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What to do in a financial crisis

A lot has been said about the coronavirus outbreak and the devastating effects it will have on the travel and hotel industry.

But what can you do about it? The old saying, “You can’t save your way to prosperity,” still holds true, but you can be the best of class when it comes to being the least affected.

Occupancy and rates are going to fall, they always do. The question is, where will the market go and how can we keep our REVPAR index? I’ll leave that piece for the revenue and marketing pundits.

Here is a list of the top ten things you can do today to mitigate the financial tsunami that’s coming.

I have lived and managed through a few past crises, the Gulf War, dot com, SARS and the financial crisis. None of them was any fun but I did learn a few things.

Preserving the GOP (gross operating profit) is our battle cry but be careful because the patient can’t endure a full dose of this medicine. It must be carefully administered keeping the long-term view of protecting our service and our colleagues because we will need both intact when we emerge. And remember, we always come back.

  1. Zero base your expenses. Nothing beats being able to see what you are “planning on spending.” To have a definitive list of planned expenses by general ledger account allows you to make the right kind of informed decision on what you can cut. If you are looking at your statement and wondering what’s in those lines, you’re up a creek without the paddle. I have written extensively about how to do this here.
  2. Review all departmental schedules.
    Checklist-AdobeStock_225060605-e1568418196388 What to do in a financial crisis
    © Tierney – stock.adobe.com

    Your biggest expense is labour and let’s face it, with more than 100 months of straight RevPAR (revenue per available room) growth in many markets, the party has gone on for a long time. Your operating people need a fresh set of eyes on their schedules. Challenge them when you hear: That’s the way we have done it in the past.

  3. Get the outstanding vacation list. Everyone has accrued vacation unless you use the cash method of accounting. In a medium size hotel with 200 employees you could easily have $100,000 or more in accrued vacations. That’s still cash flow but it won’t hit your P&L. If you’re not sure what I’m talking about here, drop me a line and I can help you.
  4. Prepare a staffing guide. Just like your expenses you need a comprehensive plan for how you staff your hotel. A formula for each position. Don’t leave it up to someone else to approve the staffing levels. The details on how to do this can be found here.
  5. Measure the negative flow. Knowing and measuring the compound effects of reduced revenues and the corresponding amount of negative profit is a powerful tool. Many people are confused about how to calculate the negative flow thru. You don’t need to be confused. Read the full piece on how to use this here.
  6. Review and modify the amenities and standards.This is a critical step to ensure you are looking at exactly what you are giving your guests. I bet this has crept up in the past few years. What can we do without for a while? What can we reduce? Is it a good time to get rid of those little bottles? How many face cloths and hand towels does one person need?
  7. Cancel and renegotiate all recurring service agreements. Now is the time to lean on your vendors. Ask them to sharpen their pencils. You have been a valuable customer in the past and they will want to keep your business in the future. I remember during one past crisis the mantra that my purchasing manager had, “Everyone must give blood.”
  8. Review upcoming training plans with a view to an immediate return on investment only.
    Smell-AdobeStock_224523665-e1568071231270 What to do in a financial crisis
    © filistimlyanin1 – stock.adobe.com

    Training is a luxury for sure but not all training is the same. If you can’t measure the ROI then your best move right now would be to defer it. I must toot my own horn here, for a look at how to get your return on investment and how to measure it read here.

  9. Use a monthly financial forecast. If you don’t prepare a monthly financial forecast, you’re in trouble. As the saying goes, “If you don’t have a map, any road will take you where you want to go.” Here is the formula to use in your hotel to create this process and financial leadership. It’s never too late to start something good.
  10. Review each check run. Nothing beats looking at the facts. The check run with the invoices and purchase orders attached is golden. You will find many questions to ask by reviewing what people are spending. These are all opportunities to change course for the future.
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David Lund

David Lund is founder of www.hotelfinancialcoach.com and helps hotel leaders worldwide with financial leadership coaching and workshops.

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