Observation from a former government insider
 

This quote was used as an illustration of what faces all of us in this global economy of events and situations that we cannot control.    The global economic news continues to be rather solemn. Declining occupancy in many markets, the lingering effects of the terrorism in India, political protests in Pakistan, Iran , Afghanistan  and the unknown relating to a number of industries worldwide are all having their toll on the hospitality industry. Even markets such as Dubai, London and other high demand centers have had to re-examine their strategies.

This 2 part series is very direct and applies common sense in approach.   The first part addressed Mapping out Your Sales Plan and Preparing and Revising Your Sales Forecast. 

The second examines

1.  Aligning Your Expense Budget With Your Forecast and Sales Plan
2.  Practical Approaches to Opportunities in the Market

Consider these lines of attack when trying to assess all factors in looking for ongoing success in tough times: 

A. Re-examine all operating budgets. 

Successful managers usually prepared  their annual budgets 4 to 6 months before the beginning of any year in advance, which often means projections could be as far out as 15-18 months from the actual time.  While most of us projected potential trouble in 2009, few of us anticipated the depth of international financial meltdown that unraveled in late summer 2008. It is time to re-evaluate all operating budgets immediately and determine planning for action steps that need to be taken NOW.

The first thing I believe one has to do to accurately assess probable revenue lines.  This means reforecasting based on what has been occurring in our market and projecting trends for certain periods ahead. Following is a strategy that I have seen effectively work in almost every kind of business.

FORECASTING STRATEGY

• Each month following the close of the previous month,  REFORECAST for the next 90 days and for the month just completed 12 months in advance. 
• If you just finished June, the factors that supported or weakened the June performance will never be fresher in your mind. 
• When it is time to create an annual budget, you will be much more comfortable and flexible in your analysis and projections , and very likely more accurate as well.
• Consider the information from trusted external resources, such as STR, PKF and HVS, in your projections. Their counsel is usually balanced and reasonable.

Many hotels continue to spend a significant portion of their marketing and advertising in traditional ways. They commit hundreds and thousands of dollars for billboards, magazine ads, brochures and other print materials. These medium have their place IF they can be proven to drive business to your hotel.

Billboards, for example,  make sense IF they offer directions to your property and/or IF you can measure that they contribute to drive in business.  Ads in your local chamber or CVB publications can contribute to your market share IF these publications are used to solicit group business to your area. 

If you are part of a franchise or referral group,  you want to make certain that any shared cost programs promote the location or services of your hotel, rather primarily promoting the brand itself.  The major hotel brands are usually well-known and familiar to prospective guests, and that is why they have moved to a greater focus on online marketing. 

Internet marketing in a wide range of approaches is known to generate up to 50% of some entire systems of revenue generation.   The key to successful online marketing is to attract interested and qualified traffic that is interested in your particular property.  An interesting piece on this is available from  eMax Hotel Internet Marketing in a piece titled: Maximize Your 2010 Marketing Budget with an Online Marketing Strategy 

EXAMPLES in Expenses

We are in the hospitality business, which includes travel as a major component.  We do not want to reduce travel, but we do want to maximize the use of our staff travel dollars.   Consider these basics when examining your travel budgets:

• Use corporate discounts.   If you are part of a brand, your parent company might have  group rate set up with rental car chains or other services.  If they do not, this is an ideal time to ask for a discount.  Many companies offer details on their website, but double checking with their corporate office might bring a better rate or at least an upgrade. 
• Use credit and charge card rewards.   Some credit cards  allow access to airline or  business lounges in cities globally.  Use as many  rewards as you can to make life easier for your traveling staff (especially considering challenges in other areas)
• Plan travel wisely and ahead whenever possible.   Canceling a trip on last-minute�s notice is both inconvenient and costly, as airline change fees can run between $150- $250. A number of hotels are now charging for at least one night if the reservation is canceled within 24 hours of the reservation.  If cancellations are any significant portion of your travel budget, it is time to reassess the common causes for these travel setback and resolve them
• Plan the time of travel.  We all have heard the expression �time is money.�  If  travel time is not planned well, your sales team could be out of action for half to a full day needlessly.   Can they return in the evening or do they have a business reason to stay until the next afternoon?   By discovering how much time the trip really needs to be, you can either reduce  time out of the office or add additional sales activities in that location.  Either way, you are assessing your out of your pocket costs better.
• Monitor those fees.   The location of parking, ATM access and baggage fees are examples of charges that many employees wouldn�t think about incurring if it were their personal expense. Establish fair and clear policies for what are to be company travel expenses.

