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

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

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

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

Hospitality Financial Leadership - The Greatest Illusion - Ever

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

Hospitality Financial Leadership - The Busy Hotel Executive

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

Hospitality Financial Leadership Business Acumen and Women

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

Hospitality Financial Leadership - How the Coach Helped Me

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

Hospitality Financial Leadership - The General Manager's Yardstick

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

Hospitality Financial Leadership - The Three Dimensions of Delegation

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

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

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

Hospitality Financial Leadership - Beverage Cost or Contribution Margin?

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

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

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

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

Hospitality Financial Leadership - Catch Me If You Can

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

Hospitality Financial Leadership - Management Incentive Plans

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

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

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

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

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

Hospitality Financial Leadership - Never More Than Two Degrees of Separation

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

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

The Hotel Financial Coach ·13 March 2018
The first thing you need to know about reading a hotel financial statement is there are basically two different statements you will want to get comfortable with. The two are the income statement--some call it the P&L or profit and loss statement--and the second is the balance sheet.Now I know what you are thinking, balance sheets are for the accounting types and they are complicated. Nothing could be further from the truth and I am going to give you a new understanding and share a secret about the balance sheet and the relationship to the P&L.Let's start with the income statementSomething to note here: Hotel income statements are free-form items and are not all created equal. One characteristic they all have in common, however, is they are all set up by department. They always start with the rooms department, then F&B, then the minor operating departments like golf, spa, telephone and laundry. These departments are what are called operating departments because they all have income. Then you will find the non-operating departments, i.e., administration, sales and maintenance. These departments are called non-operating because they do not generate any income. I know some of you think the sales department makes money--not so fast. Sales book business but the rooms department generates the income when the guest actually stays in the hotel. Funny, the P&L is organized and laid out just like a hotel.Inside each department you will see the same layout: income first, then cost of sales (if required), then payroll and last, expenses. The P&L usually starts with a great summary or overall report. This is where you will want to start your review. Here you should find total revenues for all hotel activities and the total costs, leading you to the gross operating profit and net operating profit lines. The statement is usually laid out so you can see the results of the month compared to the budget and or forecast for that same month and a last year comparison. In addition to the month's numbers, you will want to see the accumulated year-to-date results, normally to the right of the monthly numbers.In the YTD you want to see the accumulated result--let's say for November vs. the accumulated budget values up until November and the accumulated YTD last year results for the prior year up until November. Always compare like periods of time in the budget and last year to the actual monthly and YTD amounts. A good summary P&L is probably the most read and highly anticipated financial statement in any hotel.One thing to always keep in mind is the fact that many miss. That is, we do what we do the way we do it in hospitality, because of the book.The 11th edition of the Uniformed System of Accounts for the Lodging Industry lays out in nauseating detail the standards for our industry. Here is a link:https://www.ahlei.org/Product_by_Category/Featured_Products/Uniform_System_of_Accounts_for_the_Lodging_Industry,_Eleventh_Revised_Edition_-_PRINT/It is a great resource for defining what goes where and standard formats, but it does not include several aspects like flow thru and productivity reporting that are incredibly powerful and useful tools. If you are serious about hotel financial knowledge, then I highly recommend you get yourself a copy.Leaving the summary statement, you will find the balance of the income statement laid out by department in the same order you see the top level. Each of these departmental statements will have totals for revenue, cost of sales (F&B, Spa, Telephones), payroll and expense that need to tie back to the summary statement. Once people make this connection it all comes together rather quickly. What you previously thought was so complicated and confusing is pretty straightforward.The profit and loss statement is the most interesting statement because it shows how you are doing as it relates to profit for a given period. It is a snapshot of what revenues and costs are for the period you are looking at. If you are looking at the June statement and it is December, it really is not relevant. The income statement tells how you are doing financially regarding operating profit. It is how you keep score relative to the budget (the promise) and last year. You can clearly see these comparisons for the most current month and year-to-date. You also can see where there are successes in operations and where there are challenges. This is pivotal. Seeing where you are not having the level of success you planned and having the ability to manage around that challenge is the highest sole purpose of the income statement.How can you improve your results? Is payroll too high? Are expenses out of control? Are revenues falling short of the budget? It all comes out on the income statement. Like a report card and a wake-up call to pull up your socks and your marks too. This is where the income statement transcends the black and white piece of paper and becomes the vehicle for change and ideas. Get your team involved and change the way you manage.That's the result that's possible using some financial leadership.Balance SheetThe second most common statement you want to be comfortable reviewing every month is the balance sheet. The balance sheet tests the fundamental accounting equation. The equation states that assets equal liabilities plus equity. Most people get quiet here when we start talking the mumbo jumbo but this concept is super easy and once you grasp it you are going to see the world of finance in a completely different light, like riding a bike.When I teach my students this concept in my workshops they often comment that they had no idea that the fundamental accounting equation was so simple.Here goes: I liken the explanation of the fundamental accounting equation to the ownership value relationship of a house. You--along with the bank--own the house. In this example, the house has a market value of $500,000 and you have a mortgage of $350,000 on the house through the bank. You subtract the two numbers and that's your share or, as described in accounting terms, your equity or sometimes called owner's equity:$500,000 (assets) - $350,000 (liabilities) = $150,000 (equity)This basic concept is exactly the same as the balance sheet mechanics. It is the "fundamental accounting equation."You can be the most complicated business in the world and it all boils down to the same concept: Assets-Liabilities=Equity. In the example of the house, you get the fact that the $150,000 is yours. That would be your right to the upside of the sale price less the mortgage. In business, the assets minus the liabilities is what the owner is entitled to, their equity. It is also important to remember that the equity can be a negative. Using the example of the house and given the recent financial crisis, you know houses can have bigger mortgages than value if the market goes down. In a business, you want to have a healthy asset to liability ratio but this is not always the case. So, knowing this simple equation you can now test the health of the business by examining the values of total assets and liabilities.The quality of those assets in a hotel should be relatively easy to measure. Cash, receivables, inventory, prepaid expenses. You use these items to make money, hence they are assets. The liabilities are all the commitments you have that you must honor. Vendors to pay, deposits for future guests, taxes collected that need to be paid, employee wages and vacations to honor. In simplistic terms, you have the good stuff, the assets, less the bad stuff, the bills you need to pay, and the difference is the equity. Same concept as the house above.The LinkThe link between the income statement and the balance sheet is an important and powerful concept.When you make a profit or have a loss in your business, you can see the bottom line number on the year-to-date column on the income statement.The link.What you also can see is that it is the same number you find on the balance sheet when you look at the current year's retained income line in the equity section.The other line called retained income from prior periods, is the accumulated profits and losses since that business was created. This is the link between the current year's profit performance and the lifetime of the business's accumulated results.The business gets created when it is bought/sold. A new set of books is created and you start everything from the purchase price values. Everything from that point forward moves from the income statement each month to the balance sheet and its accumulated profit or loss is found in the equity. Assets - liabilities = owners' equity. See? Not so difficult.I have written five other blogs on hotel financial statements and the powerful features you can incorporate into your statements, check them out if you have not read them already and learn how you can supercharge your financial statements.http://hotelfinancialcoach.com/do-your-hotel-financials-statements-pass-the-test-part-1/http://hotelfinancialcoach.com/do-your-hotel-financial-statements-pass-the-test-part-2/http://hotelfinancialcoach.com/flow-through-understanding-how-it-works-and-how-to-include-flow-thru-in-your-financial-statements/http://hotelfinancialcoach.com/hospitality-financial-leadership-measuring-labor-productivity-part-1/http://hotelfinancialcoach.com/hospitality-financial-leadership-measuring-labor-productivity-part-ii/If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comEFTE and Productivity ExerciseHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"F&B Productivity SpreadsheetHow the Hotel Financial Coach Helped MeRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WHotel Financial Coach - "Speaking Sheet"Flow Thru Cheat Sheet - EnhancedVisit my website today for a copy of my FREE guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotelwww.hotelfinancialcoach.com
Article by David Lund

