To get your non-financial managers to play ball with their numbers in your hotel you need a system that they can follow, a sort of road map they can use to stay on track every month. Teach them this and you will have an engaged team that buys into playing their financial part.
F TAR W is a step by step process you can teach your leaders to follow. I have clients who use a white board or a scoring sheet and they display the monthly results. How? They list the leaders who have P&L responsibility down the left-hand side of the sheet and across the top they have five columns: Forecast, Track, Adjust, Review and Write. One client even calls it the wall of fame. They populate the sheet with X’s where the corresponding leaders have completed their part of the recipe for financial leadership this month. What they find is leaders want to have a full set of check marks. Competition is healthy and so is accountability in a fun and inclusive setting.
“F” stands for Forecast. Did you complete and submit your forecast this month? Was the forecast used? In other words, was it in line with the business volumes relative to the budget? Did the corresponding leader complete the zero-based expenses forecast for their area of responsibility?
Zero based is a list of items and amounts to spend for these items that corresponds to each general ledger account they own. The expense forecasting is a mental hurdle that is only overcome by doing the work. The first time is always the hardest. After that it gets much, much easier. Start with the latest value you have for each account, maybe it’s the budget, maybe its last month’s total, or the same month last year. Grab the GL details for the same account and see what you spent. Knowing your department, what will you need to spend next month? What projects or changes in business standards will drive your activities next month? Make your grocery shopping list for each GL expense account you own. Summarize these account totals and compare that to the total expense values in the budget. Is the forecasted amount reasonable given the forecasted business volumes? If the occupancy is budgeted at 75 per cent and the latest forecast says 77 per cent your expenses should be in line. If the latest forecast is down to say 65 per cent, your expenses need to be reduced. What items from your grocery list can you reduce, postpone or eliminate? And remember the golden rule when it comes to budgets and forecasts, the only thing we know for sure is the number we have is wrong. You will never get it 100 per cent right, ever. So, give it up and put down what you think you will spend relative to your budget and business volumes. Make your list.
Forecasting payroll in your department depends on a fixed versus variable formula. If you’re a non-operating department the best way to forecast payroll is have a monthly schedule with rates of pay multiplied by the wage rates for each position. Consider holidays and vacation days by person/position and you have the forecasted payroll expense. Compare this to the budget and the business volumes forecasted and if your payroll is too high, who can you send on vacation? Whose hours need to be reduced? What can you do to manage the outcome? And remember you’re the manager of the department and that is part of the deal.
For variable payroll, you need to have a simple formula that drives the monthly schedule. Let’s say you’re forecasting the front desk. Both daytime shifts have one person as fixed and you know for every 75 arrivals and departures you need an additional eight hours. Set up your monthly schedule with the daily occupancy, arrivals and departures for the rooms forecast and you now have the variable hours. Forecasting revenues: If your department generates revenue, then you need to forecast it day by day. I’ll use the spa as an example. To forecast my revenues, I need to set up a 31-day spreadsheet and down the left I list all my services in one column, prices in the next column and each day I indicate how many of my services are purchased. Across the top I have occupancy by transient and group. I also include other information that is pertinent to my business-like members, social events, weddings, whatever drives my spa. Very quickly I can see the daily sales and the monthly total. Does it make sense based on the business volumes for the hotel? Is there a good chance I can make it? And don’t forget the golden rule. You will never be right.
If you run a F&B outlet you will need the same basic set up but more along the lines of meal periods, covers, average cover and rooms capture. If your forecasting banquets its day by day – group by group. What do the contracts say? How about the latest intelligence from the conference services people and the catering managers? The information you need for all your forecasting is easily within your grasp. What you need to do is own it and if pieces are missing you need to pull them together. You need to own it. That’s the only way it’s done. No one will do this for you.
“T” stands for Track. Tracking the results every day in my hotel is paramount to my departments success. Tracking the revenues every day and month to date along with tracking my spent is the way you do it. Are we on track to make our revenues? Back to the spa example from above, I need to track my treatments relative to my day by day estimates. How am I doing? This tracking is how my forecasting gets better and better. Are my expenses that I forecasted tracked, do I know how much I have spent? Do I know how much of my forecasted payroll is scheduled? Tracking the revenue and my spent is how we know to manage. Tracking back to my monthly expense list (I would include a check book somewhere in here – this is what hotels use in our days) and payroll plan is the only way to know what the score is. A cautionary note here: Don’t rely on accounting or some system to tell you. You need to know what you have to use and how much you have used relative to the revenues.
“A” stands for Adjust. The reason we zero base our expenses and payroll is we want to be able to adjust our spent as business volumes change. It’s called managing. Managing what my department consumes relative to the business volumes and revenues. This is where the magic happens with our formula. If I don’t keep a close eye on revenues, and don’t know how much I can spend on each item and how many hours of payroll I can use, then I’m lost. I want to be able to manage my costs relative to revenues. If business levels are on target, then I know I can spend what I planned. If business levels are below forecast I know I need to do my part and spend less. From my detailed lists of payroll and expenses what do I need to adjust? Make these adjustments. No one will do this for me. I own it and I own the result for my department.
“R” stands for Review. I have put a reasonable amount of effort into creating the forecast for my area and I have tracked my expenses and my payroll hours. Now it’s show time. All this activity will be reported in the financials. The profit and loss statement and the general ledger listing hold the results. I want to closely review these instruments to make sure that what gets reported is what happened. Knowing what I bought and how much should be reflected in the account details. I want to make sure the activity in the account and the value in the P&L mirror my information. This step can be frustrating and your partner on the financial side must be willing to take responsibility for any mispositions, old items, corporate charges etc. With this partnership, these surprises will diminish. Without your vigilant review your other work is meaningless. You own it. You want to see the results of your efforts pointing to numbers that you made happen. Work with the accounting team to ensure they get it right. Repeat this every month and you will get your accounts clean.
“W” stands for Write. Every hotel has some form of monthly commentary to the owners, brand or management team. Its contents disclose what happened. It tells the story the financials cannot tell by themselves. You write your part of the story. What happened in your department with your accounts? What assumptions were right and which ones were wrong and why. What was over and what was under and why. You don’t regurgitate numbers you tell your story, whatever that is. Our business is not a science and you will never get it 100 per cent, ever. So, stop craving perfection and start wrapping your arms around your piece of the pie. Then get ready, it’s time to start over again.
By David Lund
David Lund is an international expert who has been branded ‘The Hotel Financial Coach’. Just as any great hotel is true to their brand, so is David. His client commitment is about exceptional service. And his #1 focus is to help his clients gain a fast Return On Investment from his workshops and personalized coaching. David’s background includes over 30 years as a regional controller, corporate financial director, hotel manager and controller throughout North America.