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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.

  • Internal Controls and the Important Roles They Play in Eradicating Fraud

    Although I have been preoccupied with getting in the education sessions purely related to hospitality finance, technologies and hotel pre-opening, I made sure to participate in Fun with Fraud and Enchanting Employee Embezzlement in Clubs and Hotels presented by Jerry Trieber, CPA, CHAE, CFE, CFF, CGMA, HFTP Global past president and director of audit services/support at HEI Hotels and Resorts.

  • 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 - Understanding the Concept of Owner Spend

The Hotel Financial Coach ·19 March 2019
The hotel business is unique with owners, brands and assets all vying for their individual needs and attention. All the while this delicate balance has some interesting business characteristics that are essential for hospitality financial leaders to understand. It's not terribly complicated, quite the opposite. It hides out in plain sight, so it can be easy to miss if you're not looking for it. I can remember an old boss telling me his thoughts on what I call "owner spend." I thought at the time he was full of whatever, yet the concept was bold and incredibly clear. It also struck me in that moment that no one else had ever spoken of this, in exactly this way in my many years working inside a large brand. Owner spend is the key to understanding the relationship between the owner and the brands and it plays out inside each individual asset on a daily and annual basis in a managed hotel.When I talk about owner spend, I'm referring to hotels that have a full-blown management contract with a brand. Not franchised properties, as the concept does not literally work the same way due to the smaller size of the teeth inside the franchise agreement. With hotels that have full-scale management agreements in place, that agreement and how it is executed is the key to the brand's success or failure and it all revolves around the concept of owner spend. I wrote a similar article titled "The Secret To Great Financial Expertise - What the Brands Don't Know" - http://hotelfinancialcoach.com/what-hotel-brands-dont-know-the-secret-to-creating-great-financial-expertise/. In that article I point to the owner spend concept when it comes to training and establishing brand expertise, but it stops short of exposing the full concept.Here it is and, like I said, it's not a secret; it's as plain as the nose on your face, but I believe most people can't see it for what it really is. That's a business concept that if properly executed gives the brand a large upper hand in its dealings with the asset's owner. Brand spend means the owner spends 100% of what's required to run the hotel. That's right the owner, never the brand.The owner writes all the checks for absolutely everything that the hotel needs. Every dollar of: operating payroll, expense, executive compensation, capital spend, advertising cost, promotion cost, severance cost, employee benefits and even service length of tenure gifts. I could fill this page and the next one with what the hotel spends its money on and the owner pays every penny, never the brand.The brand by way of the HMA gets to tell the owner exactly what needs to be spent in operating costs on an annual basis. Yes, there can be owner push back on some items, but overall the brand has license visa vie the HMA to get the owner to spend money on anything and everything and it is usually in support of maintaining the standard. The standard, the nebulous what's new this year in the way of training, service, technology, administration, you name it and the brand creates it, charges the owner for it and the owner pays.All of this points to the obvious fact that the brand decides what's necessary to maintain the brand standards and they deliver the news via the annual budget. Once the budget is approved the invoices start flying to the property and the owner pays. This means quite simply the brand creates the concept of the brand's standards, something that is constantly and forever evolving, and the owner pays. The owner pays 100% of these "brand standard" costs and the reason they do is that's what they signed up for in the first place with their HMA. Simple, pervasive and if properly executed it's a powerful way to build a brand.Having high brand standards is an excellent way to grow the brand, but it also comes with some hurdles. It can be a stumbling block for owners when the assets are not performing. Brands face incredible pressure from owners in times of economic turmoil. Owners want brands to trim the sails and throw as much off the sinking ship as possible, so to speak. Most brands help in these circumstances by way of CCP's, "cost containment plans." These are the plans that the brands develop to stem the bleeding when the occupancy and rates plummet as they do on an infrequent basis.We have been off the need for these cost containment plans for almost 10 years but when they are needed the brands will get into action. That is most of them will. It's important to point out that even when the hotel faces an economic disaster that always ensures it's the owner that still pays 100% of the freight.