Hospitality Financial Leadership - Who Has ALL the Risk and Why?

The Hotel Financial Coach · 6 March 2018
What happens in the hotel business when the phones stop ringing? Who must pay the piper?It has been seven great years in most markets in North America that the hotel sector has been strong and growing year over year. Some markets have produced several years of strong single and even double-digit RevPAR growth. With the great RevPAR growth comes solid profits, more than enough to cover wages and expenses, leaving a nice profit. But what happens when the music stops? Who will find a chair and who will not?The last hotel business down cycle occurred in 2007-2009. During this downturn, a typical hotel may of had revenues decline for three years in a row. This could mean a 20+ percent decline from their peak in 2006. GOP in this scenario in the same years would have down +30%. Flow-thru retention was dismal given the large fixed cost of labor, union contracts, and benefit costs. Revenues would have been down because of less occupancy and fewer banquets but the big culprit was the rate. Cash flow before capital was suddenly backward. How can this be? What happens when things (the top line) stopped growing?In the hotel business owners have all the risk. Brands largely get paid by fees off the top. In this scenario, their management fees decreased in proportion to the revenue drop. During this downturn an average 15 percent decrease in fees. On the other hand, the brand still provided its other management services. Owners tried to get the brand to throw anything and everything off the sinking ship but that was never enough to right the equation. The manager and executive got squeezed a lot during this period but they survived because they were essential to mitigate the ongoing financial disaster. The owner had "all" the risk.So, how can it be so dangerous to be an owner of a hotel? It seems like a sound investment. A hotel might be in business for decades and could be a popular location and destination. To see and understand the realities of the business, you need to go behind the curtain. There is a saying in the hotel business that I like, "You cannot save your way to prosperity." It is very applicable here.But behind the curtain the total payroll cost, including benefits was huge. This was the large unmovable object that killed the desire for hotel ownership. Payroll is like a field that needs to be burned every few years. The one big problem with the payroll in a hotel is you can't get rid of it, you can't even get it to go down in many cases! There is only one number that you can count on in a hotel to increase every year and its the average hourly wage.There are two competing facts in a hotel: One fact is the average rate in a hotel will go up and then down. The second fact is the average rate of pay never goes down.For hotels to survive the next big downturn, they must act now. Take measurable steps to innovate. I was in a new hotel in NYC a while back and no bellman, no doorman, no front desk clerks and that is just what I could see perusing the lobby. I'm not saying this is the solution for you. You need to find your own way. But rest assured of two things. One, it's not a matter of if, its a matter of when we slip into the next financial mess that kicks hotels in the teeth. Two, ownership will carry the burden.Don't wait for trouble to come knocking. Be proactive. The best time to paint the deck is when it's sunny, not when it's raining.If you would like a copy of any of the following send me an email.EFTE and Productivity ExerciseWhy Are The Numbers The Hard Part of Hospitality?Hotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"F&B Productivity SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WHotel Financial Coach - "Speaking Sheet"Flow Thru Cheat Sheet - EnhancedVisit my website today for a copy of my FREE guidebook'The Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotel'Call or write today and arrange for a complimentary discussion on howyou can create more profits in your hotel.Do you need a dynamic speaker with a unique and creative financial message for your next hospitality event?Are you thinking about your management team and what to engage them with this year? Consider a full or half day hospitality financial leadership workshop.Give the coach a call and let's get going!Contact David at (415) 696-9593.
Article by David Lund

