David Lund | August 31, 2020
By David Lund
On the eve of starting my financial leadership course for the third year with Royal Roads University, I realized that most people have it somewhat wrong when it comes to how they think about the financials inside the hotel business. It occurred to me that most people think that a mechanic is the only person who can drive a car. However, many great drivers possess great knowledge about how the car works but they’re not mechanics – it’s not a requirement to be a great driver. You would never take your Ferrari to the driver for a repair, but man can they drive it. The exact same goes for financial skills and understanding. You don’t need to be an accountant to be very well versed in hotel financial leadership knowledge and be a hotel numbers pro.
Here is a list of what to know and how best to think about the numbers in your hotel. No matter what your role is. This is part 2 of 2.
- Improve the tools – always be sharpening the saw.
Always be sharping the saw is one of Steven Covey’s “7 Habits of Highly Effective People.” The hotel financial leadership equivalent is always be improving your tools. Know that there is a best in class set of tools and work tirelessly to ensure these are all part of your monthly circle and teach everyone to use them. Be super resistant to the latest bright shiny object that appears like the latest fad diet. Know and stick to the basics and always be sharpening the saw. Like Bruce Lee said, “I don’t fear the man who has 10,000 kicks, I fear the man who has practiced one kick 10,000 times.” - Embrace the principles.
Why you do what you do, the way you do it, when you do it, and showing your leaders the way to do it, is paramount to getting your members to follow you because they understand you. Not only do they understand you, they know why you’re doing things the way you are. Nothing is more frustrating than being told to do it just because…. People want and need to understand where they are going and how they will get there. The principles are the key to unlocking the “why” for your leaders and the great thing about them is – they’re waiting for you. These are the tried and true principles of financial reporting and they are universal in their acceptance. So, don’t make it up as you go – just follow and teach the principles. - Zero Based Expenses and Staffing Guides
The methods by which you attempt to deliver the goods are numerous. Don’t forget to pack your bags properly. When it comes to expenses you need to know what you are talking about and most importantly – exactly what you have. No cost per room occupied, or expressed as a percentage of revenues. Just and only the facts. When you plan your payroll, do it with a formula for each variable position in rooms and F&B and for the rest have an approved list of fixed positions. How else can you make any sense out of the data? - Watch for and correct the disconnect.
There is a natural financial disconnect that exists in hotels and you can find it between the operation and the next level. Whether that next level is owners or corporate it is there. The disconnect is shocking and at the same time understandable. It’s easy to see once you know what to look for and it’s harder to fix. But once it is corrected, you’re going to see and feel the difference immediately. It’s a telltale sign of what you are operating under and what you communicate to the next level – vis a vis the budget and forecast are disconnected. Just ask your chef or housekeeper or FOM to tell you what they have this month for payroll, make note and then circle back to what you communicated to the next level and you will see what I mean. - Investment not expense.
Creating a team that knows how to operate financially in your hotel is not an expense, it’s an investment. An investment means you get something tangible back over an extended period of time. An expense is something you use up in the current period. Never look at the act of creation as an expense. If you want things to be better in the future and want processes to yield a better result, you are clearly in an investment mode. Short-sighted is the notion that this deliberate act of building something that will yield better results in the future is an expense. Double short-sighted is the notion that you must cut this investment when business is retracting. At that time, you have a greater need for it and can benefit more from it. - Drop your expectations and move toward making agreements
Nothing turns people off any faster than someone having an expectation of them. Create agreements with your constituents. Agreements are strong and people value them because they co-created the agreement. Expectations are weak and, shall I dare say, cowardly because it’s you lording over another person simply because of position. Look around you at work and at home and sniff out where you have expectations of others. Work to replace expectations with agreements. The agreement is distinguishable because it has both parties giving and receiving. Find out what people need from you so they can deliver and don’t forget to out-give the giver. This way people will want to honor their agreements with you. It’s only human nature. - Always measure productivity – not labor cost.
Your biggest expense is labor. Knowing which instrument to use to measure how fast you are really going is critical. Your managers and leaders don’t control the hourly wage costs and they don’t have any ability to manufacture customers. Labor cost is a false positive when sales go up and a false negative when sales are down, or when labor rates go up. Rather than labor cost, focus your leaders on what they can control – the schedule. Measure the scheduled hours against the forecast volume of rooms sold and customer covers served = measuring productivity. Always measure productivity: budgets, forecasts, schedules and actual results. Remember, you can’t manage what you can’t measure. - Always use a checkbook.
Managing expenses requires an essential tool, which means use a checkbook. Without a checkbook you don’t know where you stand. Just like at home it’s an essential tool to know what you have vs. what has been spent. Provide your leaders with one when you can and when it’s not available or practical, have them run their own. What did you order or commit to, what arrived (and what didn’t), what was received and invoiced and what needs to be accrued? - Always be of service.
The hotel business is all about service. The financials and creating an engaged team are no different – they are rooted in service. Serving your leaders by educating them is the highest form of service. There is a saying that goes like this, “If service is beneath you, then leadership is beyond you.” What this means to the financial leader: Your job is to educate the people on your team, to show them the way. That’s real leadership. If you’re an operational leader this means you take those lessons and spread the message and the knowledge by creating a financially astute department. No leader is ever given a free pass when it comes to guest service, all are charged with looking after guests. The same applies to the numbers. - How to vs. the Want to.
It’s a popular expression when we’re faced with a challenge. I don’t know how to do…., you can fill in the blank. The truth about that statement is that nothing could be further from the truth. With the advent of the internet and apps like YouTube the idea that you just don’t know where to begin or how to do something is dead wrong.
So, what’s the problem? What’s usually the case is I don’t want to do…, you can also fill in the blank. There is a saying that once you find the want to the how to is everywhere. With financial leadership it’s the same. Put a person in touch with their want to and the rest is history.
Why would you want to have these skills? Well, for starters the person with financial skills is now more valuable and ultimately will be more prosperous.
As a financial leader it is your job to always show your operational people where the want to is. Point them there.
As an operational leader the same exists: Show your team what’s possible for them. See if they embrace it. Everyone wants to make a difference and showing them how is magic.
