If you google the words “financial statement analysis,” you will get a long list of definitions like this one by Wikipedia:
“Financial statement analysis (or financial analysis) is the process of reviewing and analyzing a company’s financial statements to make better economic decisions. These statements include the income statement, balance sheet, statement of cash flows, and a statement of changes in equity. Financial statement analysis is a method or process involving specific techniques for evaluating risks, performance, financial health, and future prospects of an organization.”
What it will mean to you as a leader in the hospitality business is exactly the same and then some.
“What information can I get from my monthly P&L to understand my business and make better decisions?” and “What’s going on in my business?” The latter is the better, more applicable, piece for an operations manager who has a healthy sense of curiosity and a leader who wants to make a difference.
Anyone can look at the statement and see that one number is higher than another. Anyone can see the variance between the budget and actual for an expense line or departmental result. It does not take a rocket scientist to see the discrepancy between this year’s result and last year’s. It also does not take an accountant to see the variance between the actual and forecast results and do something about it.
Seeing the variance is one thing. Doing something about it is quite another. Most leaders will do nothing about it unless they are specifically told to do so. Most leaders will not naturally go there. Why is this the case?
- Leaders typically see that variance as someone else’s responsibility. Maybe accounting or some other magical entity will swoop in and make everything all right. Someone or something will come in and sprinkle some fairy dust on things and clean this mess up.
- Leaders are too busy to bother with the numbers and what is the point anyway? They are just numbers someone else created that really do not have anything much to do with leaders and their performance.
These are the problems and they really are masking the career opportunity you’re looking for. These attitudes are problems because the messes do not fix themselves. The messes will only ever be corrected if there is a joint effort. The problems reflected in the variances on the financials run deep. Is it the budget or forecast that is inaccurate? Is it the actual spend that is wrong because of timing or changes in the business needs? Are there items that are miscoded due to errors in the data or source documents. Is the alignment of the expenses correct to the budget and forecast plan? All of this is like a big pile of cow dung and it usually reeks just about as bad.
So, where is the opportunity for the operations manager?
The opportunity is to become the leader that sees a problem, owns it, fixes it and ultimately becomes a star because of it! That is a big statement. I want to tell you I have seen it happen many times. Most operations managers are new in their roles and they are interested in one thing: Getting on their departmental horse and riding. That is one of the secrets in hospitality. We regularly “drain the swamp” and give a new leader a new shot at cleaning up the mess. The mess is always in need of cleaning up. That is the hotel business. Guest service and colleague engagement in that department you just took over needs your fresh set of eyes and heart. Well, guess what? The numbers need cleaning up, too, and the great news is it is not a difficult task to get the numbers working for you.
If you just inherited a P&L section and it is a mess here is what to do:
- Make friends with your payroll, accounts payable and purchasing people. Show them you are interested in helping get things right. They will love this because you just went from being on their list of managers to chase to the much shorter list of managers who have their $@(! together. Now you have allies and they are going to help you.
- Stop the machine when it comes to the paperwork. Sit down with your invoices and POs and time sheets. Make sure that your processing lines up with the proper GLs. Your new friends in the administration will help you sort it all out. Just ask!
- When it is your turn to submit the next month’s forecast, take the time to have a deep look at what you are projecting. Chances are you do not have the zero-based detail to work from. This is where you put your stake in the ground. What is in the expense accounts and what is the staffing formula for your department?
- First, look at the expense accounts. Most hotels do their budgets on a cost per room occupied/customer or a percentage of revenue basis. This will not help figure out how to control expenses. You need to do some research. Go to your accounts payable friend and get the details of the last three months for each of your accounts. Get them to run the GL details for you. Then pull the invoices and see what items and their corresponding quantities and prices were expensed in your area. Make your list. What will you need next month to operate? How many of each item and the price? This work will pay off in spades because you will see the inefficiency and what will emerge is a clear picture of what you need to run your department. What should be in your accounts and what is not?
- Payroll. You have two parts to master: fixed and variable. Fixed positions in your department are the salaried, non-scheduled employees like yourself. You need to know these positions and their pay and their holiday and vacation accruals. Next, the variable positions. What is the staffing formula? If you are running guest services you need to know the seven-day, 24-hour staffing guide. Arrivals and departures, bag pulls, rooms in the house and guest count, both on their own and in groups. From this structure, develop your schedule based on business levels. So many in-house + so many arrivals + so many departures = an 8-hour shift. Do the same for all parts of your day and week. This is where a fresh set of eyes can find gold. Redeploying inefficient labor to need periods and trimming the sails where possible can net you big savings.
So, from the chaos, clean up the swamp and what emerges is a new and vastly improved department, including the service, engagement and financial piece. You don’t want to be the leader that misses this opportunity.
The second and more elusive opportunity comes from gaining perspective through financial statements. What is my business all about? How does what happens inside my business relate to what is on my financial statements? Here is a big clue for this piece and it takes curiosity again. What are these numbers for? Why is certain information that you do not understand included in your departmental financials? Have you ever looked at a map and said to yourself, that place looks cool and interesting? You want to go there and explore things, check it out? Well, your financial statement is exactly the same. Everything included in your statement is there for a reason. It is part of the statement because it is material to the mission of effectively running your department. Like your map, get curious and find out what that information is there for, what does it mean and how can you learn from it?
As a leader, your opinion matters—I can guarantee you—and that is a bold statement. Here is what I mean. The hotel business is not a science. It is art, business and personality all mixed together. If I asked 10 of you what you would rather have: a point of occupancy or $5 in rate and why? I am sure I would have at least 12 different answers. If I asked you why your productivity slipped in the last month in housekeeping the same dynamic kicks in. What really happened, how did it affect my team’s efficiency? What events and customer mix impacted my result? How about the newly renovated product and the challenges were having with visible dust? What about all the rain we had last month and the hallways needing more housemen hours? What about the flu that spread through the staff and management last month?
This page could be filled with what ifs. The point is you need to have an opinion based on what happened and the result. Be the color commentator and tell us why something happened the way it did and on the other side of that coin is a clearer understanding of what you can do to get it just a little better this month.
I once worked with a young lady that I will call Anne. She would come to me month after month with all the crap she found in her department’s financials. It was really a mess and so was the rest of her department. She never really complained about the content, rather than that she set about doing her piece to fix it, and like magic her understanding of what it all meant arrived like a prime delivery. Before I knew it, she was telling me what it all meant—her version. Man, did it all get better fast in her department. Not long after that, she was promoted to manage another larger, more complicated, better-paying department. Today she is a GM. And she did not get there by accident. She got there through hard work, curiosity and a willingness to drain the swamp.
These are the muscles you need to develop as a hospitality financial leader. It is not up to someone else (accounting) to chase you down and to get you on top of your numbers. It is the other way around. The sooner you see the opportunity in all of this the better for you and your career. It is not difficult. If someone stands in your way, find a way around them. Like I said at the beginning of this post, most leaders will not naturally do this, will you be one that does?
Be the leader who does, and it will pave your road to greater personal career prosperity.
If you would like a copy of any of the following send me an email at firstname.lastname@example.org
- EFTE and Productivity Exercise
- Hotel Financial Policy Manual – Inventory of “Sections”
- Hotel Financial Coach “Services Sheet”
- How the Hotel Financial Coach Helped Me
- F&B Productivity Spreadsheet
- Rooms Productivity Spreadsheet
- Financial Leadership Recipe F TAR W
- Hotel Financial Coach – “Speaking Sheet”
- Flow Thru Cheat Sheet – Enhanced
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