Hospitality Financial Leadership - Create the Monthly Financial Circle!

The Hotel Financial Coach ·27 February 2018
Practice is what we are missing. Practice with the financial piece is somehow a foreign concept."Everything we do is practice for something greater than where we currently are." - Adam Kirk SmithIf you and I worked in banquets and we were both rookies, we would show up every day and listen, work and learn, and in a relatively short period of time, we would both be pretty good at setting up, servicing and tearing down the banquet. How is this different from learning the financial piece? It is not, that's the illusion. It looks different because it is money and it has a certain illusionary power.The monthly financial circle in a hotel is a practice schedule that includes different routines you must rehearse to improve your whole financial game. The circle repeats itself each month like clockwork, always overlapping and never missing a beat.In the hotel business, it can seem like the financial machine never stops, it can seem relentless. You just finish one month's commentary and it is forecast time again, and before you know it, it is time for the month-end close and statement reviews. These tasks seem to pour over each other and the timer never stops.The real beauty in all of this is that the financial window opens and closes 12 times each year in your hotel. To look at this in a positive light means you have 12 opportunities each year to practice and learn. Twelve opportunities to re-set and discover what worked and what did not work. Throw out the bad and keep the good. If you look at each monthly financial cycle as an opportunity to learn and grow, you will move toward mastering this financial discipline.In most hotels, the circle will start a week or so before the end of the month with the timely arrival of the rooms on the books and the occupancy, rate, and room revenue projections for the next 90 days. From this data, you plan your department's payroll and expenses. You know based on the budget what you have as a base. You know the zero-based expenses in the budget for your department and, based on the projected volume of rooms, you plan the month's activity. It really does not matter what department you are in. What matters is how the next three months look and you adjust payroll hours and expense dollars accordingly to match those projections. Managing the flow thru.You submit your forecast on time and the next day you get the properties consolidation report. From here you have a quick conversation with the financial quarterback and she tells you to improve the bottom line in month one and two--month three, for now, looks OK. She asks you and several of your counterparts for an improvement in payroll and expenses in the next two months. She gives you a real number to hit, you go back and forth, and agree on how much you can reduce the costs. She leaves it up to you to find these dollars in the details. This is nothing new, you do this every month and sometimes what you propose is on the mark. Other times you get a recommendation to add and--some months like this one--you need to trim. You make the changes, resubmit the numbers and a day later you have the final forecast for the next 90 days.From the forecasting stage, you move into the actual monthYou know the total volume of business anticipated for the month and even have it day-by-day for your area. You prepare your work schedules and purchase orders for the first part of the month, all the while keeping an eye every day on the pickup report, the daily sales, and the month-to-date sales all relative to the latest forecast. You quickly see and hear where there is a softness in the month and where the pickup is behind. Based on this trend you know you will not hit the monthly total, so you adjust the work schedule, send a manager on holiday and reduce expense requests for the coming weeks, all the while balancing where you see the business ending up and what you need to maintain the standards in your department.Because you have a zero-based expense budget in detail and a staffing guide that has fixed and variable positions, you know what levers you can pull. As you move through the month you look at the stats daily and it only takes a few short minutes.You finish the month and receive the general ledger detail report and the financial statement first draft. You go right to the top level and look at the revenues and business volumes and they are exactly what the last daily report said they would be. You then flip to your page of the statement and look at payroll and expense lines. You then review the general-ledger (GL) detail for your accounts and compare this quickly to your checkbook. You find two items that do not belong to your accounts. You communicate with accounting, they make the correction and now you know you have a clean statement. A couple of days later the final statement is complete.You have another look and your lines of the financials to ensure they are correct. From this phase, you sit down and write your piece of the commentary: What happened in the month with payroll and expenses relative to the volume of business expected vs. what materialized and what changes did you make to what was originally forecast?You submit your portion of the monthly commentary. It is consolidated and edited. A couple of days later you get a final copy of the property commentary and now the monthly circle is complete.But wait! The next month has already started. You have already completed the next 90-day forecast and are already tracking the new month's volumes and adjusting your spend accordingly.This is fun! ---If you would like a copy of any of the following send me an email.EFTE and Productivity ExerciseHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"F&B Productivity SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WHotel Financial Coach - "Speaking Sheet"Flow Thru Cheat Sheet - EnhancedVisit my website today for a copy of my FREE guidebook.The Seven Secrets to Create a Financially Engaged Leadership Team in Your HotelCall or write today and arrange for a complimentary discussion on how you can create more profits in your hotel.Do you need a dynamic speaker with a unique and creative financial message for your next hospitality event?Are you thinking about your leadership team and what to engage them with this year? Consider a full or half day hospitality financial leadership workshop.Give the coach a call and let's get going!
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Hospitality Financial Leadership - Creating A Hotel Accounting Policy Manual - The Do's and Don'ts

