It is the only way forward.Your leaders secretly want to be ok with their numbers. To do this they need a system, training, support, and the right environment. I ask leaders all the time, "Why didn't you do your forecast?" The reply I always get is "I really want to be comfortable with my numbers, I get the guest and colleague part, but to be a really effective leader I know that I need to get with my numbers?" Don't believe me, ask them yourself. Your leaders want to do this they just need the right environment. The only way this environment gets created is if you make it happen.My question for you is this, what's holding you back from creating this kind of environment in your hotel? You know it's what you want. You know it will make your hotel more profitable. You know your leaders will love you for giving them this financial gift. You know it will be a lot more fun. So, what's holding you back?Investing the time, energy, and resources in creating financial leadership in your hotel is not difficult to do. "How to" do it is not holding you back, "wanting to" do it is. You might want to ask yourself "Why?". When you think you have the answer put it down and just try. Make the act of doing the forecast the goal, not getting it right. Practice and make progress by getting a little better each month. Before you know it, you will have a team that swings a big bat.

Hospitality Financial Leadership: Understanding Liabilities

The Hotel Financial Coach · 2 October 2018
When I do financial leadership workshops with hotel teams we often talk about liabilities. I tell my audience that I know for a fact that each one of them have at least two liabilities. I get some puzzled and Kreskin-like looks from my audience as I tell them I can see two numbers floating magically above their heads. I tell them that I know for a fact that each student also knows the same figures, they are just not aware, yet!You see everyone knows how much vacation they have to take, and they also know how much money is owed to them in wages. They just don't see these two "things" as liabilities but they are excellent examples because they pass the three-part test that any and all liabilities must pass. More on the three parts in a moment.Liabilities are easily misunderstood if you are not thinking about them in the sense of a business. We all naturally think that my vacation pay is a good thing and it is to you. To your employers it is anything but good because they need to pay you when you are not there. It is definitely a liability to your employer.All liabilities must pass a three-part test. Once you see the three parts you are going to understand the liability mystery and the confusion will evaporate right before your very eyes.Liability Test - Part OneLiabilities need to have already occurred. That is right--they need to have already happened. Like the vacation pay we all have, it was earned yesterday, last week, last month and last year. Therefore, it already happened. Your employer has been keeping track of your earnings and at the same time they squirrel away a little extra expense for your upcoming holiday every pay period. This way they match the expense for your vacation when you earn it, not when you take it. This is a fine example of the matching principle, but more about that in another post. Each pay period you get your wages and somewhat secretly your finance department is adding a little to your holiday fund!Liability Test - Part TwoAll liabilities embody a duty or responsibility. Your wages owed to you are a great example of this part of the test. There is no question that your employer owes you wages you already earned. It is part of the social contract between you and your boss. They are on the hook to pay you.Liability Test - Part ThreeWith all liabilities there is no room for avoidance. If your boss tried to cheat you out of your vacation pay or wages earned, they would face the local labor board or some other government body that would make sure you get paid. This rarely happens but they know that their obligation to you is without question.So, to summarize: It's already happened, it's an obligation and there is no way to avoid it.Some other liabilities that you will find on any hotel balance sheetAccounts Payable - This is the outstanding list of vendors' invoices that need to be paid for goods and services the hotel has already received, expensed and the hotel must meet its obligations or else....Sales Tax Payable - This is the sales tax for rooms and food and beverage that the hotel has collected from prior sales. It is typically collected for one month then paid to the local or state/provincial government. The hotel has already collected the tax and it is obligated to remit the money. Failure to do so will land you in a pile of dung. Even being late a day can be extremely expensive. I know this from firsthand experience.Advance Deposits - This is a tricky one because we naturally think of a deposit as a good thing. Not so fast. Let's look at the three-part test. It already happened that the deposit was paid--in most cases if the client cancels in the appropriate amount of time we need to refund the deposit and have no room to avoid refunding it. Advance deposits have a special important characteristic in the sense that the deposit is a non-event for the profit and loss statement because we have not earned the income yet. We only get to book the revenue for the deposit when the guest actually comes and stays a night or has their event. Only then do we recognize the revenue.A final example is a general one. Whenever you see the word "accrued" in front of the title of a balance sheet account you can bet your paycheck that it is a liability. Accrued utilities, accrued vacations, accrued salaries, accrued bonus, accrued workers compensation. These are all liabilities because they clearly pass the three-way test.They already happened, there is a duty or responsibility and there is no wiggle room.

