Industry Update
Opinion Article 4 March 2020

Hospitality Financial Leadership - What to Do in a Financial Crisis

By David Lund, The Hotel Financial Coach

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A lot has been said about the flue outbreak and the devastating effects it will have on the travel and hotel industry. But what can you do about it? The old saying, "you can't save your way to prosperity" still holds true, but you can be the best of class when it comes to being the least effected. Occupancy and rates are going to fall, they always do. The question is, where will the market go and how can we keep our REVPAR index. I'll leave that piece for the revenue and marketing pundits.

Here is a list of the top 10 things you can do today to mitigate the financial tsunami that's coming. I have lived and managed threw a few past crisis's, the gulf war, dot com, SARS, & the financial crisis. None of them were any fun but I did learn a few things. Preserving the GOP is our battle cry but be careful because the patient can't endure a full dose of this medicine. It must be carefully administered keeping the long-term view of protecting our service and our colleagues because we will need both intact when we emerge. And remember, we always come back.

  1. Zero base your expenses. Nothing beats being able to see what your "planning on spending". To have a definitive list of planned expenses by general ledger account allows you to make the right kind of informed decision on what you can cut. If your looking at your statement and wondering what's in those lines you're up a creek without the paddle. I have written extensively about how to do this here.
  2. Review all deptmental schedules. Your biggest expense is labor and let's face it, with more than 100 months of straight REVPAR growth in many markets the party has gone on for a longtime. Your operating people need a fresh set of eyes on their schedules. Challenge them when you hear that's the way we have done it in the past.
  3. Get the outstanding vacation list. Everyone has accrued vacation unless you use the cash method of accounting. In a medium size hotel with 200 employees you could easily have $100,000 or more in accrued vacations. That's still cash flow but it won't hit your P&L. If you're not sure what I'm talking about here, drop me a line and I can help you.
  4. Prepare a staffing guide. Just like your expenses you need a comprehensive plan for how you staff your hotel. A formula for each position. Don't leave it up to someone else to approve the staffing levels. The details on how to do this can be found here.
  5. Measure the negative flow. Knowing and measuring the compound effects of reduced revenues and the corresponding amount of negative profit is a powerful tool. Many people are confused about how to calculate the negative flow thru. You don't need to be confused. Read the full piece on how to use this here.
  6. Review and modify the amenities and standards. This is a critical step to ensure your looking at exactly what your giving your guests. I bet this has creeped up in the past few years. What can we do without for a while? What can we reduce? Is it a good time to get rid of those little bottles? How many face cloths and hand towels does one person need?
  7. Cancel and re-negotiate all reoccurring service agreements. Now is the time to lean on your vendors. Ask them to sharpen their pencils. You have been a valuable customer in the past and they will want to keep your business in the future. I remember during one past crisis the mantra that my purchasing manager had, "everyone must give blood".
  8. Review upcoming training plans with a view to an immediate return on investment only. Training is a luxury for sure but not all training is the same. If you can't measure the ROI then your best move right now would be to defer it. I must toot my own horn here, for a look at how to get your ROI and how to measure it read here.
  9. Use a monthly financial forecast. If you don't prepare a monthly financial forecast, you're in trouble. As the saying goes, "if you don't have a map, any road will take you where you want to go." Here is the formula to use in your hotel to create this process and financial leadership. It's never to late to start something good.
  10. Review each check run. Nothing beats looking at the facts. The check run with the invoices, and PO's attached is golden. You will find many questions to ask by reviewing what people are spending. These are all opportunities to change course for the future.

Write to me and share any other top ideas you have to save money in your hotel. I will put together another list and would love to use your idea and tell the world about it and you.


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David Lund

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