The Hotel Financial Coach ·21 February 2018
I know that it's a big challenge to get a policy manual together for a hotel or hotel company. The big brands have the resources to get the job done but the smaller brands and management companies don't have the same bandwidth. It's a project that always gets kicked down the calendar to another month or quarter. I wrote another article on why creating a hotel accounting policy manual is so challenging. Check it out.http://hotelfinancialcoach.com/hospitality-financial-leadership-creating-hotel-financial-policies/One aspect that often gets in the way of completing this task is because a bit of confusion surrounds polices. My client on this assignment was also confused about the same details at the start of our project. Making the task more difficult by piling on more information is a common mistake and in this case, it's an error we want to avoid.Quite often hotel financial executives and managers confuse accounting policy with procedures. I had to explain this to my client and it took a little time to get him on the same page as me. Once we broke through this barrier it was much smoother sailing. Policies and procedures are very different and mixing the two together is not a productive exercise. I think a little explanation is required here.Policies are like the laws that form the fabric of your business. They are the do's and don'ts of your company. The policies are the black and white structure you want in place so people can clearly see what the rules of the financial road are. Understanding these rules completely is the first step to compliance. Making the rules simple, clear and understood is the key to creating the strong financial culture in your hotel and hotel company. You also what concise policies so you can have the basis for an effective internal control review process. More on setting up and using an internal control review process is coming in a future article.Below is a sample accounting policy that does not include any procedures. The policy is clear and concise. The policy reader knows what the expectation is.Policy Only Example:Policy Section - Cash Policy 3-1 Bank ReconciliationPURPOSETo properly handle and control the monthly bank reconciliations.POLICYAll bank accounts are to be completely reconciled by the 15th calendar day of the following month.The standard reconciliation form spreadsheet is to be used.A paper copy of the reconciliation is to be produced each month.Review and approval in writing is to also be completed by the 15th of each month by the Director of Finance.All supporting documentation is to be included with the reconciliation and or the location clearly referenced on the reconciliation for all; bank statements, outstanding deposits, outstanding checks and all adjusting entries.The reconciliation must be complete and all relevant documents that support the reconciliation must be attached or easily found via reference, i.e., bank statementsThe reconciliation is not to be completed by any employee that has bank account signing authority.The reconciliation is not to be completed by anyone who prepares the bank deposit.All outstanding checks are to be reversed once they are 180 days old.All bank mail or email statements are to be opened first by the Director of Finance.FORMSStandard bank reconciliation excel sheet and template.The bank reconciliation policy example above outlines only what needs to be done and not. When we mix the policy with a procedure we cloud the picture. Procedures are important but not as it relates to creating and maintaining policy. In the above example if we were to include the procedures we would have three problems.Procedures are prone to be local. Do I start with clearing my outstanding checks or deposits in transit or credit cards? Do I use an electronic system that the bank provides to clear the checks or do I do it manually in my system? How do I receive my chargebacks, on line or in the mail? What about my deposits in transit, do I use a service that delays my deposits or do I deliver the funds directly to the bank?Procedures are prone to have a bias. Who has the best process to follow to do a bank reconciliation? I am willing to bet you if we get 5 hotel accountants in a room to discuss the best way to complete a bank reconciliation were going to have at least 6 different opinions.Procedures change rapidly. With technology procedures change quickly and depending on where your located these changes are not always available at the same time. If I incorporate procedures into my policy I will have a consistency challenge. "Oh, we don't do that part because our system is not on the latest version". This is exactly what you want to avoid with your policy, any wiggle room.All of these amounts to make the policy vague and when it's not crystal clear is much easier to side step the meat of the policy. You do not what procedures mixed in with your policies.The best way to handle procedures is to have a checklist or an instruction guide as a separate document and not part of your policy. A great example of this for me was the manual we used to load data from our GL into the financial reporting engine. In our company we had binder I would hall out and reference monthly to load the data into whatever category I was using. The procedures in the book changed often and depending on what GL system you had there were different instructions. The policy was a different matter. The policy was all GL data loaded into the system was to be verified using the retained earnings, current period and a print screen from both systems was required to be attached to the sign off sheet, approved by the Controller monthly. Don't confuse policy with procedure. You will make your manual much more effective and useful if you avoid this common mistake. Creating a policy manual will also be much simpler if we do not include procedures. It's now time to get off my soap box.Back to my client and how I was able to help him create a custom policy manual. We had been working on financial statement design issues when he told me their company didn't have a policy on recoding hours worked in the general ledger. A bit more discussion revealed that his hotel company didn't have completed accounting policy manual. All they had were a bunch of memo's. This is fairly common. I suggested I could help him create a custom policy manual for his hotels. "How"? he said. I told him I had worked with other clients had had developed a standard set of hotel specific accounting policies. Over 500 different policies in 30 different sections.What I outlined was a way we could work together to create his own custom company manual. Every other week I would send him 3 sections of the manual, via email, approximately 50 different polices. His job was to review these standard polices and think about how he wanted things changed or not for his business. We then convene a call and one by one we review the policies and he tells me what he wants changed. We discuss these changes so were both clear on what he wants. I record the calls. I then listen to the recording and edit the standard policies with his changes. I then send them back to him and now were in action. He likes this because we're making progress in a way that allows him to see and tailor each piece. Before you know it we have his company policy manual completed.He liked the process because he only needs to spend an hour every other week on the phone with me. A little reading and some review on his part and he gets a policy manual that's customized to his needs. I use word and a standard template with his hotel company logo. These policies are now his policies. I also advise him throughout the process on what works or not and what to look out for on hotel accounting policy creation. He also asks for a few additional polices that I didn't have. We create these new policies specifically for him. He also asked that some of my policies not be included because they were not relevant to his business. This is a custom job. We completed the project using only 10 calls.If you don't have a policy manual you now know two important things to help you get this project off the ground. Don't mix policy with procedure and you don't have to do this alone!
Article by David Lund