Hospitality Financial Leadership The Next Big Thing

The Hotel Financial Coach ·12 March 2019
For almost 10 years our industry has been a rocket ship of top-line growth driven almost exclusively by big gains in RevPAR driven by solid increases in occupancy and rate. You also can't go too far inside the online world without finding articles that speak to when and if this growth will stop. We all know it will and it's never been a question of if it will stop, the question is when it will stop. Knowing this growth inevitably will stop and being cognizant that when it does stop it will go backwards, what can you do? History always repeats itself.When the growth stops and revenues year over year shrink what will hotels do to minimize losses and maximize profit retention? For most of us we remember the major negative historical economic events of the past 25+ years and the results to the hotel business that followed. For me my memory going backwards is this: the 2007- 2009 debt crisis, SARS (I'm Canadian), 9-11 and the Gulf War. All of these had a major impact on the hotels I worked in and we scrambled to throw anything and everything off the sinking ship.I painfully remember: hiring and wage freezes, layoffs, mandatory vacations, amenity reductions, outlet closures, corporate training program suspensions, mandatory productivity targets and FF&E contribution freezes.I also remember preemptive contingency plans that targeted a 10-15% decrease in revenues that dictated reductions in: fixed staffing, linen pars, china glass and silver pars, fresh flowers, service audits, uniform purchases, suspension of conferences, relocation freezes, VIP gift eliminations, departmental restructurings, management incentive plan cuts, live music expenses curtailment, aggressive food and beverage cost targets, elimination of administrative assistants, employee opinion survey cancellations, health and safety program reductions, moratoriums on seasonal parties and sports teams, a halt to the company newsletter and travel bans.I took part in planning and communicating: in house meal and entertainment stoppage, the temporary addition of energy surcharges, elimination of hotel executive auto leases, combining like positions, grandfathering personal device purchases, curtailing of cell phone reimbursement, direct in dial telephone line termination, fax number consolidations, pool attendant layoffs, security department day/time/hour reductions, crisis and communications training moratoriums, sales incentive plan restructuring, FAM trip reductions, guest floor shutdowns, and the elimination of supervisors on the front desk and in housekeeping.I vividly recall how painful it was when we: eliminated turn down service; mandated business center staffing cutbacks; eliminated one-time seasonal decoration expenses; trimmed dry cleaning privileges; downsized duty meals; we combined stores and receiving positions; we outsourced payroll services; we made cutbacks to in-house IT staff; we completed sales coordinator right sizing; we exercised reservation department closures; attempted Sunday lounge service moderation; delivered on banquet captain consolidations; completed valet parking outsourcing; started charging for parking; then the up-sell program pruning; and worst of all for me was the requirement to show all of these changes and adjustments in the subsequent detailed forecast for the balance of the year.This is where the rubber hit the road. I recall how impossible it was to execute the reductions, in many cases, because the departmental managers did not know what was really in their budget/forecasts to begin with. Sure, they had dollars for their expenses and hours and dollars for their payroll, but it was not defined in detail. There were no zero-based expenses where we could really look at the current shopping list and eliminate or adjust real things. The same with payroll, there was no fixed staffing guide and no formula for variable payroll. We just took our expenses from last year and added 5% when doing the budget and the same with payroll; wages were forecast to increase 3% so we added 3%. We did cost per cover and cost per room occupied so we would simply extrapolate that and create the budget. Things would come together because they always do until they didn't any longer.We didn't know what was in the middle of our statement so when someone said reduce something it's like, OK we will make that change but it's not a defined result because we were starting without a list, without a real starting point. Here is a domestic example of what I mean. If I send you to the grocery store with $200 and tell you to go buy some groceries you will come back with $200 worth of stuff. On the other hand, if I send you to the store with a list and the corresponding costs for each item you will come back with exactly what was on the list. Now this is where it gets good. I now send you to the store with the same list, but I only give you $175 to spend. I inform you that we must make some reductions this month. I now tell you to eliminate, reduce or forgo what you can to equal the new cash I gave you. This way you know what you're starting with and what your changes result in.The same applies to payroll. You need a concrete fixed staffing list that's approved annually with your budget and meticulously maintained through the year and a detailed staffing formula for every variable payroll category in your entire hotel - not a guide of payroll cost percentage by department or an hour per room or covers formula. These are useless when it comes time to trim, reduce and curtail. They do not work when reductions are necessary. They just confuse the executives and frustrate the department managers.The next big thing as I see it is we learn form our past mistakes. We take the appropriate actions to ensure our operating department managers all know what's in the middle of their statements, down to how many of each item and at what cost that makes up every line of their expenses. We also need to go down to a monthly payroll forecast that is detailed by position and contains the exact number of hours wage rate. This way when it's time once again to cut costs we will have a real starting point. Or, we can just hold our breath like I did and hope that it will all get better soon.Once upon a time...

Contra or Barter Exchanges - How to Record Them and Some Tips

The Hotel Financial Coach · 4 March 2019
Contra, barter, trade outs, exchanges - they are all the same thing. Exchanging goods and or services is older than currency and it's still used today, especially in hospitality. How you can use this tool effectively and how to properly record these transactions on your books is the meat on the stick in this article.First thing you need to know that typically stops most people from pursuing trade out agreements is they do not have a direct positive impact on your profit and loss statement. The trade out itself if it's recorded properly will not reduce expenses. It only saves you cash. So, if cash flow is a concern and let's face it, it is for many hospitality operations especially seasonal ones, then contra agreements might be something to consider. Lastly before we get into the body of this piece is to do your local homework and get the tax facts straight. Each jurisdiction is different. What I will describe here is a generic version but don't rely on the process as it's laid out here. Get the local facts on exactly how it is treated in your location.Typically, in the hospitality business we trade rooms and food and beverage for advertising; this is by far the most common. The second most popular trade I have seen is our services for transportation - air, rail and car rentals. The third is health club memberships. In all three instances the advertising aspect is the main driver on the hotel side.It goes like this.How can I get advertising on my regional radio station to drive room nights? Or, how can I get an ad in the airlines magazine or how can we participate in a promotion that features our hotel as a prize? How can I get the local popular health club members to use my bars and restaurants? The answer many times is let's try and set up a trade out with one of these organizations so we can get some increased visibility without having to use cash.We can use our "unused" room inventory and our capacity in food and beverage operation to help drive more sales of rooms and F&B. Remember, if we don't occupy a room tonight or one night next week, we can resell that inventory. This is a main driver for hotels to use trade outs to help boost business. In my experience it's also a tool that General Managers and Directors of Sales love to use because they get to "make a deal" and for most of them this is an exciting prospect.But beware of the rules and the proper treatment of the transactions before you jump in with both feet. First off, your state or national income tax rules probably preclude your business from treating the trade out any differently than any other sale. Same with your municipal sales tax rules. You will have to come good on all taxes due just like complimentary rooms in most locations. I strongly recommend checking with your accounting leader before any deals are made. I can't tell you how many times I have had to "counsel" my fellow executives on the proper treatment of these exchange agreements that caught them completely by surprise. Don't think you can simply trade your stuff for theirs without paying the piper. Do this and you're both liable for some trouble.First off, when we trade it's important to know that rooms and F&B are very different from a cost point of view and, as such, the rooms typically should trade on a 1-1 basis at rack pricing with your trading partner's rack prices. Or we both agree on a price that's going to stand up to scrutiny, certainly an exchange price on our side that is equal to or above our average room rate. If it's below that level, then local taxing authorities will ding you for the difference, plus a penalty and interest. Don't be tempted. Second, where we are trading F&B you are going to want to get a 2-3 times exchange. F&B costs plus labor are extremely high and therefore we want to ensure we get additional advertising or travel as a result.In the F&B trade example let's say you are trading a banquet for 100 clients of the radio station and the bill is estimated at $10,000. You are going to want to bargain for at least $20,000 to $30,000 worth of advertising because you have a considerable cost associated with producing the food and staffing the event. Their costs to produce and run the adds are much less. Be a savvy negotiator and get more.Back to the room scenario and, in this case, we have agreed to exchange two suites for two nights and 30 superior rooms for two nights. The radio station will run a series of ads over a two-week period as promotion to give away two 2-night suite stays to the lucky listener. That is what the hotel gets: The radio station is going to use your hotel and the 30 superior rooms for an event for their staff and owners.The question is how we treat all of these transactions.

