Hospitality Financial Leadership: The General Manager's Yardstick
May 29, 2018 11:45am
By David Lund
I have seen a lot of different management styles over my 35 years in hospitality. The one I am going to write about in this piece was not the typical General Manager. This is clearly an opinion piece and it is also what I think is a best practice for a top down governance of a business. It is also easily adaptable for just about anyone especially if they like a bit of control. Before I get into describing this one particular GM’s management style I am going to outline what I would say is the “typical GM” and what their modus operandi is.
The typical GM I have seen, worked with, and gotten to know over the last three and a half decades is hard working, dedicated and a bit of an ego maniac. Let’s face it, to rise to the top in any vocation you need to have all three of those traits. They are not handing out keys to the oval office for the meek and mild, and never to the stay-at-home crowd. The job of a GM is incredibly demanding and responsibilities are huge. The place never closes, the guests always want something, and employees are never satisfied. There is always a pot of trouble cooking, and it is usually wrapped in some mystique and intrigue. I have said this before and I will say it again. GMs usually come from the sales world or an operations background. Which makes complete sense given the long hours and the schmoozing that is required for the job. What GMs bring to their job is energy, enthusiasm, creativity and passion.
What the typical GM does not bring to their roll: administrative skills, focus, number savvy, computer skills, finance knowledge, business acumen, and what I always found missing the most was interest to learn any of these skills. GMs rely in large part on their financial person to carry the day. Why not? The hotel is full of parallel examples. They rely on the chef to hold the expertise of the kitchen and produce great food and not kill anyone in the process. They rely on the director of maintenance to make sure the boilers and the chillers are operating. They rely on the human resources manager to ensure the benefits and programs are in place. You would never see or expect the GM to jump in the middle of any of these functions because that is not their job. They rightfully so rely on the expertise of these professionals, right or wrong, to carry the day.
When something is amiss in these areas the owner or brand are typically sympathetic and either grant a pass or add resources to fix the problem.
What the GMs do not and should not get a pass on is poor financial management. After all, finances are a pillar of the hotel business. Right up there with their brother guest service and their sister colleague engagement. That is what is front and center in a GM's job description and it is how they are additionally compensated. Guest service scores, employee engagement survey results, and the profits. The 1-2-3 of the hotel business.
So, why don’t more GMs jump into the middle of the financial machine and make the kind of splash that they typically do with service and engagement? I believe the answer is close by. They do not have the training and experience with the numbers and as such, they hesitate to challenge the financial person or processes. There are many things going on in the financial world and they are seemingly complicated, and who wants to go there anyway? It is accounting and numbers and mumbo-jumbo balance sheets and yucky stuff. So, most GMs just tune it all out. Sure, they get and read the P&L, they know what the score is after the game. But few will jump in front of the train and wrestle their department heads to the ground and create the kind of business that holds their direct reports responsible for their results. GMs seldom go there because they are unsure of what they do not know.
The typical scenario when dealing with a department head, GM and controller goes something like this: The statements come out and the GM sees the expense spending and labor are out of control. They are over budget and forecast— way ahead of last year—and why? She or he asks the controller for an explanation and they convincingly blame the department head who did not do their forecast and had little to do with the annual budget because they just do not care. The GM now has another conversation with the department head and they put the blame squarely on the controller and his staff who are certainly inept because half the crap in their accounts is old, not right and subject to great suspicion.
So, now what is the GM to do? She has two very different stories and who should she believe? It seems every department is in the same boat. No one knows what is going on financially. They are seemingly flying by the seat of their pants. Good months only mean a bad one is around the next corner. Surprises are everywhere. Like mines in a field they just go off when they should least expect them. With all this the GM is convinced more than ever to stay away from the numbers. Focus instead on relationships with her direct reports and try to get everyone to play well together. This is usually the strategy because the GM has no idea where to begin to get her hotel finances in order. She did not sign up for this part of the game. And none one is telling her how to fix it.
Meanwhile, the asset manager, owner and everyone else involved including the department heads and the controller are waiting for some leadership and someone to make sense of it all. The GM tries but really the effort is far short of being effective because they all think the numbers are different. They think there is a magical solution to all the infighting and confusion around who is accountable. They believe the solution lies outside of their scope. Can’t someone just fix this mess?
Back to the hero of this story
I met our hero rather early in my career when I was an assistant controller in a 500-room full service hotel. I had been on the job for less than a year and my boss announced that he was taking the month of August off and I would be responsible for putting together the first full draft of next year’s budget. This meant a few things, but the biggest thing I feared was having to talk to our GM. Prior to this my exposure to him was very limited and he had a reputation of being a tough cookie to say the least.
As the month went by I set about preparing the budget and the GM called me to his office. He outlined to me how each manager would present their expenses and payroll and how he would be “approving” any and all budget submissions before I did anything with their numbers. Interesting and somewhat surprising. But, then again, who was I to say otherwise—I was a super green rookie.
