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Providing clarity and preventative solutions for your hotel’s finances.
by David Lund
As an owner, you’re pretty sure there is more your hotel management team could do to leverage your asset and get you a greater return. Right?
You question the quality and the organization of the financial information. The hotel management team talks a good game, but you question the results. When you dive into the details of the statement, many lines have big variances to the budget and forecast. And when you ask why, you get a myriad of excuses but not much meaningful information, and certainly nothing to give you confidence that the future will be any different.
Why is this happening and what can you do?
The answer is that there’s a lack of financial leadership at your hotel. The business is complex in that there are many departments and people consuming resources and generating revenues. The executive team tries to provide meaningful budgets and forecasts, but they can’t because the real information is not coming to the surface.
Well, I have good news: You have the ability to create an environment that has your managers working together on the “business” of running your hotel, and here is how to do it.
The third pillar
In our business, we have three pillars: guests, colleagues and dollars.
We manage guest interaction with an understanding and belief that we are all invested in respectable guest service. With colleague engagement, it’s the same – we’re all implicated in managing teams that have high-colleague engagement.
So why are dollars different?
Well, not so long ago it was considered taboo to discuss finances. So, naturally, many leaders and managers were ignorant to their own finances. Now we find ourselves in a different world, one in which we want managers and leaders to get in the game.
Brands sell expertise to owners. Brands need to wake up and realize the key to mastering the third pillar begins with investing in financial leadership. Sure, we have audits and systems for the accounting function, but we have nothing as a standard or way of measuring the way we lead financially. Brands mandate standards, and owners pay to have these in place. A brand with a developed financial leadership model would be very attractive to owners. So what are brands waiting for?
The paper can’t talk
Why is financial leadership in hotels so unevolved? The answer is somewhat hidden. When we look at the three things we charge our leaders with doing, they’re to look after:
- The guests
- The colleagues
- The money
The simple fact is this: The guests and colleagues can talk; they can speak their mind, ask for help, and demand our attention in ever-increasing cultural and socially responsible ways. The paper, the reports, the forecast, the budget… all of these instruments don’t have a voice. We need to give them a voice that everyone can hear. That’s financially evolved leadership: In how we communicate, it’s making the financial piece as important as the other two pillars.
Embracing the cyclical nature
The financial window in a hotel opens and closes every month. It’s both a curse and a blessing. It’s a curse because it seems like we just finish with one month and another is right upon us. It’s relentless, and like the tide, it never stops.
The blessing can be hard to see, but it’s there – it is the blessing of practice of mastery. We get to start all over again and practice every month. Every month is an opportunity to re-set, to start over, to learn from what worked last month, to improve what didn’t, and get better and better at this game.
The cycle starts and ends all in the same place. Below we’ve outlined the various steps along the way.
Every line needs an owner
With financial leadership, we want as many people involved in the “monthly financial circle” as we have involved in preparing work schedules or preparing purchase orders, plus the people who forecast its revenues. The hotel must adopt a culture that stands for “every line needs an owner.”
In the past, in many hotels the financial information was not shared with many leaders. It was considered to be secret and private. Most hotels today share financial performance information with leaders. What financial leadership hotels contribute is matching the resources, consumers and revenue producers with the appropriate lines in the profit-and-loss statement, with every line having an owner. The owners forecast, track and report on their lines every day and every month.
With a system that encompasses the entire statement, we ensure all facets of our business are being managed. This promotes more communication and better decision-making, because someone is actually taking active responsibility for every line. From a monitoring and review point, we can clearly see which areas are working and which ones are not, and we can then take the appropriate action with the right individual.
If we attempt to manage the numbers by area or department, we are missing a huge opportunity to really hold the business up with many hands. ■
David Lund, CHAE, “The Financial Hotel Coach,” is an international hospitality financial leadership expert who has held positions as a regional financial controller, corporate director and hotel manager with an international brand for 30 years. Lund authored an award-winning workshop and two books on hospitality financial leadership, and coaches hospitality executives and delivers his financial leadership training throughout the world. To learn more, visit www.hotelcoachdavid.com.
What does financial leadership look like?
The picture you want to paint is one of a leadership team that is financially up to date; everyone is fully ‘in the game.’ So, exactly, what does this look like?
Here are some best practices that will help you begin with the end in mind.
- When forecast and budget changes need to be made to achieve overriding goals, leaders on the ground make these changes on line items, and they know what items are included in their final budgets and forecasts, and which ones are not. There are no executive-level changes to forecast numbers at the eleventh hour.
- Each leader knowingly agrees to financially manage his/her piece of the operation and happily takes responsibility for what happens in his/her area.
- Schedules and timelines for forecasts, budgets and month-end close are adhered to.
- Regular communication on the numbers is thoughtful, complete and informative.
- Department managers and leaders all know their revenue, payroll and expense lines. They monitor the progress for their area daily, throughout the month, and make adjustments to schedules and purchases to reflect the realized and adjusted business volumes.
- New leaders are selected, trained and properly supported to evolve financially, as well as providing service and colleague engagement.
- Leaders evolve financially in this environment because the hotel has created great bench strength.
- Leaders from this hotel are desired by other hotels for promotions because of their many capabilities, especially their ability to lead financially.