Hospitality Financial Leadership She Said She Was Born Without the Financial Gene

The Hotel Financial Coach ·25 February 2019
For this article I am going to call my client Jennifer.I was speaking at a local hotel association event and as usual a few people came to see me at the end to share their thoughts. Jennifer was the very last person to speak with me. She waited until the room was almost empty. She was shy and nervous."I just want to thank you," she said."Thank me for what," I replied."Thank you for giving me some hope," she said.I smiled, as I knew exactly what she meant, and I said, "Hope for what?"She then explained how terrified she was about the financials in her hotel and how the director of finance made everything so complicated. She continued with how the weekly department head meetings were awful because that meant she might get asked about her department's results and how completely embarrassed she was to speak about the numbers. She then explained how she was somehow born without the financial gene and now she was responsible for her department's numbers and she was sure that her career was doomed.You see the reason why I smiled was I have heard this story 1000 times. Always a little different, but it always contains the same elements. Me and numbers just don't work. Somehow, I was short changed at birth and I'm not a numbers person. I love my job, but the numbers are the tough part.I listened openly and then I asked her the question. I love asking this question.I asked her, "Why do you think the numbers are so difficult for you?"To which she replied, "I don't know, they're just so complicated and intimidating."I then replied, "I don't believe you, all you're missing is a little practice."She laughed and said, "No you don't understand, me and numbers just don't work."We talked a bit more and I offered her a telephone call the following week to discuss her challenges with numbers. She said she would like that. We exchanged cards and agreed on a time for the call. I then asked her to send me the latest financial statement for her department.To which she replied, "I'm not sure I'm allowed to send it to you.""Not to worry," I replied. It will be our little secret. A few days later I received the hotel financial statement and then we had our call.When we started on the call I asked Jennifer to tell me about her career path. She explained that she went to college and studied art history and found a summer job as a guest services agent to help with the school bills. One thing lead to another and she was promoted to a reception manager and most recently to the position of Front Office Manager. She explained to me that she loved her job, the customers and the staff but hated the numbers."Ok," I said. "I get it that the numbers are the hard part for you. But what if they were not the hard part, what if they were just another part of your job? How would things be different for you if that was the case?"She laughed and said, "If the numbers were just another part of my job I would be in heaven.""Alright then let's have a look at things," I said.I asked her if she had a copy of the statement in front of her. Open it up and let's look at the top-level statement. We were both looking at the September financial statement.OK - first lesson. The hotel financial statement is organized just like the hotel. It starts with a summary statement and then: rooms, F&B, MOD's, NOD's all leading up to GOP. Each part of the big statement ties back to the corresponding lines on the summary statement. There is the current month on the left and the year to date on the right. The year to date includes all the activity accumulated for the year including September.Let's look at the sales department as an example."Find the sales statement," I said.We both went to page 30."Find the total payroll," I asked her.She said, "$12,542 and YTD $118,988.""OK," I said. "Go back to the summary and find the sales department and the payroll line. See, it's the same number in both the month and YTD columns!"We repeated this exercise for each line of the summary statement. This took about 20 minutes. When we were done with this I asked her if this exercise was helpful."Yes!" She said so enthusiastically. "I never knew how the whole statement tied together."With this exercise now complete I asked her if she understood the purpose of the P&L. I asked her to describe what its purpose was. She replied quite clearly that the purpose of the P&L was to highlight the revenues, expenses and profits. She went on to explain that the statement was used to keep track of the financial results, the good and the bad."Exactly," I said.I mentioned that the statement we were looking at was the September P&L. I then asked her what did this statement tell us about October?She was quiet for just a second and said again very clearly, "Nothing. We have a different report that comes out each month called the forecast. It would show us the same information not for September but for the next 3 months.""Well then," I said, "You just explained the difference between the actual and forecast reports."She laughed and said, "I guess I understand a little more than I thought."We both laughed, and I said, "You sound like you're ready to learn about the balance sheet and how the P&L and balance sheet work together?""Balance sheet," she moaned, "I have looked at that before and it's so confusing."I replied, "It's actually so simple to understand, I bet you I can teach it to you in the next 15 minutes."Attached at the end of the September P&L was the balance sheet summary report for September. I asked her to get a piece of paper and a pen."Write the following," I said. "Let's pretend you own a home and it's worth $500,000 and you have a mortgage on that house for $400,000. Write down those two items and tell me the difference between the two."She took only a few seconds and said, "$100,000.""Exactly," I said. "Your house is the asset, the mortgage is your liability and the difference, the $100,000, is your equity."That three-part formula is the way the balance sheet works. It's the same in every business regardless of its size, industry or complexity. It's the universal formula for accounting and it's called the fundamental accounting equation. I told her to write down the formula. Assets equal liabilities plus equity (A = L + E). One other thing about the formula you need understand is the equity can be negative as well.Imagine I said, "If you owned that house in 2008 and its value had dropped to $350,000 and you still had a $400,000 mortgage, how much would your equity be?"She paused for just a second and said, "$50,000."And I said, "It would be -$50,000.""OK, I get it," she said. "But how does this relate to the balance sheet?"I explained that the balance sheet has the same three parts.First the assets, I asked her to review the list on the summary statement we both had."What's the first asset listed?" I said."Cash" was her reply."What's next," I asked."Guest ledger" she replied. "I have see that before and I wanted to ask what it was, but I was too embarrassed."I replied, "Imagine all the guests in your hotel gathering at the same time in the lobby, each holding a sign with a number on it. That number is the amount they owe the hotel; add them all up and that's the guest ledger."We quickly reviewed the rest of the assets and we noted the total assets."Write that number down," I said.Second, it's the liabilities. We reviewed the liabilities. I asked her what liabilities she had.She laughed and then said, "You mean what bills do I need to pay?""Yes," I said. "What obligations do you have that you must pay?"She replied that she had a car loan, a utility bill and a student loan. Those are obligations you have that you cannot skip out on. The liabilities that the hotel has are the same idea. We then reviewed the list and like with the assets, we noted the total liabilities and I asked her to write that number down."What's the difference between the two numbers?" I asked.A few seconds later she said, "$935,235."I asked her to tell me the "equity" to which she replied, It's the same number."Assets = 9,235,526 +Liabilities = 8,300,291 +=========================Equity = 935,235"One last thing before we wrap up this lesson," I said. "Go back to the summary P&L and find the line that says net income."I waited for probably 30 seconds and then she gave me the number."OK, so next I want you to look at the equity section again and I want you to find that same number."Five seconds later she said, "Current period retained earnings, it's the same number!"That is how the P&L and the balance sheet are tied together; the total of all the revenues less all the expenses is net income on the profit and loss statement and current period retained earnings on the balance sheet.To wrap up the lesson I asked her to explain the relationship between the P&L and the balance sheet in her own words.She said, after a brief pause, "The P&L is like my wages less all the deductions and my living expenses, and the balance sheet is like my bank account, if there is money left over from my pay, that's my equity.""That's a pretty good analogy," I said.At that moment we both knew that the tough part was not so tough. Like anything in life, we just need a little practice and having a coach to help just makes the task a lot easier and much faster.

