Creating a great commentary for your owners and corporate is a monthly mainstay in almost every hotel. It can also be a large dose of drudgery. This article is about how you can create an effective system in your hotel to generate a strong and meaningful commentary based on information from all areas of your business. Creating this kind of information system in your hotel is a powerful tool. This commentary power tool can help you drive superior financial results if you approach it with the right spirit and a system to follow.
Who invented this commentary and why? The need for a commentary exists because of the principle of full disclosure. Full disclosure is a basic principle in the business and accounting world. What the principle says is that the readers of the financial statements need to know all relevant information that did or may impact their investment or stake in the business. Readers of only the financial statements cannot ascertain many important facts from looking at just the numbers. They need a “footnote” or special report to round out the financial results and to explain many of the reported results and future forecasts. If a possible future event is going to have an impact on the business it needs to be disclosed. Some examples would be: pending litigation, environmental issues, labor relations, governmental regulations, management changes, competitive changes, business trends, business on the books, etc., the list is long. The footnotes give the readers of the financials the information they need to ultimately make the most informed decision about their investment and its future. We translate the full disclosure principle in hospitality and voila we have our monthly property performance commentary, or executive commentary and sometimes it’s called an owners commentary.
Hotels are complex departmentalized beasts that are all connected and also very separated. What’s happening in sales has zero to do with the kitchen but the chef and his or her food have everything to do with image and the sales and marketing efforts. Good commentaries in hotels tell the various stakeholders what’s going on and what’s planned for the coming month, quarter and year. Much of the revenues for a hotel are booked in the month for the month. On the flip side of this, it’s the group base and its performance that drives the financial results. This coupled with catering pace needs to be closely monitored and explained carefully and consistently in the commentaries. The expenditures and labor costs can often have big impacts on the financial results and explaining the reasons why they perform the way they do is critical. Many times, the commentary is used to explain what happened. The forecast was for a certain level of income and profit and it did not materialize. Revenues were soft and costs need to be explained. That’s where the drudgery comes from. We need to turn this around and realize a commentary is a tool. If we use the tool properly we can see what happened and take the appropriate actions so we don’t make the same mistakes again.
So how do we get every part of our business to tell their story each month in a way that provides meaningful information and proactive business thinking leading to constant improvement?
The answer is a three-prong approach. The first part is every line needs an owner. My mother always said, “Many hands make light work.” I translate that into our business and out comes a powerful concept. We literally take the P&L apart and we assign an owner to every single line of revenue, the cost of goods, payroll, and expense. The second part is we make agreements with every corresponding manager that they will Forecast, Track, Adjust, Review and Write monthly about their lines. A financial communication system for them to follow called F TAR W. This clarity is magic in your business when you combine this accountability with consistent training, executive support and the right business management encouragement. The third part is designing and communicating the monthly financial circle. The circle and key dates are on a monthly schedule that the whole hotel falls into. This keeps everyone on track.
I have a separate blog on the detailed F TAR W process. If you missed it send me an email and I will see that you get a copy.
When managers sit down and plan their numbers in the form of the monthly forecast we teach them to zero base the numbers. This gives them the clarity they need to see, to comprehend and execute their part of the business. Knowing exactly how much revenues are forecasted and what expenses are in my lines is mission critical. Without this zero-based detailed plan, they are lost. Having details on how many fixed and variable positions I have in my department provides me the structure I need to manage my labor. Expense forecasts need to be comprehensive with detailed lists of what is needed, with itemized lists and costs for each corresponding GL account. We don’t just take a cost percentage or a cost per room occupied or cover and run with it. That does not work. We need details. With the details, we can see what our options are when we have a business situation that dictates that we need savings this month in order to help meet our profit targets. We couple this with a culture that makes the numbers as important as the guests and the colleagues. This means we discuss numbers daily at our communication meetings in all departments and this gives the leaders the focus and attention that’s necessary to manage their numbers. We work with our managers to ensure that they take the time that is necessary to properly work the numbers. We create the culture around the business piece and the leaders now have a system to follow and they love it. We know the numbers are just another aspect of our business that requires our constant and continuous attention. Having a team of leaders who all manage their own piece is the key to success with your hotels’ operational financial health.
Good commentaries tell a story about what happened in our hotel and why. What did we learn from the results and how are we using this new-found information moving forward to obtain a better result? That’s the muscle we exercise every month in our hotel. We’re not going to simply regurgitate the numbers and explain ratio variances. This would add zero value. If food cost is up, we explain why? If protein costs are the culprit we tell our readers what we’re going to do to remedy the situation. If the room rate performed better in our group segment, we explain what happened to make the forecast too low or the actual result better. What was our lesson and how will we take that knowledge forward in our hotel? If labor was over forecast, we explain what happened and how we are managing differently as a result. If expenses were off because our planning was flawed we tell it like it is and most importantly, always, what did we learn. This discovery process in our business is the key to improving results. Knowing that this process is the way forward in our business is good news. We also know that this job will never be done. There will always be new challenges to manage and yes, the same old problems come back every once and while. That’s the hotel business!
Commentaries flow from each part of our business as line owners follow their financial communication system. The last part of F TAR W is Write. Write about your lines. Don’t let someone else tell your story. What did I forecast, what materialized, what changes did I make based on business levels and what did I learn? What happened and why and, most importantly, what are we doing about it moving forward. What management decisions and changes will be brought about because of the previous performance. Every month the window opens and closes in our business and each month we get a new opportunity to perform. The mistake most hotels make is that they leave the money tasks to a few executives. This is not effective because the action happens on the ground in every area of my business. I want to align my business practices around the individuals that make the schedules and order the supplies. This alignment gives me the ability to affect the result directly.
An effective monthly commentary gives the stakeholders a clear picture of what happened in the business and why. It also tells the readers what we will “manage” differently based on the results we achieved. There needn’t be any drudgery if you have a system to follow and you build a management team that produces. Ultimately, you’re in control of the result and you can own this process by investing in financial leadership training and development with your leaders. This development will not happen by itself. It requires your attention, just like guest service and colleague engagement.
Serve your leaders by creating financial leadership in your business and watch your profits soar. Serve your team and watch their engagement grow.
Visit my website today for a copy of my guidebook
The Seven Secrets to Create a Financially Engaged Leadership Team in Your Hotel
www.hotelfinancialcoach.com
Call or write today and arrange for a complimentary discussion on how you can create a financially engaged leadership team in your hotel.
Contact David at (415) 696-9593.
Email:
www.hotelfinancialcoach.com