Hospitality Financial Leadership – The Key Attributes of a Hotel’s Financial Health
Having a monthly financial statement for your hotel is key to creating an effective management process within your business. But, like many things in life, not all hotel financials are created equal. To be effective, your statement must be in good shape and it must have the right features that allow you to have the information you need to make better operating decisions in a timely manner.
That’s what it’s all about, defining what the modern standards are for designing and producing a financially sound hotel.
First and foremost, you MUST file your financial statement each month. If you still do it every year, I have an important question for you. How have the last two years been? How many sleepless nights have you had to worry and wonder what your business score is? If you think that producing this thing every month is too expensive, you are, as they say, a wise penny and a fool. Sorry – no way to sweeten this one. BTW – it’s not an expensive business. It actually has an incredible ROI.
You must use accrual accounting to produce your monthly statement. Using the alternative method – cash basis – is a complete waste of time. Accrual accounting means that we use the matching principle and it involves matching ALL income and expenses each month so that we can produce a meaningful comparison. Again, if someone tells you it’s too complicated or you’re too small, get a second opinion!
No later than the 5th working day
Producing monthly financial statements by the fifth business day is an unacceptable performance on the part of your finance team. If they have a thousand reasons (excuses) why they can’t go faster, I’m not surprised because I’ve used all of those same excuses in the past. There are methods and processes you can use to remove these barriers to timely financial information.
We must all use the USALI (Sally) guide to produce our financial statements. It tells us how statements should be set up and just as importantly – what goes inside your hotel departmental financial statement. Don’t let your pride and ego keep you from doing it just like the rest of our industry is doing around the world. It doesn’t matter where you think cable TV should be spent, what matters is what the books say, and we always follow Sally. Learn more about Sally here.
Departmental benefits and costs + GOP
Following Sally means we produce a financial statement with room and, if applicable, F&B profit. Plus, if any, profit or loss from minor operational services. Add to that the non-operational departments all laid out so we can see what’s slowing us down. Understanding the score in each area (department) of our hotel operation is key to being able to measure our performance against our competitors and peers. What is the benefit of your rooms? Ah… You don’t know? Find out.
Room market segmentation
Recording revenue and occupied rooms in each major segment, leisure, business and group, is the minimum acceptable output. Explode recreation and add internet merchant model, discounts and best available rate. Same with business. Add contract, government and volume. For groups, consider adding associations, businesses, and governments. Make your segmentation sing in the image of your hotel. Use occupied rooms by segment to show you the average rates produced by each segment and ultimately determine which is more profitable.
Cost per expense
Using features from your hotel’s financial statements also means you can produce cost per room occupied and cost per food cover served. All you have to do is reserve the stats in your GL and let your software do the rest. Knowing your monthly spend and payroll per occupied room and coverage is mission critical operating information. A 100-room hotel operating at 70% sells 25,000 rooms. Understanding how to lower your CPRO is the name of the game.
Capturing and recording your hours worked in each department according to Sally is easy. Heck, you already have it handy. Just look at your payroll records or your clocks. Putting the information in your ledger in the form of statistics is not a new idea. You are sitting on a gold mine of information. You just need to start using it.
It is important to know the cost of labor in dollars. Knowing your labor cost percentage is key to understanding profitability characteristics for sure. But the “big puba” measures the hours per room occupied in the rooms department and the sub-departments, as well as the hours per guest served in F&B. You don’t have much control over the minimum wage and when it goes up, percentages and dollar figures are largely useless in telling you what kind of work you’re doing. Proper recording, planning and tracking of productivity will revolutionize your business. BTW, no new system or app required. Learn more about how you can create EFTEs and work productivity tools here.
Finally, you need to focus on the most important cost you have: payroll. Creating a summary that pulls out all of the individual cost details is easy and the data already exists. Use your financial statements to produce this analysis each month. The data is already in your system, all you need to do is write the appropriate report which will greatly expand your understanding of your highest cost.
Remember, you can’t manage what you can’t measure.
There you have it: a comprehensive list of features and benefits you can get from improving your financial statement game. If you want to know more, find the link to my schedule and book a free call.
At Hotel Financial Coach, I help hotel executives and teams with financial leadership coaching, webinars and workshops. Learning and applying the necessary financial leadership skills is the fast track to greater professional success and increased personal prosperity. I significantly improve individual and team results with a proven return on investment.
Call or write today and host a free discussion about how you can build a financially engaged management team at your hotel.
Contact David at (415) 696-9593.
Email: [email protected]