Hospitality Financial Leadership Roger Penske & The Hotel PMS

The Hotel Financial Coach ·18 February 2019
I had a chance meeting with Roger Penske in the parking lot behind the paddock in October 1994 at the Indy Car Grand Prix of Monterey in Laguna Seca, California. It was the end of qualifying on Saturday and his pilot and fellow Canadian, Paul Tracy had just won the pole position. For you hoteliers who are not motorsports fans, pole means he was the quickest in qualifying and that means he starts in the first position on Sunday. This is a story about hospitality financial leadership in the face of a challenge and adversity.Before I get into the hotel story and the connection to Roger, a bit more about him and the race. The race at Laguna that weekend was the 16th and final race of the 1994 season and it was the first time I attended a major motorsports event. Paul Tracy led from flag to flag in the 84-lap event that lasted exactly 2 hours. Fellow Canadians Scott Goodyear and Jacques Villeneuve were also racing. Jacques was 3rd in the race which was a bit of foreshadowing as he would go on in 1995 to win the Indianapolis 500 and the Indy Car series championship. It was also a notable race because it was the final race for Mario Andretti's incredible career and the last CART race for Nigel Mansell.A bit about Roger Penske aka "The Captain." He has been a juggernaut of the auto racing world for over 50 years as a driver in his young career and as a team owner. His teams have won the Indianapolis 500 - 17 times. He has won numerous championships in both CART and NASCAR. There is no other team owner on the world stage that has had more success than "the captain." He is also no slouch when it comes to business. His Penske Corporation is very successful and his own net worth is estimated at $2 billion, that's B. But he also failed along the way and big time.My story starts nearly a year earlier when I accepted a transfer from the mother ship hotel in my region to a "managed property." In those days inside my company, you avoided managed properties in favor of the security of the "owned hotels." Our company was almost exclusively an owner-operator only having a small and largely unhealthy stable of managed hotels. Little did I know at the time just how much things would change over the next couple of decades relating to owner-operator vs management companies in our industry. Nevertheless, I followed my boss's advice when I was given the opportunity to take my first job as the department head, the controller. He said, "Why wouldn't you grab it?" I remember thinking he would not steer me wrong and I was hungry for the opportunity to get out of the comfort so to speak of the owned hotel and spread my wings.When I got there, it didn't take too long to find out just how screwed up things were. The balance sheet was a disaster, accounts had not been reconciled or properly balanced in many months. The office was upside down and everyone was complaining about everyone else. There were few controls in place and even fewer people following them. The other thing that became very apparent was the computer system they were using - the property management system was a complete DOG. Not to mention the back office general ledger was just as bad. Both systems were on an IBM System 36 mainframe running Logistics which was better used as a boat anchor than a system to help run the hotel. You could not get any data in or out of either system. It was like I went backward 10 years. The other thing I quickly learned was the hotel had no money. It was a limited partnership of timeshare owners and they were all under water on their investments and not putting any money into the business.I got to know the general partner quite well in a short amount of time. He was an interesting guy - an insurance executive who had created a relationship with one of the principles of the development company. That's how he secured his gig as the general partner. Kind of the same as a modern-day version of the asset manager. We would meet with him monthly and review the financial results and the forecasts. Right away I saw how eager he was to help us get out of the money hole we were in. We needed money for operating equipment and there was none. We needed money for minor operating capital and there was none to be had. Some months in the first winter I had a drawer full of accounts payable checks and a system to use so I knew which vendor had called 1, 2 and 3 times before we would mail the payment. Some weeks making payroll was a real nail-biter.We desperately needed to replace the property operating system and the back office GL, AP, and AR system. A solution was close by for the back office. My food and beverage controller was a bit of a geek and he told me with a small expense he could buy the "cards" and convert a 486 PC into a file server. He and a friend did the wiring one weekend and we now had a LAN. I purchased some ACC/PAC software and we had our own PC based network system and man did that speed things up in my accounting office! I was feeling good about the progress, but the real rhinoceros on the table for our business was the property management system.We had no interface to anything to take reservations or manage any inventory. Everything was manual; even the room attendants had to phone their room status updates to the housekeeping office. The end of day would take 2-4 hours and crapped out so often we would spend more than two days a week on the same day. Checking someone in let alone changing a room was a time consuming task. Interfaces to the point of sale system and telephone system were chaotic at best. All of this was costing us money every day in lost business and productivity. It became the number one challenge our executive team faced -how to run the hotel with this albatross of a system. The "owned hotels" all had much newer systems and had moved away several years earlier from the mainframe environment. If we were back at an owned hotel we could pick up the phone and the capital for such a critical element would be found. But not here, there was no knight in shining armor to call. No parachute.I remember one meeting with the general partner in late spring when business was actually looking strong for the approaching summer months. We presented our YTD numbers and the forecast for the end of the year and he was pleased. We then presented an ROI for a new property management system. I remember getting very creative with the math in regard to the lost revenues and additional labor costs because of the archaic PMS. We easily justified the $75k investment needed for the new file server, software and the