Hospitality financial leadership in time of crisis
We have just completed a year that has been so unprecedented. It has re-written the goalposts for so many things, especially for the hotel and other service industries where people are the main ingredient in what we offer. This article is about the lessons we should take from the past 12 months and how we can go forward with better tools and insight.
Our business is built on three pillars. They are the guests, the colleagues, and the money, or as some would call the third pillar the financials, or even the owner. When we think about pillars, we naturally incorporate the idea that they are even and capable of holding their own share of the burden and the success of our hospitality enterprises. I am going to explore how the three pillars faired in the last year, how they may recover, and how they can be stronger in the future.
First and foremost, let us start with guests
Without guests, our business is a non-starter, and it goes without saying that we are ready to welcome them back as long as we can all do it safely. How we welcome them back is the question and at what price? Average rates have fallen by 30 percent on average and occupancy by over 50 percent compared to the pre-Covid norms in Canada. That is a whopping 70 percent when expressed as REVPAR. When guests start to return in significant numbers, what will they pay?
Some forecasts put occupancy at above 50 percent for the full year of 2021 and average rates off by 15-20 percent from 2019 stabilized range. In BC in 2019 we had a record year with an ADR of just under $200 and occupancy of 70 percent, equaling a REVPAR of $139. If we use this as a base and apply the forecasted occupancy and rate reduction, we are looking at 2021 REVPAR in the $80-$90 range. This is obviously an average and many will fare better mainly because of location and business mix. None the less this means our collective measure of what guests pay us will take a 40 percent haircut from 2019 levels.
We all know that getting a strong room rate and occupancy takes time, momentum and a healthy market. Losing it happens literally overnight. Now more than ever it is critical to have solid revenue management intelligence and practices in place. Relying on experience and market knowledge is a serious gamble with very unattractive odds this time around. If you do not have a credible revenue management strategy in play with the proper tools, you are going to come up short-changed. Pennywise perhaps but definitely pound foolish.
The second pillar is colleagues
I think we have really shot ourselves in the foot with this one. Investing in and developing our people is what hospitality is all about. Our industry trades long days and hard work for recognition and advancement. How many people reading this article can say they came to the hotel business because they wanted and planned to? If you are like me and most, you came for a summer and stayed a lifetime: managers, leaders and colleagues alike.
What we have done this time around is really going to cost us dearly in the long run. Letting go, furloughing, laying off our employees at every level for more than a year means they are gone. They have left the stage and who can blame them? If we did not do all we could to keep them and help them during the last year, then shame on us.
I know for many of you this stings and that it would have been a luxury to keep them, but I think it all comes down to choice and priorities. Mortgages and debts can be renegotiated. I have been working with an independent hotel in western Canada for the past three years. During the initial part of the pandemic, revenues fell by 75 percent and that meant negative profits for many months. But their commitment to their staff was the number one priority. Why? Because the business will come back. We can rebuild our markets and some think relatively quickly because of demand (it is still there). We cannot do the same with people because the supply available to hospitality is extremely limited.
The labor supply was already on empty in many markets because of legislation and demographics. Now with Covid, we will have even fewer candidates to choose from. But you know what? My client still has all his staff because he saw that as the most important aspect of his business. The lesson here is we need people to make our business work for the long run. Let us not make the same mistake next time. Use every means and every program and every cent to keep our people whole and intact even if that means dipping into our own pocket.
Pillar three is numbers, financials & owner
They are all the same. When you look through the third pillar it is really a result of the first two, the guests and the colleagues, but hold on because we now have an opportunity to re-create how we manage our business. A hotel is simply the sum of its parts. In practical terms, this means it is the equivalent of all of its departments. Each one plays a vital role in the execution of the business strategy and each one needs a well-oiled financial plan to function effectively. Without these plans, we are akin to a drifting ship.
Someone once said to me that he had a recent discussion with a government official and the comment made to him was, “Our industry is not very professional.” That can mean a lot of things but let’s not get all emotional. What that means to me is our business needs to up its game when it comes to how we manage the financials. That means: monthly financial statements using the accrual accounting process, not an annual statement based on the cash method. That means annual budgets and rolling 30-, 60- and 90-day forecasts that are prepared by department managers. That also means the same managers have staffing guides and formulas alongside a zero-based system for expenses and a balanced checkbook. The numbers will never be perfect, and they are not going away so let’s get our act together.
We can do better but only if we look at what we do with the correct lens. We do have the ability to manage better going forward but that means we invest in our business for the long term. A quote from JFK sums things up, “A rising tide lifts all boats.”
We know the tide will return but the height to which we rise depends on us.
David Lund- The Hotel financial Coach
Contact David at (415) 696-9593
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