Hospitality Financial Leadership - Is Your Hotel Culture Blame or Appreciation?

The Hotel Financial Coach ·19 February 2018
In my career, I have seen both. Lots of appreciation for hard work and a challenging workplace. On the flip side a horror story of the blame for "mistakes" and lack of preparedness.Blame is the easy one to master. Management by embarrassment as I like to refer to it. One of my past hotels was a classic blame game hotel. After a much-publicized error or screw up or service interruption the GM would warmly ask, "Where is my victim?" or state, "Bring me the victim." What usually followed was paramount to a public flogging. Everyone got their turn and the others would just watch in stunned disbelief only being thankful that it was not his or her turn today.The weekly department head meeting was always somewhat entertaining and horrific at the same time. Each week someone would be singled out. Always at least one victim and sometimes more than one would get the wrath of our GM and quite often for the simplest, seemingly meaningless, things. No one escaped without a turn in the hot seat. Many times there were tears and many people cited it as the reason for moving on and finding a new job.In one instance I remember vividly a sales manager was asked about the pickup report from the previous day. She had the numbers right and it was a slow day.Our GM asked her, "Do you know how to sell?"She answered, "Yes...," with heavy hesitation in her voice. She knew it was her turn. The oxygen was now being removed from the room as we collectively gasped and all looked around the table at one another in horror. She was innocent--her only crime was being in sales today. Nonetheless, it was her turn to take it on the chin."Sell me this pencil," he said to her. Her words were garbled at best as we all sat in silence. He continued, "Find out what kind of pencil I want, you moron! Then tell me why your pencil is exactly the one I need." She was quickly reduced to tears in the ensuing silence and left the room. This was the typical result. With the carnage complete the agenda continued.Right after this meeting I had a meeting scheduled with him and asked, "Why do you pick on people and single them out, embarrassing them in front of their peers?""I'm an actor doing my job," he smiled and said, "It's my job to hold these people accountable and maintain control."I told him there are other ways to do that. He said he knew that but it's not as much fun.Old habits die hard. About a month later our executive team went on a retreat and the facilitator did an exercise where we went around the table and each person took turns as all other members, about ten of us, told each other what we liked and did not like about the way we worked.Our GM was last. I was first in the rotation to tell him what I liked and did not like. I told him I really appreciated his passion and creativity. Now the hard part: "We spoke about this before one-on-one," I told him, "Your habit of singling a person out at the weekly meeting is shameful and in my opinion, it's the biggest problem that could be easiest solved--just stop doing it."Silence...... You could have heard a pin drop. He simply nodded his head and my turn was over. Well, one after one, the next nine executives told him the exact same thing, "Stop being such a bully." The rules were simple for this exercise: We were to listen, say nothing and acknowledge.In that moment, I learned a lot. Bullies are not only found on the playground and people can change.Appreciation for the people you work with and a commitment to being fair and reasonable are the attributes you want to possess. Create and nurture. It does not mean you are a softy or a pushover but putting oneself in another's shoes and actually wearing them is not easy, especially when there are a few hundred pairs of feet all around you.The best thing you can do when everyone else is losing his or her head is to keep yours.If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comEFTE and Productivity ExerciseHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"F&B Productivity SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WHotel Financial Coach - "Speaking Sheet"Flow Thru Cheat Sheet - EnhancedVisit my website today for a copy of my FREE guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your HotelCall or write today and arrange for a complimentary discussion on howyou can create more profits in your hotel.Do you need a dynamic speaker with a unique and creative financial message for your next hospitality event?Are you thinking about your leadership team and what to engage them with this year? Consider a full or half day hospitality financial leadership workshop.Give the coach a call and let's get going!