PCs. We also presented our needs for operating equipment and some other minor operating capital items that we desperately needed for the coming season. I vividly remember the general partner telling us he had our backs with the money we needed for capital and it was our decision how the limited amount would be spent. It was clear what was the most pressing and what our priorities would be. We can't operate a hotel without glassware, sheets and towels. On the flip side, as ugly as the prospects were, we could limp along with our PMS boat anchor.After the meeting my GM, a few other managers and I met for some drinks in the hotel bar to lick our wounds so to speak. It was clear we were getting better but it was also evident we would not get a replacement PMS anytime soon - especially given the other needs we had. I especially remember my GM telling me to forget about a new PMS and focus instead on making what we had work. I said to him that living in the past was not something I was fond of and as a one up I said to him out of the blue and maybe the beer, "I bet I can get the owner to approve the purchase of a new PMS." "How?" he said. "I don't know, but if I can get the money will you send my systems manager and me on a trip?" What trip? I thought for a split second and said, "The Indy Car race in Monterey in October." Why did this pop onto my radar? We had just watched the Indy 500 the weekend before and I had remembered the segment that spoke about Mario Andretti's last season and what would be his final race at Laguna Seca. He smiled and looked around the table and said, "Absolutely, I will do that if you can find the money and get the owner to approve it and get it here before October." "Deal!" I said.Waking up the next day I felt kind of foolish for having put myself into such a corner with my GM and the other members of our team. Who was I to say I can get the money and on top of that the owner's approval and have the system installed before October; it was already the first week of June!Working in this hotel was challenging for many reasons and one was that I lived in a town about 40 miles away. Commuting to work with my wife at home with 3 young children meant I had to be creative with my rides. Car sharing mid 90's style. One of my most popular ride share buddies was the director of sales. Both she and her husband commuted to the same resort, only he worked at the golf course which was a separate business. The following day on our way home he was telling us about the new golf carts that the course had obtained for summer. Interesting I thought, "So how did you guys buy them I asked?" He replied, "We never buy anything, the owners always lease." "Lease?" I asked. "Yes," he said. With that my little brain went into overdrive.The following day my friend obtained the name of the leasing company and a phone number. I called them and inquired about a lease for some computer equipment. I had a call back the same day and a request for our financial statements. With this, I needed the owner's approval, so I called him. I told him a bit about the leasing idea and he was OK with my sharing of the resort's financials. He also wished me luck. The next day I sent the statements via fax and before I went home I had a call and a commitment for a piece of the financing. The lady on the phone explained that our financial situation was not stellar, but she would be willing to finance $12k of the $75k I needed. So, I asked her where she thought I might be able to get the rest. Why not, I thought. She replied that there were several other finance companies she competed with and sometimes did consortia deals with. With that, she faxed me a one-page list of finance companies in the nearby city. I may need to remind you that this is the mid 90's and there is the internet but nothing resembling Google or the search capabilities we have today.In less than a week I had 6 companies that would provide the financing and contracts to sign. My GM was just a little bit uneasy with the new-found responsibility we would have. I told him as long as the general partner approves we're good to go. With that behind me, I made an appointment to go see the general partner and have him sign the leasing documents. We could have signed them on behalf of the resort, but this was uncharted territory for us. Obtaining financing was unheard of in my company in those days. He was more than happy to sign the contracts and I remember driving home that night feeling just a little proud of my deal making.In the following weeks, we had additional challenges from corporate systems and their "schedule" for the resources we would need to build out the system to properly tie it into the central reservations system. I had to twist more than a few arms to get everyone to come together but the last week of August we were live with our new system. We missed most of the summer, but the deed was done.In those days our company had a hotel in Monterey and I booked one room for my systems manager and me to share. We booked airline and race tickets and flew to San Francisco. Rented a car and there we were on Friday morning of race weekend. Being in Monterey was magical. "Arrivederci Mario" was in full swing - the town, the restaurants and bars were crazy busy with the race weekend festivities. I ran into the late Carl Hass in the hotel elevator. He was partners with Paul Newman and their team had Mario and Nigel as drivers. The whole weekend was a huge deal and running into Roger was the highlight. My friend the systems manager was just a little surprised at how many people I knew.I recognized Roger immediately, tall and distinguished wearing his white Hugo Boss Penske polo shirt, a white cap and black pants. The Captain - unbelievable. He was with one other man; I believe he was a race engineer. He made eye contact and smiled as we met walking through the parking lot. I said, "Congratulations on the pole and having a Canadian driver," as he approached. He stopped and said, "Where are you guys from?" I told him and he thought it was quite a distance to travel for just a race. He told us to have fun and wished us safe travels. I wished him good luck in tomorrow's race. The whole thing lasted but a few seconds. My friend asked me, "Who was that". I said, "That my friend is the most important person in the entire racing universe." "Who is he?" "That's The Captain," I said. "Who?" he said.The moral of this story is twofold. Keep your eyes open at the racetrack because you never know who you're going to meet. Number two - Taking on a challenge is good for your growth and another great way to help propel your career forward. Don't be shy - step up