• Do you have a means of controlling inventory of certain items, such as Give-aways,? How do you decide which items to use?
• What is of lasting value to clients?
• Do you have a means of measuring the effectiveness of trade-shows?

B. Initiate aggressive, but realistic goals for achieving specific expense savings that are linked to any changes in the operating budgets you have just re-forecasted. 

There may  be revenue lines projected at lower levels and the expenses associated with them should be identified.  I am not a big fan of zero-based budgeting unless it is realistic, but the approach is worth considering in times like this to be certain that ALL expenses are directly anticipated and linked to volume. 

• Let your management AND sales team know what is going on.  Everyone is experiencing something negative in this economy.  It may be adequate to give some generalities �because we need to save money�, but providing some details and more of an explanation can really engage your team because they feel trusted and part of the solutions.   If cuts are viewed as a �team� reality, a greater sense of unity will likely be the result.  This means the GM will also fly coach, rent a mid size auto and share in other cost saving steps as logical. 
• Respect offered will be respect returned with a team that has better morale, a focus on sales, and hopefully increased loyalty. 

This can include a wide range of services and products, including utility purchasing options that might offer incentives or access through energy cooperatives.   It is not being suggested to break contracts, but every company in every industry is feeling strained resources these days.  Discussions on terms, pricing, quantities, payment schedules and other factors are all items that should be analyzed short term and ongoing.

Justin Martin of CNNMoney.com posted a 6.25.09 column titled Make Purchases Without Cash  This article offers a range of ideas on how business owners of a range of size and type of business are using successfully to conserve cash. The article gives examples of restaurants, contractors, farmers, publishers and other professionals who participate in one of the oldest forms of compensation � the barter exchange.

A clear advantage of barter is that is does reduce cash commitments, so one can keep staff employed because the business cash is not used for products.  It also tends to keep business in the local community.  This can have a short and long term positive effect on hotels, as when the business cycle returns to better times, the base of local community support will continue and the new business will help hotels to reach new success levels in revenue, guest satisfaction and profitability.  I encourage you to read this article.

A. Carefully Evaluating All Amenities and Packages in Your Offerings.

This is straight forward if your hotel is an independent operation, as you can make decisions quickly on your own. If your hotel is part of a brand, there are agreed upon standards that perhaps may be delivered in alternate ways. Chain management may be open to options if the guest experience is not diminished.  For example, there are several chains that are allowing certain items such as shower caps or lotions to be available 24 hours a day but not placed in every room.  Lobby coffee may be offered in known peak times or on request, but not 24 hours a day with known waste.  Newspapers are part of most brands� standards, and some hotels I have stayed with recently have offered the delivery option or a small credit to the account can be taken. This approach is both green in nature and a service that is optional rather than wasted or unused products that requires staff services

B. Examining Every Part of Your Credit Policy and Practice 

• Hotels in fact are lending the use of money when extending credit and must maintain a proper balance when considering the use of credit as a potential feature.  Almost all hotels use credit cards as a form of payment at the time service is provided, but there are additional options. 
• Credit is an essential part of the business cycle in today�s world and we have seen what happens when the system breaks down.  The current global financial crisis is at least partially mired due to credit snafus.   Care must be used when considering credit � even large companies  have been known to renege on credit provided by hotels, yet it can be an important point of difference.

Offering discounts for cash, advance and early payment can be an integral part of a comprehensive business management strategy, not just the responsibility of the accounting department. Julie Rains of Wise Bread offered a series of ideas on cash flow management in a blog she posted on July 31, 2009 titled:  When and How to Offer Discounts for Early Payment.

Her main points included:

1. Include pricing and payment terms in the sales contract. 
2. Recognize that customers take risks by paying early.
3. Get a deposit.
4. Take credit cards.
5. Encourage the payment method that works best for your company.
6. Look everywhere for ways to speed up and improve cash flow.

Too many entrepreneurs new to the hospitality industry disregard the difference between cash flow and profits and even some veterans do not fully appreciate the value of monitoring cash flow. While a hotel or any business needs both to survive, cash flow is the more indispensable of the two.  Cash flow basically refers to the flow of cash into and out of a business over a period of time - what is needed to keep the doors open while trying to make a profit. Without adequate cash, a hotel cannot pay its suppliers, taxes, meet payroll, market itself or operate professionally. If an adequate cash flow is not maintained, there is the very real danger of bankruptcy or going out of business.