Hospitality Financial Leadership - Free Property Management Software - More Disruption?

The Hotel Financial Coach · 7 February 2018
The first and largest one that comes to mind is in food and beverage operations. The disruption comes in two forms: pure outside competition and internal desire.The outside disruption--the free-standing restaurant--has been prolific and its effects are debatable, like many aspects of our business. We do not have to go too far back in our history to find hotels with multiple outlets that were busy and chock a block with patrons. I remember the 1980s and 1990s. We had the best facilities, the kitchen brigades that could cook their way into the hearts of our clients and the service staff.For a long time, the real action in the food and beverage world was largely hotels. As we all know that has run its course and what surrounds our city hotels today are a wide range of restaurants and bars that attract our hotel clients as well as other urbanites. You cannot go into a suburban market and find a hotel that has been built in the last 20 years that is not flanked by chain restaurants. They pop up like pimples on a teenager's face.So, hold the tissue box. This food and beverage restaurant and bar proliferation have a double edge and when we examine it closely it does not look so cutting. We all know that even a hotel that shows a healthy F&B profit on their statements, in reality, makes none or very little money. The way we report F&B operations in hotels are misleading and the reality is, for almost all hotel restaurants, we are trading dollars at best. For some hotel restaurants, we may as well hand out $10 bills at the door and send the customers across the street. Wages, unions, benefits are all substantially higher and we cannot compete with the small business lack of overhead and nimbleness. Not to mention that in many cases they have the products and services our customers are looking for. We are a product of our own success. Complacency and the simple truth say that outsourcing our F&B restaurant business has not all been a bad move.To the contrary. Once we have seen the impact of closing outlets, the F&B profit picture in many cases gets better. We have kept the profitable banquet and catering piece and inadvertently outsourced the less than profitable outlets. All of this happened to ultimately show us it is a good thing. Even to the point where today in many hotels we are looking to get someone to operate the outlets that are left. In some hotels, this is a no-win proposition for any operator and, yes, even some of those outlets are closing. Owners and asset managers do not buy the line that we need those outlets to support room rates. Breakfast still works in most hotels, cocktails in the lobby can still survive, but in almost every other case the profit from F&B outlets is backward. Thank you for the disruption.Now back to the title of this piece: PMS connectionIf you operate a hotel today, you know how much of a cluster your PMS system is. Getting service for the never-ending upgrades and even the smallest of changes is like trying to get into a Rolling Stones show. On top of the lack of response from vendors who think they have a monopoly, they charge an arm and two legs for their crappy products and appalling service. I better stop here.Well, shall some disruption enter to help us along? If you Google the words, "free hotel PMS app" you will find vendors who have developed products that are free! Yes, free. One that jumps out at me is called Softmogul. All they want is to provide you their free property management and restaurant software in exchange for your credit card processing business at competitive rates. Now, I know what some of you are thinking. Where is the hook? Surely they will hold us ransom for double the processing fees soon enough. I say it is high time someone sees the value we currently pay on every credit card transaction as a totally disreputable ingredient that is calling out for attention. Why didn't anyone in our industry see this opportunity? What would 2-3 percent of the $600 billion hotel industry be worth? What about 2-3 points of all the standalone restaurants? How much better service do you think someone who wants your card processing would provide compared to what you receive today?A product like this might not be ready for a 1,500-room Hilton today but think of the small hotels that struggle with a legacy system or bounce along without any current or integrated systems. Think about what the world could look like if a large credit card processor overnight developed a PMS in conjunction with a vendor. What if they made that platform so integrable that it is as simple as it is today to sign up your hotel on an OTA. Disruption can come and go in a variety of directions. Hotels are notoriously late to the game and that means others get to clear the land first, build the dream and then hotels scream it is not fair.When will we learn from the lessons of the past? When will we see disruption as part of the business and lead the charge and not follow it after the fifth inning?What else in our industry are we simply overlooking because we are still operators and not developers with a little entrepreneurial flair and why can't we be both?---If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comEFTE and Productivity ExerciseHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"F&B Productivity SpreadsheetHow The Hotel Coach Helped MeRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WHotel Financial Coach - "Speaking Sheet"Flow Thru Cheat Sheet - EnhancedVisit my website today for a copy of my FREE guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotel - and receive my weekly articles @