Hospitality Financial Leadership City/Region Wide Supply and Demand Analysis

The Hotel Financial Coach ·11 February 2019
When you are preparing your budgets, an incredibly valuable tool is what I refer to as the "citywide supply and demand analysis." I didn't come up with this, however, I am going to explain how it works, why it's so important to complete it at least annually and how to analyze it.In a previous post, I wrote about how to calculate your RevPAR index and how to measure this against your competitive set, sort of a manual version of what STR supplies. This concept is similar, but one does not replace the other and vice versa. The "citywide" report allows you to see where you are relative to your entire market, where you historically have been and most importantly where you think you're going and what you need to employ to get there.Most cities and regions have an entity that tracks accommodations statistics. This includes occupancy and rate and they publish this information at least annually. The typical organization is something like the "Blank City/Region Tourism Bureau." Your hotel is or certainly should be a member. Other hotels facing consulting and data collection firms may also have the information you need to establish the baseline for your analysis. What you want to find is a report that lays out the entire supply (number of rooms available) and the annual occupancy and room rate for your city/region. Once you have the three items above you can also (if not included in their report) calculate the rooms sold, the REVPAR and the total room revenue for each year. I recommend going back at least four years to establish a solid baseline. You should expect to see changes in the supply as hotels get added or possibly removed depending on your market.Once you have the entire market's information laid out in excel for four years, you want to build a similar chart below the entire market section and do exactly the same for your hotel. Take note of whether you include your hotel information or not in the entire market section and just make sure year over year that you are consistent. Some people will calculate the information with their hotel included and some will remove their hotel. I think, depending on the size of the market, the bigger it is the less you need to be concerned about including your data, and the smaller the size of the market depending on your hotel's size it may have an impact on the picture you're looking at.Once you have all the data laid out you will see the historical picture of how your hotel performs relative to the market. This comparison itself can be an eye-opener for your view of your property relative to the market. Now you need to add your current year's forecast to the spreadsheet. Your property numbers should be readily available and based on your knowledge of the market relative to your hotel and you need to estimate the current year's performance. Don't forget to add any new supply that has recently opened. Now you have five years of hotel operating performance to look at in order to answer many questions. What has been the trend relative to the market's performance and your hotel's results? In relation to you, is the market over or underperforming on occupancy? If it's one or the other, and it will be, then why? What drives these results and this dynamic? Is it your location, the brand or is your hotel recently removed or in need of renovations? The same analysis needs to be done as it relates to the average rate. What drives your results relative to the market? Are you winning or losing relative to where you should be based on your property's characteristics and value proposition? The RevPAR analysis will tell the complete tale. Now comes the fun part. You need to plot out how the market will perform in the next three to five years doing the following:Adjust the market for any new supply.Determine how the market will adjust its occupancy for the additional supply.Do the same with the room rates.Now you have a logical view of how you see your market performing historically and into the future. Does it make sense? Does your property's performance line up with the historical results the way you thought it would? Now do the same forward-looking projection for your hotel, considering your historical and current performance. Also consider the effects of new supply, competitors' renovation plans, and your hotel's improvement plans. This is where the rubber hits the road. Is your hotel losing ground in the market? Is it going in the other direction and outperforming the market? Are your overall market or hotel projections realistic? The whole point of the analysis is to help you see what's possible within your market and to generate ideas about what you need to do to remain or become more competitive.The market never stands still and in order to be on top of it, you first need to be able to establish your business's place in the market and make the necessary investments to keep or hopefully improve your position. Someone once said you can't manage what you can't measure. This simple and effective tool will help you manage your hotel's market position.