One by one the managers had their appointments with the GM and I rode shotgun. He had instructed me to send each one their part of the four-year statement where in four columns you could see the annual total for each line of expense and payroll. He then instructed his managers to prepare their expenses for the budget and to have a list of items for each account. No approval would be given on a cost per room occupied or cost per cover or a percentage of revenue basis. He insisted on the detail and he made each one of his managers responsible for getting their facts together. I have never seen so many people in accounts payable, sifting through files and invoices. The same for payroll. He set the standard.
Each manager needed:
The meetings were telling. Several managers were shown the door and were told the information they had was either incomplete or it had too many dollars. He simply looked at the information and asked what was in the expense line, comparing the four-year summary for each line and the departmental total. The same with payroll and the line-by-line productivity. Not rocket science but he sure had his managers in line. Several managers made return visits to re-present their numbers until they got it right and had his approval. What came to me to be added to the budget model was already approved.
I quickly changed my opinion of this man from one of distrust and fear to one of respect and admiration. This guy knew how to manage his team. He was fair and objective and if you had good reasons for increases he listened and, more than anything else, he asked good questions. I just sat there and took it all in, a great lesson on management, organization and budgeting. I will never forget what he taught me that August budget season. In that month I learned more about inner workings of each department in the hotel than I did in the previous five years, and so did he. That is what a good budget process will teach you.
Many of his managers would come to see me after their meetings, to whine about their budget ordeal with the GM, and I would listen and commiserate. After they all “passed mustard" with the boss, the level of their knowledge and engagement around their numbers went through the roof. They had to know what was in their accounts and payroll and the boss used budget season to get them all in shape. From this exercise he took the review process to another level. Every month in the following year he would do the same one-on-one review of their departmental monthly financial results. This guy was on top of his business.
Back to budget season
The following month my boss returned, and I was somewhat sad that he did. I was having a lot of fun with the budget and the GM. Two weeks later and it was time to go to a nearby city to present the budget to the corporate team including the company’s CEO and a long cast of other characters. This would be the GM and my boss doing the presenting or, as we like to call it, the dog and pony show. To my complete surprise my boss came into my office a couple of days before the scheduled review with corporate and said, “The GM wants you to go with him to present, you did the work and he wants you there with him.” Wow! Was I in shock.
Two days later I was on a helicopter with GM and off to the presentation. Here I was, the green rookie assistant controller, helping to present my hotel’s budget to the corporate people. My GM did most of the talking. I do not remember saying much. He did take a moment when we were done and the budget was approved to tell the corporate squad what a great job I had done in the absence of my boss in putting the budget together. It was a great moment for me and my young career.
I can honestly say that I have not worked with a GM since who had as much interest or backbone when it came to the numbers. GMs leave it up to the controller to try and sort out the wants and BS from department managers. This causes a lot of wasted time and effort. Usually, the managers have rose-colored glasses when it comes to budgeting. They think budget time should right all the wrongs and they add copious amounts of payroll and expenses. This then gets flushed out with budget consolidations and reviews, but what happens, as a result, is people waste an inordinate amount of time and they typically get discouraged and feel put upon because they do not get what they want in their budgets. All of this is nonproductive work. In as many times that I have prepared budgets, the only one in my opinion who got it right was that GM. He took the time to organize his department heads and he used the budget process to educate them, himself and me on what was going down in each area of his hotel. That, my friend, is how it should be. It’s not magic but the results are magical.
I vividly remember my boss telling me the budget is the GM’s yardstick. It is his deal to get his managers to come to the table with what they need to run their departments. It is also his deal to make sure they understand what they have for payroll and expenses to operate their department. Equally as important is what they do not have to play with.
Most GMs do not use their yardstick. Why? They think the financial piece is something else. Some weird concoction of computers, numbers, all things outside of them. But it is not. It is the same as the other pillars. They just need to take an interest and work it like he did.
The moral of the story
The GM did not know squat about accounting. He did not know the difference between a debit or a credit. All he needed was a keen interest in knowing that his department heads had their financial stick together.
Simple and incredibly effective.
Tags: david lund,
hospitality financial leadership,
David Lund is The Hotel Financial Coach, an international hospitality financial leadership pioneer. He has held positions as a Regional Financial Controller, Corporate Director and Hotel Manager with Fairmont Hotels for over 30 years.
He authored an award-winning workshop on Hospitality Financial Leadership and has delivered it to hundreds of hotel managers and leaders. David coach’s hospitality executives and delivers his Financial Leadership Workshops throughout the world, helping hotels, owners and brands increase profits and build financially engaged leadership teams.
David speaks at hospitality company meetings, associations and he has had several financial leadership articles published in hotel trade magazines and he is the author of two books on Hospitality Financial Leadership. David is a Certified Hotel Accounting Executive through HFTP and a Certified Professional Coach with CTI.
For a complimentary copy of my guidebook on creating a finically engaged team in your hotel head over to my website, www.hotelfinancialcoach.com and don’t forget to email me firstname.lastname@example.org for any of my free hospitality financial spreadsheets.
Contact: David Lund
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