Hospitality Financial Leadership - Every Line Needs an Owner

The Hotel Financial Coach ·29 January 2018
It is true in any aspect of our lives at home and work that teamwork makes things easier. The reason it makes them easier is that we have more effort directed toward the thing we are trying to do. The simplest example is trying to lift a heavy rock. If we work in a coordinated fashion and do it together, it is much easier.In hotels, it is precisely the same with financial lifting. If the GM or director of finance tries to do it alone, it is hard. It is impossible to lift this thing alone. But how do they get the others to lend a helping hand?In hotels, you have an amazing tool to help you distribute the lifting. It is called the financial statement or the P&L. What I want you to do with this tool is tear it apart and put it back together, giving every single line of revenue, cost of goods, payroll, expense, and statistics to the appropriate manager or leader on your team. That's right, every single line. By using this strategy, you now have a blueprint of your business that shows whom you need to communicate with when a certain line of a financial statement is out of whack. Agreements need to be made with these individuals, so they clearly understand their role and responsibility regarding their lines of the statement. I ensure you they have what they need to get the job done.Once you have an owner for every line, you then need to work with these individuals to help them learn how to forecast and budget their lines each month. Once the forecast is consolidated, you now have a team member to call on if you need to make changes. You no longer tweak the forecast in a few areas to get the bottom line you need. You go back to the line owners and negotiate the changes.So, stop right here. I know what you are thinking: How is this possible or practical? STOP! This is the most important pivot in the creation of financial leadership. If you change the forecast for that line and give the consolidated forecast back to the team, and you have changed the line items without the agreement of the owner of that line, you have just fallen all the way back down the financial leadership ladder. You will have zero credibility with your leaders; they will quietly thumb their nose and middle finger at you.You are thinking you do not have time for thisMake the time and it will reward you handsomely.The very essence of your hotel and financial leadership is built on this discipline. It is not possible to throw blankets at this and say that rooms look after their accounts and I will just deal with the rooms division manager. Do not do this. It is not an effective strategy because too many P&L lines intersect in your hotel--especially in rooms. Just sit down with the rooms division manager and go through their statement with them and agree on who will be assigned each and every line. Every line needs an owner!A good example of the intersecting is a line like "guest supplies." Housekeeping, front desk, concierge, guest service and even sales spend money that ends up an expense in this account. So, who is the right individual to manage it? Do not be fooled into thinking the rooms division manager will handle it. It will not happen. Get a name that you believe is the right person and make an agreement with the rooms division manager on how this person is going to corral the others. This move is golden. The person you pick to quarterback this account must have great diplomacy and negotiation skills. You have just deputized a leader with a very important task; one that requires your commitment, patience, and resources.Play this right and the leader will love you for this responsibility. Play it wrong and they will resist.Make sure all other constituents who use mixed accounts know and agree that the owner of this account is the one who will prepare the zero-based budget and work equitably with all to make sure they know what they have to spend and when.With most lines in the P&L, the owners are obvious. Take the time necessary to work with every single owner on their accounts. This is the foundation of your financial leadership in the hotel."Every line has an owner" will revolutionize your business and the engagement in your business.This is your garden. Tend to it and watch it grow.If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comEFTE and Productivity ExerciseHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"F&B Productivity SpreadsheetHow The Hotel Coach Helped MeRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WHotel Financial Coach - "Speaking Sheet"Flow Thru Cheat Sheet - EnhancedVisit my website today for a copy of my FREE guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotel - and receive my weekly articles @www.hotelfinancialcoach.com