Hospitality Financial Leadership Unplugging the Brand and Cranking Up the OTA's - Hotel Overachiever

The Hotel Financial Coach ·25 September 2018
It's nothing new to hear about hotels or owners who have said "good bye" to brands and have gone on their own as an independent hotel. This is the story of one such hotel and a look at their results. I am also going to highlight the typical costs associated with being affiliated with a brand and what some say is the biggest reason to get out while you can.The whole idea was the new owners. They bought the hotel with the express purpose of taking down the flag and making the hotel an independent. The market was strong and the hotel with its brand was doing quite well - a positive revpar index with its historical comp set and a GOP to hold one's head relatively high. For the new owners this was not good enough and like most new owners they were interested in only two things: repositioning the hotel and flipping it for a big profit.Usually when a hotel owner repositions the hotel they do it through a PIP, a Profit Improvement Plan. Typically this involves a room renovation and a freshen up of the lobby and meeting space. One owner's representative referred to this process as "putting lipstick on the pig." It's an effective way to increase the revenues through higher occupancy and rates because your product is for a season or two the new kid on the block, well kind of. The increased occupancy and rate translate into more revenues and usually more profits. That translates directly into a higher sales price for the asset, most of the time.Here is a simple example of how a typical PIP works. A 500-room hotel gets a 20-million-dollar face lift including soft goods replacement (bedroom carpet, drapes, wall coverings, bed spread, lamp shades) and a select case goods replacement (hard furniture). In this case the low boy was introduced, the armoire was removed, new TV's and communications hub were added, new coffee makers, a new vanity for the bathroom, new sink fixtures and the removal of the tub/shower in favor of the now very common extra large shower. (Who a takes a bath in a hotel room?). A pretty basic job for the rooms but they look fresh and new and the sales folks love this because they can sell the dream again. In addition to the work in the rooms the hotel updated a few ADA issues: upgrades to the elevator cabs, replacement of furniture and carpet in the lobby, and the final touch of magic is new carpets and drapes in the 25,000 sq. feet of meeting space. Lipstick on the pig.So, we do the math and the owner has spent $40K per room to reinvigorate the hotel within its market and the following two years we see the occupancy go up 3 points to 78% and the rate goes up $20. With the refreshed banquet space, the hotel's group business and social catering also get a boost and the banquet revenues increase by $700K.Considering both scenarios, the hotel has increased its revenues by 5 million dollars and in this case 3.5 million flows to the "bottom line" to the owner's cash flow number - EBITDA. The hotel is now worth decidedly more. Using a cap rate of 6.5 the hotel can easily fetch an additional 50 million dollars in its selling price and the owners turn a nifty 30-million-dollar profit plus what they can pull out in operating profit. That's how it's done and if you catch the right wind and the market is strong you can really make those numbers sing much louder.That's how most owners reposition an asset. In this story they did the same renovation and on top of it they lowered the flag. Let's see what the results were on the profit picture.I am going to call this hotel The Overachiever! The flag means the hotel has brand equity. That equity means the banks and the lending institutions recognize a premium for the flag in two main ways. One, they see that the hotel can command a higher revpar because of the brand affiliation and number two, they give credence to the brand having more effective management abilities in a down market. Both give the owner a slight upper hand when negotiating a mortgage for the business. They can effectively leverage the hotel at a higher rate and end up with a lower mortgage rate. These are both very attractive options for the owner.My character now steps into this story. They see the Overachiever Hotel as a prime asset and one that can operate more profitably without a flag. Their sell their story along with their other like assets and track record to convince the bank to go along with the purchase price, the 20-million-dollar PIP a favorable debt load and an attractive interest rate.Here are the main highlights of the analysis and how the OTA's come into the picture. In a branded hotel you have five main costs that in the view of this owner bleed the operation. They want Hotel Overachiever performing without any of the following dragging her down.The biggest one is the straight up management fee which is usually 3% of total revenues. In this case the management fees are 3% of 35 million which is a cool $1,050,000. What does the hotel get for its million dollars? The brand name and that's it, absolutely nothing else, not even the sign on the roof or the actual flag. They have to pay for those; all they get is the name.The next big fee is the sales and marketing fee usually 1.5% of revenue and this goes to the brands corporate advertising and marketing engine that usually promotes the brand and not individual properties - an additional $550,000.The third big cost is for the reservations system and the delivery of individual reservations through the brand's call center or distribution center. Depending on the volume, it can easily be 20% of the reservations made and the typical cost is north of 10% of the average rate. In this case that equated to an additional $600,000.The forth component that the brand charges the owner is by far the murkiest. It's the chargeback for all the corporate