Hospitality financial - flower power
It was the spring of 1995 and I had recently transferred from one hotel back to the regional base and into a newly created position as the regional operations analyst. The job was tailor-made for me. The position was the brain child of our regional vice president. I was to assist him in the review of operational financial performance for the hotels in our region. In the year that followed I learned so many valuable lessons from our work and his experience, style and, above all else, his common sense.
Here’s one of my favorite episodes as Regional Operations Analyst
During one of our early discussions my new boss told me that he would use me to solve problems. I thought that was an interesting way of looking at what I did. I was pretty sure I would be comparing lots of ratios and statistics. He had a different idea and he was the boss so we played the game his way. He mentioned that regular visits to the hotels to review their performance and look for opportunities to improve profitability would be part of my responsibilities. Travel has always been interesting to me so I liked the sound of that.
Most of the GMs in the region were bigger than life. At least that is what they thought. I do not mean that in a mean way, it was just that these executives had a lot of power and hundreds of people working for them. They managed buildings full of bars, restaurants and beautifully decorated rooms and suites. This usually meant there were lots of opportunities for trouble. They were kings of their castles. They all had the run of their houses unless the big dog was around. The big dog was my boss and he knew a thing or two about what really went on in his hotels.
One of the first things we did was a tour of the region. We visited each hotel and spent a good half day going through their P&Ls line by line. My boss was a master at asking just the right questions about their numbers, variances, increases—things that just did not add up. During one such review he stumbled onto something he thought was completely unbelievable. The hotel was doing well financially, but seasonality in the hotel business is always a challenge and something jumped out at him.
We were reviewing the maintenance section and one number really got his attention. It was the "grounds and landscaping" line. It was a big number and we were only looking at the February statement. He asked, "What are we spending so much money on, what exactly is in this line item of expense?"The GM and property controller were dancing on this one. You can always tell when you have a live one because the tone of the discussion changes from an informed answer to a "well - um" response. I think the YTD February expense was $15k on budget of $8k and last year actual of $10k. So, it stood out. My boss asked what was in the expense this year that was so much more than last year. Silence.
The GM then asked the controller to go get the general ledger. Now, I know what you’re thinking, a GM asking for a copy of the GL? My boss said it could not be that complicated. With that we had a short break and then the report was produced. Most GMs would not know how to read a GL let alone ask for one. In short order, we saw that the expense was predominantly made up of payroll entries.
“Why is payroll in an expense line?” he asked. The response, “Well (hesitation, stumble, fumble – then it came), we're growing our own flowers and that's the payroll to run the greenhouse and the staff are the summer gardeners that we like to keep year-round so we grow our own flowers.”You could have heard a pin drop. Then my boss started to laugh. Then he said, "In 30 years I have never heard of a hotel that grows its own flowers."
The GM responded that it was indeed unique and he also asserted that it was an efficient operation, and keeping the staff year-round with work to do was an added bonus. My boss chuckled a bit more and we moved on. That night at dinner my boss had more than one good joke about the flowers.
Back at home base the next week I sent my boss the notes from our review. He phoned me and asked me to come to his office. He thanked me for the report asked, “Are you ready for your first assignment?”"Sure, what do you have in mind?” I answered. He smiled like he was ready to share a juicy secret."I want you to go back to that hotel and take a magnifying glass to that greenhouse and flower boy's operation. There is no way on God's green earth that growing your own flowers in an 80-year-old greenhouse in the Rockies in the dead of winter makes any financial sense.
With that he told me to plan my visit for the following week and to think about what I would look at in my review. He also told me that he would take care of letting the GM know I was coming and that he was to allow me complete and "unfettered access" to anything I needed to see. Wow, this was going to be fun. By the way, I do not know the first thing about running a greenhouse or growing flowers. I was excited and a little apprehensive. I knew I was walking into a powder keg that was ready to blow up in my face.
The following week I made my way to the hotel and started my visit with a trip to the accounting office to see my colleague the controller. He was a good friend and he informed me that the GM was just a little upset and concerned about my visit. It was not long before the GM was in the doorway of the controller’s office. He shut the door and took a seat. Then he explained the importance of the greenhouse staff and operation. He asked what I would be looking at. I told him that I was not entirely sure because I had never reviewed a greenhouse operation before. I told him I thought I would start with interviewing the staff and, by the way, who do they report to? With this the GM blew a gasket. In next few minutes I got to experience why this guy had the nickname that he did. He went up and down both sides of me and the boss too. I kept my cool and assured him I was there to help and not to create any problems. You know the saying: We are here from corporate and we want to help.
With the pleasantries out of the way, I went to work. I met the staff and was given a compete tour of the facilities including the apartments on the second floor of the end building attached to the greenhouse. The building was quite large and the thing that was most interesting was the lack of flowers. I expected to see flowers everywhere but not so. It was too early to plant the flowers that would eventually make their way into the ground in late spring. Interesting, I thought, no flowers but we were spending money. Most of the expenses made sense and I also understood the strategy with keeping the staff occupied in the winter to ensure they were there the following summer.
I reviewed the previous 14 months of general ledger data and organized the payroll costs and raw expenses. In addition, I reviewed the energy costs which is another story because they made their own steam onsite for the entire property. I do not have the exact cost anymore, but the total amount to run the greenhouse and grow the flowers for the property was just north of $50K net. The analysis showed the payroll and direct expenses in total – less what it would cost to buy all the flowers in the spring (like every other hotel does).
Suffice it to say my boss was pleased with my little study and with this in hand he personally saw to it that the flower boy’s days of growing his own were done.
The flip side of this was the real kicker. It seems the GM and my boss agreed to use the greenhouse for something else. Go figure. I think it was the GM’s idea all along. It’s funny how things work out sometimes. The following year the hotel submitted a capital request to renovate the greenhouse. The request was approved and a year later the greenhouse welcomed its first paying overnight guests. The hotel now had four new luxury cabins, aptly called The Greenhouse.
So, what was a “dud” turns out to be a “star.” Go figure - Life in the hotel business.
David Lund – The Financial Coach
If you would like a copy of any of the following send me an email at david@hotelfinancialcoach.com
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