Planning and monitoring the inflows and outflows of cash must be a top priority for every hotel owner and general manager. The sales team needs to be at least aware of this business function, as their sales strategies are part of the function. Planning ahead for seasonal fluctuations and unexpected emergencies, such as is now the case in many locations, allows for dealing with challenges and at least partially reduces stress. Knowing where you are in cash positioning allows you to also maintain more open and constructive relationships with suppliers, banks, hotel staff and business partners. By monitoring your cash, you can better anticipate potential problem spots and conceivably lessen or avoid a liquidity crisis.  In this type of economy, the potential for shortfall in business levels is real, which means cash flow will likely be diminished. Being able to deal with this underperformance in advance will definitely help bridge the challenge. 
.
� Evaluate the charges that banks are assessing your organization. Strong relationships in banking are essential for long term success and the credit markets are operating in atypical fashions these days.  Maintain relationships with your bank(s) and ensure that the fees being charged now remain competitive - banks need long term good customers, too. 

Finally

1. Include your staffs� suggestions, needs and ideas. 
2. Save your resources for when it counts.
3. Keep your team informed as to what�s going on.

I was invited by Lorman Education Services  to offer a teleconference on this topic and they have agreed to offer a $50 discount for any of my readers that mention discount code Z7745121 when they register online.

Feel free to share an idea for a column at [email protected] anytime or contact me regarding consulting, customized workshops, speaking engagements ����. 
And remember � we all need a regular dose of common sense.

Autographed copies of LESSONS FROM THE FIELD � a COMMON SENSE APPROACH TO EFFECTIVE HOTEL SALES can be obtained from THE ROOMS CHRONICLE www.roomschronicle.com and other industry sources. 

All rights reserved by John Hogan and this column may be included in an upcoming book on hotel management.   The opinions expressed in this article are those of the author and do not necessarily reflect the views of this publication

John Hogan, a career hotelier and educator, is frequently invited to participate at franchise meetings, management company and hospitality association industry events.  He is a successful senior executive with a record of accomplishment in leading hospitality industry organizations at multiple levels, with demonstrated competencies as a strong leader, relationship builder, problem solver and mentor. He conducts mystery-shopping reviews of quality in operations and marketing, including repositioning of hotels.

Expertise and Research Interest
� Sales Management and training
� Turn-around and revenue management
� Professional Development & Customer Service
� Hospitality Leadership and Executive Education
� Making Cultural Diversity Real
� Accreditation & Developing Academic Hospitality programs

He writes weekly columns for a number of global online services and has published more than 400 articles & columns on the hotel industry.  He co-authored (with Howard Feiertag, CHA CMP) LESSONS FROM THE FIELD � a COMMON SENSE APPROACH TO EFFECTIVE HOTEL SALES, which is available from [email protected], ROOMS CHRONICLE www.roomschronicle.com  and other industry sources.  He resides in Phoenix, Arizona and expects to publish in 2009 his 2nd book based on his dissertation � The Top 100 People of All Time Who Most Dramatically Affected the Hotel Industry.

Hogan�s professional experience includes over 35 years in hotel operations, food & beverage, sales & marketing, training, management development and asset management on both a single and multi-property basis, including service as Senior Vice President of Operations in a specialty hotel brand for six years.

He holds a number of industry certifications (CHA, CHE, MHS, ACI) and is a past recipient of the American Hotel & Lodging Association�s Pearson Award for Excellence in Lodging Journalism, as well as operational and marketing awards from international brands.  He has served as President of both city and state hotel associations.

John�s background includes teaching college level courses as an adjunct professor at three different colleges and universities over a 20-year period, while managing with Sheraton, Hilton, Omni and independent hotels.  He was the principal in an independent training & consulting group for more than 12 years serving associations, management groups, convention & visitors� bureaus, academic institutions and as an expert witness.  He joined Best Western International in spring of 2000, where over the next 8 years he created and developed a blended learning system as the Director of Education & Cultural Diversity for the world�s largest hotel chain. 

He has served on several industry boards that deal with education and/or cultural diversity and as brand liaison to the NAACP and the Asian American Hotel Owners� Association with his long-term involvement in the Certified Hotel Owner program.  He has conducted an estimated 3,200 workshops and classes in his career. 

Service to the Industry and Hospitality Education includes working with the Educational Institute Certification Commission of the AH&LA, the Hospitality Industry Diversity Institute, the AH&LA Multicultural Advisory Council, the Accreditation Commission for Programs in Hospitality Administration, the Commission for Accreditation on Hospitality Management Programs, the AH&LA and AAHOA Education and Training Committees, the Council of Hotel, Restaurant and Institutional Educators (CHRIE), the International Hotel Show and the Certified Hotel Owner program for the Asian American Hotel Owners� Association.
 

Dr. John Hogan, CHA MHS CHE
[email protected]