Hospitality Financial Leadership - Financial Statement Analysis and Your Hotel Career
January 2, 2018 11:26am
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?
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:
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.
Tags: david lund,
hospitality financial leadership,
financial statement analysis
David Lund is The Hotel Financial Coach, an international hospitality financial leadership pioneer. He has held positions as a Regional Financial Controller, Corporate Director and Hotel Manager with Fairmont Hotels for over 30 years.
He authored an award-winning workshop on Hospitality Financial Leadership and has delivered it to hundreds of hotel managers and leaders. David coach’s hospitality executives and delivers his Financial Leadership Workshops throughout the world, helping hotels, owners and brands increase profits and build financially engaged leadership teams.
David speaks at hospitality company meetings, associations and he has had several financial leadership articles published in hotel trade magazines and he is the author of two books on Hospitality Financial Leadership. David is a Certified Hotel Accounting Executive through HFTP and a Certified Professional Coach with CTI.
Contact: David Lund
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