Best Practices in Hotel Financial Management

By Jed Heller President, The Providence Group | October 28, 2008

Sound financial management is at the core of any successful business. Of course, having a product or service in high demand, priced attractively for the target market, and delivered in an efficient, customer centric manner doesn't hurt either. But, even with all of the right market demographics, there is no guarantee of success. Rather, I believe you will find that the most successful hotels, like any other business, rely on fundamental financial management principles to enable them to manage their property profitably.

By following basic accounting principles, hotel owners and managers have the information they need to identify trends before they can have a negative impact on the business. They can reduce expenses, readily accommodate anticipated peak business times, and scale back operations during slow periods. Rather than relying on intuition and reacting to events, successful owners have the financial facts they need on a daily basis to proactively make the right decisions at the right time.

Staying on top of the hotel financials also provides an accurate measurement of management performance in every operational area and gives owners a mechanism to see where they stand against the competition.

The keys to financial success include an annual budget, detailed financial tracking model, ongoing audits, and reporting structure that keep profit and loss information at the manager's fingertips. Financial success is also driven by accountability, making employees and managers responsible for achieving financial goals in their respective functional area. Owners must have in place the personnel capable of dissecting the financial information and acting on it in a timely and proficient manner. Without this information, it is quite possible to have an area of deficient performance that goes unrecognized and creates a drain on profits.

Create an Annual Budget

The annual budget provides the complete financial picture of the property and contains the information needed to measure financial status at any time during the year. Based on past performance and goals for the current year, the budget captures projected expenses and anticipated revenue over a 12 month period. The budget covers every operational area: administration, property expenses, taxes, energy costs, capital equipment, telecommunications, maintenance, supplies, utilities, payroll and marketing. The budget also projects revenue based on expected occupancy and rates and estimates sales quotas for each sales person. Once figures are collected and documented, the budget will tell the story as to whether financial goals can be reached and where and how adjustments can be made to achieve profitability goals.

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Coming up in March 2019...

Human Resources: An Era of Transition

Traditionally, the human resource department administers five key areas within a hotel operation - compliance, compensation and benefits, organizational dynamics, selection and retention, and training and development. However, HR professionals are also presently involved in culture-building activities, as well as implementing new employee on-boarding practices and engagement initiatives. As a result, HR professionals have been elevated to senior leadership status, creating value and profit within their organization. Still, they continue to face some intractable issues, including a shrinking talent pool and the need to recruit top-notch employees who are empowered to provide outstanding customer service. In order to attract top-tier talent, one option is to take advantage of recruitment opportunities offered through colleges and universities, especially if they have a hospitality major. This pool of prospective employees is likely to be better educated and more enthusiastic than walk-in hires. Also, once hired, there could be additional training and development opportunities that stem from an association with a college or university. Continuing education courses, business conferences, seminars and online instruction - all can be a valuable source of employee development opportunities. In addition to meeting recruitment demands in the present, HR professionals must also be forward-thinking, anticipating the skills that will be needed in the future to meet guest expectations. One such skill that is becoming increasingly valued is “resilience”, the ability to “go with the flow” and not become overwhelmed by the disruptive influences  of change and reinvention. In an era of transition—new technologies, expanding markets, consolidation of brands and businesses, and modifications in people's values and lifestyles - the capacity to remain flexible, nimble and resilient is a valuable skill to possess. The March Hotel Business Review will examine some of the strategies that HR professionals are employing to ensure that their hotel operations continue to thrive.