programs. Everything under the sun from training programs to insurance to legal fees to service scores to employee newsletters, crisis hot lines, HR surveys, financial audits, third party processing fees, fam trips, web site fees, employee service gifts. Folks - I could fill the page with all the programs brands have that they, in many cases, "mandate" to owners. Other programs are optional, but many are not and when you add up all of these it's a big dinner check.The fifth component many brands charge is either an administration charge for certain centralized functions like IT or accounting oversight and it's usually .5% of revenue in this case an additional $180K .And depending on the deal there may also be licensing fees and incentive management fees.Let's look at the brand price tag in this case. In total the analysis showed Hotel Overachiever's fees total just north of 10% of revenues and for many hotels that's a light number. I have heard of fees being 13-15% all in.So back again to our main character. They bought the hotel and took down the flag, paid a relatively small penalty given the expiration of the management agreement was close. The big risk for the new owner in dropping the flag was the brand recognition and the reservation system. How did they overcome these challenges? In both cases they used their partnership with the OTA's to keep the hotel's name front and center with consumers and they used the OTA's distribution systems to drive the lost occupancy at very competitive rates with commissions that were not a great deal larger than they were paying the brand for their reservations.In year one the hotel drove over 50,000 reservations through the OTA's, nearly double the volume that previously went through the brand's reservation system. Oddly enough, the new OTA volume came very close to the combined volume of reservations previous through the OTA's plus the brands reservation system. The cost for all these OTA reservations was substantially higher than previously spent due entirely to the volume.Before the new ownership took over the old owners and managers had the strategy of:Build a base of group through the efforts of in-house group sellers coupled with leads from national sales offices.Use the company's website and reservation systems to capture transient demand.In the month for the month use the OTA's to drive occupancy at reduced room rates.The new owners with Hotel Overachiever took a different tactic:Build a base of group through the efforts of in-house group sellers coupled with three additional sales managers.Use the hotel company web site and in-house hotel web site to capture organic reservations with a focus on returning guests and database marketing.They also took a much longer view to using OTA's as well as ensuring all offerings were at parity with their own web site.Using demand parameters offering specials and value adds to both their OTA and organic customer base.The results after two years were impressive. GOP was up an additional 5 points. Rooms profit was down 2% largely due to the increased commissions for both group and transient even with the 20$ increase in rate and a 5% increase in occupancy. The real icing on the cake was EBITDA was up almost 10 points and over 4 million dollars more. This was due almost entirely to much lower fees and the removal of unnecessary brand costs that in this case didn't help make the hotel more profitable. The numbers become a little muddled when you combine the PIP with the flag coming down, but there is no skirting the dramatic increased profits from this strategy.Differentiation between generating revenue and making a profit was the driver for this analysis, the decision to buy, lowering the flag and my story. Hotel Overachiever.One last thing of note, the hotel's index suffered and dropped below 100%. Yet the profits went through the roof. I think far too many people look at index and increased revenues as the be all and end all. The moral of the story is there is more than one way to fill a hotel and the profit results can be very different once we have a full understanding of the "total costs" and we also examine the other sources of business. In this case the OTA's cost the owners zero dollars in investment, only operating costs.P.S. Back to what I promised in the opening paragraph, the biggest reason to get out while you can? I read a thought-provoking article a while back about hotel owners that have long term management contracts and they compared them to taxi drivers with million-dollar taxi licenses. A big time commitment to certain costs regardless of what happens to the customers' habits and choices. Scary stuff, perhaps, if you're that hotel owner tied to a brand and a long-term management agreement.How else can you play the hotel game?

Hospitality Financial Leadership: Using Expense Checkbooks

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

Hospitality Financial Leadership - The Morning Meeting

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

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

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

Hospitality Financial Leadership - Who Inspired You?

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

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

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

Hospitality Financial Leadership - Light Bulb Moments

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

Hospitality Financial - Flower Power

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

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

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

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

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

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

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


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