How to use 21-point flow thru inspection ( Part 2)
Continuation from "How to use 21-point flow-through inspection (Part 1)" by David Lund
13. Minor operating departments. Depending upon the variety and size of these operations we need to pinpoint one by one the variance in revenues and profits. Zeroing in on the performance here is useful because many times a big part of the game can be won or lost here. Don’t overlook what might appear to be the small stuff. Negative results from miscellaneous departments add up. Like the saying goes, look after the pennies and the dollars look after themselves.
14. Sundry income. Here is where the flow thru impact is amplified. A dollar of revenue here is almost always also a dollar of profit. That translates into 100% flow thru. It can be like a P&L explosion that produces amazing results one way or the other. I have seen many GOP flow thru comparisons that have been seriously affected one way or the other from such events as attrition or foreign exchange. Normally when we see overall flow thru at greater than 100% it’s because of the impact from a sundry income event.
15. Administration and General. What is the effect of the movement in salaries + wages and expenses in this overhead department? In a normal hotel A&G expenses s/b no greater than 6 or 7 percent. Better still if they are lower. Lower the better – right? We want to measure the variance in overall A&G costs and determine how many points of GOP they represent. This is where we can see the “drag” that our overheads can produce. In this example revenues are up year over year (YoY) by $250,000 and A&G expenses are up by $50,000. That translates into a loss of 20 points of flow. Too many moves like that and patient is dead. A simple adjustment in the credit card commission calculation, bonus payments, legal fees or relocation costs can quickly spell disaster.
16. Sales and Marketing. Just like A&G above. What we do here, and the timing, can have a profound effect on our flow thru. Items like media spend, quarterly bonuses, loyalty point adjustments and head office invoices can wreak havoc on the flow thru. The trick here is having a DOS that’s on top of their spend and timing.
17. Maintenance aka “POMEC” & Energy. The same as their brother and sister above: The game can be lost quickly if we have a building repair hit or a large HVAC cost. Bad accruals on the energy side catch up the following month and can deal a critical blow. Spending here when the house is slow makes sense but watch out for the impact. Being creative with the plan is what’s required.All three overhead departments essentially act the same. They almost always cost more than the prior period and they tend to spoil the GOP flow thru party. Keeping a very close eye on these potentially delinquent individuals is paramount to a successful flow.
18. Supplemental payroll.These are items like sick pay, bonus, vacation pay, and holiday pay. Watch out here for adjustment and make sure the matching principle is alive and working well. A surprise here in an otherwise solid month is a mistake you want and can avoid.
19. Benefits. Alas, the icing on the payroll cake. Benefits are either a direct function of payroll dollars like employment insurance or government pension or they are pay-as-you-go programs like workers compensation and medical plans. Either way these are big bucks and they are amplified by payroll spend and they are also susceptible to one-time adjustments that can kill your profit picture. Stay on top of your accruals and timing to avoid these unsightly events ruining your flow. Managing the balance sheet as well as the P&L is a must.
20. Rooms Productivity. This is perhaps the most useful tool in the whole story when coupled with the same discipline in F&B. We know payroll accounts for on average 50% of every dollar of revenue. Without a productivity measurement you are stuck with the resulting dollars and no indication as to whether your operations team carried their weight or sunk your ship. Creating this tool and using it in your financials is what the pros do. Read up on this here:
21. F&B Productivity. The last point on our checklist. In a full-service hotel, it’s the biggest artery. Like rooms productivity, without having this measurement you are flying without radar and by the way it’s always cloudy. Read all about how to use this tool here.
To wrap this one up It might seem like the amount of detail here is overwhelming. Perhaps, but consider this. All the information you need to do this analysis is available and you already have most of it at your fingertips. What you are missing is relatively easy to add and the value you will gain in the ability to manage your hotel is immense. Go big or stay home! David Lund – The Hotel financial Coach
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