Hospitality Financial Leadership - Car Trouble

The Hotel Financial Coach ·22 January 2018
During my career inside hotels I had the pleasure of opening and transitioning several hotels to our brand, processes and systems. This always was a lot of work but well worth it because I met a lot of new cool people, and on top of that traveled to some pretty nice locations.One of the best projects I ever worked on was a hotel transition in the UK. The hotel was owned by a famous doctor, professional car racing team owner and entrepreneur.You might be asking yourself, "What's the good doctor so famous for?" Well, in the late 1960s in America he was in partnership in a pharmaceutical company with another man. My Dr.'s division developed a revolutionary device and his partner refused to take it to market. My Dr. left the partnership and started his own company and obtained a patent for the device. Let's just say the good doctor made the right move. The device was a revolution in medicine to say the least. This made millions and millions of dollars and he still owns the patent today.Fast forward to 2006 and the Dr. now owns a few big things including this resort in the UK. This 200-plus room resort is on more than 500 acres of land and features two 18-hole golf courses and a spa. The resort is beautiful, sitting on a gentle hill overlooking the bay. The two golf courses, a links course and an American style course unfold along the water's edge. Across the bay on a clear day you can see another famous course and its clubhouse stands out like a sleeping giant. What a beautiful place, especially in June, which is the month I was there. In this part of the UK in June the days are super long. The sun rises at 4 a.m. and it is not dark until 10 p.m.One day a few of us were having lunch at the golf course and we had the pleasure of witnessing a photo shoot that featured the Scottish golfer and past British Open Champion Paul Lawrie with the much more famous Claret Jug. It is the trophy the winner of the British Open is presented with. Very cool. In the UK, which is the home of the game of golf, they take golf pretty seriously. Lawrie is the last Scotsman to win the Open. Let's hope there is another soon.The funny thing about these two beautiful golf courses is the hours they keep. Like I said earlier, the days are long in June in Scotland due to its 56 degrees of latitude. The courses opened every morning at 8:30 a.m. and were closed every afternoon at 5 p.m. I mean no golfers before 8:30 and everyone is off the course and the doors are closed at 5. Unbelievable! But it is not America or Canada, it is the UK and that's their way. I think I played golf 30 times that trip. I could walk out of my hotel room at 6 a.m. and play 9 holes before 7:45. At the end of the day I could start at 6 p.m. and play 18 holes before dark. With my own golf clubs in hand, I made the best of it.One of the best activities we had in the month we were there was attending the World Cup Soccer Championship at the local pub in town. The fans--the pub goers--are insane about soccer or as they call it: football. The thing that I did not know was just how much the Scots hate the Brits. Scotland did not have a team that qualified for the WC that year. When England played Ecuador in the first knock out round, the pub was full on in support of Ecuador. "Those English bums and bastards!" they would chant. This was incredible and kind of sad to see. Being from Canada I no idea the UK was so splintered. I certainly remember the Irish Republican Army's activities and especially the pub bombings of the 1970s, but I thought the rest was a peace loving UK. Not so.I remember coming home and having a chat with my neighbor in Ontario who is English. I told him about the pub and his reply was, "Every hoodlum in England is from Scotland." Well, England lost in the second round to Portugal a week later and the pub fans staged an impromptu parade to celebrate in the streets, hundreds of Scots joined them.The best part of the trip happened the last evening I was thereThe Dr. was selling the hotel to an investment firm from England and my hotel company had won the bid and received the management contract to run the hotel for the new owner. The Dr. was packing up so to speak and one of his prized possessions was his Esparante GTR-1 which was always parked at the main hotel entrance. The Dr. and his son operated a Le Mans team and he started the American Le Mans series that still runs very successfully today.I came back to the hotel after an early dinner and was with an old friend I had known and worked with for many years. We entered the lobby and we ran right into the Dr. and he was in a great mood. My friend and the Dr. were talking about wine and the Dr. had the idea that my hotel company should feature his Chateau wines in all of our hotels. Well, it turns out that the Dr. had been suggesting this all week and my friend told me at dinner just a few minutes earlier how BAD the wines were. Too funny. Their conversation on wine trailed off as I listened intently.I then asked the Dr., "What are you doing with the car? Is it part of the purchase and sale agreement?" knowing full well that it was not.He replied, "Do you want to take it for a spin?"I said, "Yes, for sure, that sounds like fun," thinking that he was just kidding. He stepped aside and opened a drawer in the doorman's desk and threw me the keys and said, "Don't come back for at least an hour." Holy Toledo! What a car!My friend came with me and we had a blast. 575 horsepower. At one point we were on the narrowest country lane doing more than 100 miles per hour and I was still in second gear. I have never driven anything like that before or since. The power, the acceleration, the handling and the brute force was simply stunning, and I love cars!At one point I think I really scared my friend and being the passenger is not always easy especially when the driver is me! We bombed around the countryside, blew the doors off most of the shops and restaurants in town and even went to the Old Course Clubhouse for a drink and pictures by the famous foot bridge on the 18th hole.What a blast. We returned the car about 2 hours after we left. The Dr. was long gone and the only thing we had left to do was to head to the hotel bar to reminisce and tell our comrades about our evening adventure.If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.comEFTE and Productivity ExerciseHotel Financial Policy Manual - Inventory of "Sections"Hotel Financial Coach "Services Sheet"F&B Productivity SpreadsheetRooms Productivity SpreadsheetFinancial Leadership Recipe F TAR WHotel Financial Coach - "Speaking Sheet"Flow Thru Cheat Sheet - EnhancedVisit my website today for a copy of my FREE guidebookThe Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotelwww.hotelfinancialcoach.comCall or write today and arrange for a complimentary discussion on howyou can create more profit in your hotel.
Article by David Lund

Hospitality Financial Leadership - Recording Average Length of Stay

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

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