Hospitality Financial Leadership - The 5 Hidden Costs of Being Branded

The Hotel Financial Coach · 5 February 2019
Marriott. Hilton. IHG. Wyndham. Choice. For years these chains have publicized the advantages of working with them: advanced loyalty programs that promise to bring consistent customers, low fees, tough negotiations with OTAs, and preferred financing options. Not so fast.Are the brands' claims actually true? While many owners have fallen victim to the claims of the brands, you need not do the same. As Mark Twain once said, "Whenever you find yourself on the side of the majority, it is time to pause and reflect." Let's take a closer look at what the brands are claiming, to make sure you know what to expect before entering into a 30-year binding agreement. Brand loyalty discounts aren't working. No doubt you've seen the advertising campaigns that the major brands are running to tout their loyalty programs, most aggressively over the last two years. Here's how the loyalty programs work -- to increase their member base, the brands advertise a discounted rate (typically 3% to 5% off their rack rates) for members. Enrolling as a member is easy; typically this involves just giving your email address. Once a customer becomes a member of a brand loyalty program, they get discounted rates and perks at properties across that brand's portfolio. Sounds great, right? Here's the problem, these drive-direct discounts aren't working. According to a recent BDRC study:1No long-term shift has occurred between direct bookings and OTA bookings since the end of 2015 when many brands launched their direct booking marketing campaigns.No long-term shift for either business travel bookings or leisure bookings, the main target of the brands' marketing efforts.Of note, brand direct bookings for leisure travelers saw an initial boost after the brands launched loyalty rates, but the balance of OTA and direct bookings has since returned to the balance seen before the rates were rolled out.Possibly more surprising and counter to the claims of the big brands, BDRC's study found that OTA customers are more likely to book upper scale tiers for leisure trips than non-OTA bookers.A recent study by J.D. Power supports BDRC's findings.2J.D. Power found that customers surveyed between 2015 and 2018 were less likely to book direct and more likely to use OTAs.Funding loyalty programs is expensive...for owners. Direct booking campaigns that reduce owners' distribution costs are an advantage that hotel owners believe brands can and should provide. But, the aforementioned research details that these programs aren't working. However, the brands don't bear the full cost of their loyalty programs because it is the hotel owners who are paying for these expensive loyalty schemes. For every reservation booked by a brand's loyalty member, such as Marriott Rewards, that hotel pays a loyalty fee, typically around 5%. In addition, for every point earned on property, some brands charge owners a fee. These fees can add up quickly, but they aren't the only costs owners have to pay. When loyalty members redeem their points with a free stay at a property, some brands will only pay out a nominal fee to cover costs - typically less than $100 - unless the property hits a high occupancy threshold such as 96%.3 Anything less than 96% and that owner's ADR will take a major hit. Hotels that scramble to hit the 96% occupancy threshold by dropping rates or by using other creative tactics will impact their revenue management strategy, not to mention their ADR, if they don't hit the threshold. Think about it: airlines have teams of people making sure last-minute flight reservations are a pricey proposition, but companies like Hotel Tonight exist simply because of how often hotels need to shed last-minute inventory. This lose-lose situation is a stiff penalty for loyalty programs that BDRC's data shows aren't even working.Brands charge fees on reservations they didn't deliver. One of the fees that franchisees pay brands are royalty fees which typically run 5%-8% of gross room revenue. The intent of the royalty fee is to pay the brand for the use of its trade name, service marks, associated logos, goodwill and other franchise services. This makes sense for direct bookings - a customer appreciates something about a brand and chooses to book one of its properties online, by phone or via walk-in. But why do brands charge royalty fees for reservations booked on OTAs4?Expedia once stated that "Of all the consumers searching Hotels.com, fewer than 0.5% are searching for specific large brands." If the impact of the brands' name and associated brand value was so important to a consumer, why would they choose to book on an OTA, and why would so few OTA consumers search for a specific brand name when using the site? While we will never know the true power of a brand's name, the fact that OTA customers search for brands so infrequently calls into question why brands are charging owners royalty fees for OTA bookings. If a 5% royalty fee seems harmless enough, consider this example: a 150-room major branded property operating at 75% occupancy, a $175 ADR and 11% annual OTA share, will pay a whopping $39,000 in annual royalty fees. We must ask - where is the brand providing value for this $39,000 fee?Who's really paying OTA commissions? The major brands have made a lot of noise about OTA commissions over the years. In April 2018, Marriott's CEO Arne Sorenson publicly stated that his goal in upcoming negotiations with Expedia was to "pay less." But what do brand headquarters actually pay? The big brands only own a small fraction of their portfolio5; the vast majority of their properties are franchised or leased to owners. Through franchise and management agreements, all fees are passed onto owners, including OTA commissions. And while OTA commissions have been steadily decreasing over the past few years, brand franchise fees are rising across the board. One study found that the Upscale segment's franchise fees rose a staggering 81% from 2016 to 20176. It seems that OTA commission fees are the least of owners' worries, and the rapidly diluting value proposition of operating a branded property is. Simply put, brands cost more than you think! The long-held idea that brands are cheap is just not true. For years, brands have touted their low franchisee fees and how they are lower than OTA commissions. However, franchisee fees are only one piece of the revenue that brands collect from owners. Most brands charge Loyalty Fees and Performance Marketing Fees and require Loyalty Discounts, and these additional fees leave owners paying sometimes more than they would have paid to OTAs alone. An interesting article has surfaced a new concept that helps calculate the additional fees that come from brands "double charging" on OTA bookings - Brand Contribution Penalty (BCP)7. Essentially, this theory states that the less contribution a brand produces, the higher its Brand Contribution Penalty is because that property will have to use OTAs to fill more of its rooms - thus incurring the "double charge" penalty. As the article mentions, a brand's BCP can add up to a 20% fee! Adding the Brand Contribution Penalty to all the other fees owners must pay is a hard pill to swallow. So, why are so many hotel projects branded? A common hotel industry perception is that it's much easier to finance a branded hotel purchase than a non-branded purchase. While there may be some merit to this belief, owners may still have an opportunity to avoid going with a big brand when financing their property and thus avoid all the hassles mentioned above. If you're considering going without a brand, here are some tips to remember.First, consider what OTAs can do for you. If you drop your brand flag, you will have to find another way to market your property and message your value to customers. Enter OTAs. Online Travel Agencies like Hotels.com, Booking.com and Expedia do not charge up-front costs for marketing and, instead, only charge a commission percentage. Bundled in this commission is the marketing power that OTAs provide, exposing your property to millions of customers who are mostly brand agnostic. Strong sort placement on OTA sites as well as lots of positive reviews can counteract the lost marketing from dropping your brand flag. Second, consider that lending organizations may be more inclined to fund a hotel with cash flow. If you can prove "concept success" for a hotel - that it serves a need in the market - you may have an easier time securing financing for the purchase. Third, owners looking to finance a non-branded hotel project should do their due diligence before looking for financing. Can the market support a new hotel of this size, ADR, and star tier? Which types of demand will the property attract? Which properties will be its major competitors and what competitive advantages does the property offer? If your concept satisfies a strong need, your lending organization may be more inclined to fund. With a booming economy and increased competition across the globe, owners must examine their partnerships to ensure they position themselves to be financially successful. It's no longer necessary to work with a brand to achieve financial success in your hotel. Remember to lean on OTAs and to consider what lending organizations are looking for in financing agreements, and you can avoid pain points that the big brands bring.1 https://www.hospitalitynet.org/news/4089678.html2 http://www.jdpower.com/sites/default/files/2018114_n.a._hotel_guest_satisfaction_study.pdf 3 https://www.tnooz.com/article/hotel-loyalty-programs/ 4 https://www.phocuswire.com/True-cost-hotel-brand-recognition5 https://skift.com/2017/04/04/marriott-is-selling-more-starwood-properties-to-further-its-asset-light-strategy/ 6 https://www.tnooz.com/article/hotel-franchise-fees/7 https://www.phocuswire.com/True-cost-hotel-brand-recognition
Article by David Lund

