By David Lund
It’s A Circle – Create the Monthly Financial Circle!
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 Smith
If 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 month
You 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!
