Mr. Burchard

Finance & Investment

The Real-time Money Continuum

By Shaun Burchard, President, Meridian Hospitality Group, Inc.

Every day, I speak with investment partners or colleagues as to how to best navigate the current environment. Consistently, the message is to aggressively drive the top line and with equal fervor protect the bottom line and flow of revenue growth or erosion, maintain as much ADR as possible in your particular circumstance and identify ways to save without negatively impacting the guest experience. Spend smart, save smarter. Frequently, the follow up is “I’ve done the obvious things, now what?” This is a great opportunity to reinforce how real-time data and time management dramatically impact the profit and loss statement.

We all understand the cliché that “time is money.” What is surprising is that many in our industry continue to rely on outdated techniques and technologies to influence / manage costs. The cliché should be updated to “real-time is real money” for all business, including (if not especially) our own.

Let’s begin by establishing that all costs are measured as a percentage of revenue – not in dollars spent. In the current environment where revenues are anything but reliable, the only metric that can be used to determine effective vs. ineffective cost containment is the budgeted percentage of revenue. This metric clearly demonstrates the ability to adjust in real-time to the revenues you have to work with – whether they exceed or fall short of your budget / forecast aspirations. Lastly, remember that your fixed costs demand that you manage your variable cost percentages as prudently as possible, as you have no control over your established fixed costs in dollars (which will force a higher than anticipated percentage 100% of the time in a revenue shortfall scenario), outside of eliminating them altogether.

Let’s start with the easy one – payroll – where a couple of simple daily routines can produce profound results at your bottom line. Most of us have been taught that payroll is our largest controllable variable expense at some point. Surprisingly, some still maintain extremely costly policies and practices with huge downside potential.

For example - we partnered with a company still using manual time clocks. This allowed for payroll theft, consumed valuable time in having time cards calculated (miscalculated?) and exposed this development company to hundreds of thousands of dollars in annual waste across their portfolio. They also had a “punch in / punch out grace period” that rounded to the nearest quarter hour. At 500 employees at $8.00 an hour, this is an exposure of nearly $800,000 annually in payroll cost with absolutely zero return.

The solution? Biometric time clocks and automated payroll systems that record and pay to the actual minute. Can this be mismanaged? Of course, but then it becomes a discipline issue managed in the same amount of time or less than was previously spent calculating manual payroll cards. Effective payroll management with less productivity loss results in doubling down on the end result savings so that everyone wins.

In your daily stand up, distribute a flash report that includes up-to-date payroll information by percentage (through prior day minimum and ideally through most recent audit shift). Train your department heads to “back into” the math of how much they can spend and still maintain budgeted payroll percentages on a daily basis. Train them to forecast and/or to read a forecast and to then check their payroll against actual revenues to adjust on the fly. Many still have tightening to do here and I encourage you to work with your field teams to ensure this is a 15-30 minute daily exercise.

If these real-time practices are not in place throughout your portfolio, large or small – you’re losing precious dollars and exposing yourself to finding out when it is too late.

Payroll is the largest control area in your profit & loss statement but it’s not your only one. Depending on the scope of your hotel and the sophistication of your statement, there are numerous other direct expenses that need to be effectively managed as well.

What form of real-time tracking is in place here? If the answer is “none,” wave your white flag now. Whether you refer to them as departmental checkbooks, declining balance reports, or real-time profit & loss statements, you need something in place that allows you to see an up-to-date outlook of your spending vs. revenues (again, by percentage).

A system where expenses are coded and entered and immediately impact an accessible profit & loss statement is ideal. Key to success here is, in keeping with my central point, the timeliness of your information. Invoices should be coded and entered daily – without exception or excuse. This makes sense on two fronts: one is that 5 to 10 invoices daily is a far easier task than 50 to 100 when you get around to it, and secondly (and more critically), daily updating of your real-time tools ensures that your spending decisions are made against your true performance position as opposed to a fictitious one. If your real-time tool shows that you have $10,000 to spend but there are $6,000 worth of unprocessed invoices floating around your desk or in unopened mail, then you don’t really have $10,000 and you’re certain to fail at the end of the month. This is simply an issue of effective time management and discipline – and nothing more.

There is consensus that cost containment is perhaps more critical than ever right now – and for the foreseeable future while we recover from the 2009 downturn. Truly effective cost management cannot be achieved without real-time tools and the discipline to use them properly and to their potential. If your portfolio does not have these tools in place, consider the costs of implementing them against your current performance trends. My guess is that you will find the investment will generate a significant return in a very short amount of time. Your investment in these systems and in the people charged with using them to deliver your bottom line is perhaps the smartest money you can spend right now. Spend smart so you can save smarter.

Shaun Burchard, a hotel professional since 1986 and a Certified Hotel Administrator, is President and Operating Partner of Meridian Hospitality Group, Inc., a hotel performance company delivering superior hotel results since its formation in 2004. Mr. Burchard and his partners at MHG have built the company from a single distressed hotel to operating more than 26 hotels across the country including brands with Hilton, Marriott, IHG, Choice, and Best Western. Find/follow Shaun and MHG on Facebook by searching "Meridian Hospitality Group" and on Twitter at "MeridianHotels." Mr. Burchard can be contacted at 618-531-5177 or sburchard@shaunburchard.com Extended Bio...

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