Earned and Unearned Revenues - Understanding the Difference

The Hotel Financial Coach ·29 January 2019
Just like baseball has an unearned run as a scoring feature, in business we have unearned revenues. In this piece I will discuss the difference between earned and unearned revenue and how it applies to the hospitality business.First off though we need to review the American classic game of Baseball and how an unearned run works. This will be especially important for those of us who are not the sport's most avid fans. In baseball you score an unearned run when an official, the umpire, decides the player crossed home plate due to an error (mistake) by the defending team. A good example is: an outfielder drops the ball and the runner on third base is able to make it to home plate before the outfielder is able to locate the dropped ball and throw it to the catcher. That's an unearned run.In the hotel business we earn income or revenue (the same thing) when we deliver service. In my workshops we do a piece on the difference between the two types of income. Most people think that income is earned when the money is paid. But this is not the case. An advance deposit is a good example of this. When someone pays us money to hold the room we have not yet earned the income, so we cannot take that deposit and treat it as revenue yet. We must hold it as a liability until we earn it. This is a tricky concept at first glance. How can a deposit be a liability? It's a liability because use of the room has not happened yet! We have a duty to return the deposit under most conditions if the client should cancel in the appropriate period of time. These features make this transaction a liability. We record the payment as a debit to cash (asset) and a credit to the deposit account (liability).With the advance deposit example, the income is not earned until the guest actually arrives. Once the guest has come to stay, we move the deposit from the liability to the asset side on the guest ledger account. Each night they stay with us we book the room revenue, and this goes against the deposit until it is all used up. The nightly recording of the room revenue from an occupied room is a perfect example of earned income. This practice goes to support the matching principle that states we match revenues with expenses regardless of when the money is received.Another good example of unearned income or revenue is rent received in advance. In most hotels some space is rented out for shops, offices or even vitrines (a fancy word for showcases). Many times, the rental agreement will call for rent to be paid by the tenant to the landlord in advance. In this case rent is due for the entire year on January 15th. When a check for the full years rent is received, it creates a problem; the income has not yet been earned. Therefore rent is unearned income and must be treated as a liability until we earn it.With the rent example the transaction is booked as follows. The rent for January is recognized as earned and the remaining balance of the payment is placed in the unearned rent account which is a liability. From this point on, each month 1/12 of the value of the unearned rent received in January will be moved from the liability account to the rent revenue account. This process is a great example of the matching principle and the conservatism principle.We're matching revenues to the periods they are earned, in this case each month this year we can match 1/12 of the value of the payment as revenue that is earned. We are conservative in our approach to recognizing the revenue. In this case it would be a mistake to recognize all the income in January, as attractive as it might sound, as it would be a contradiction to the conservative principle. The conservatism principle clearly states that we can only recognize revenue when we're completely assured that it was earned. In the case of the rent there might be concern that the tenant could cancel the lease and be due the balance of that rent. Both of these facts tell us how to treat this transaction.A final example of unearned income that is particular to hotels is an attrition or penalty charge to a group that does not meet its commitment of room nights. In many cases this charge includes an, "if you re-book" clause that states the customer can get a credit for some or all of the penalty charged if they bring the hotel an additional piece of business. Just like the rent example above, we cannot recognize this payment as income until it is earned. In this case it's simply a matter of knowing when the condition of re-booking expires. On that date we can recognize the revenue.That is the story of earned and unearned revenues.

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 http://hotelfinancialcoach.com/the-power-in-a-routine/In 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 http://hotelfinancialcoach.com/f-tar-w-the-secret-recipe-for-creating-financial-leadership-in-your-hotel/5. 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. https://www.tnooz.com/article/hotel-loyalty-programs/Use 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 david@hotelfinancialcoach.com* 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

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