The word “expenses” needs to be defined and refined for this article. Expense broadly refers to any cost a business has including payroll, goods and services, and cost of goods, “the cost required for something; the money spent on something” that is the definition according to Oxford Dictionaries. To refine that we need to step back and see that hotel expenses are specifically goods and services, and not payroll or cost of goods (eg. food cost).
To put an even sharper focus on this distinction, we will refer to hotel expenses according to the Uniformed System of Accounts for the Lodging Industry (USALI). That’s what this piece is all about, defining the latest and greatest control processes for managing your hotel expenses.
In no particular order, here are the top 10 control points to ensure you’re not missing any dollars in your hotel. Failure to follow these controls will cost you money by increasing your expenses.
- Purchase Orders – Using POs is like wearing shoes for a hike. You don’t want to be walking bare foot! Purchase orders don’t need to be fancy or come from an expensive computer system. The old tried and true 3-part NCR form still works very well. The key with using POs is the expense is requested, reviewed, and approved before it’s bought. Many hotels skip this process because they think it’s too much work. As much as 20% of your top line goes out the door every year by way of a purchase that should be controlled.
- Credit Cards – Today this is a runaway train in most businesses and hotels are no different. Everyone is buying everything on plastic. But wait a minute, just because you want to buy online and skip the store, or the traditional vendor experience, does not mean you skip the pre-approval process. Get a credit card program from your bank that includes the up-front controls for spending and never just pay the balance and skip the details of your managers’ spending cards.
- Daily Receiving Reports – Having an independent record of all the goods received by the hotel every day is mission critical. It should be independent of the person who arranged for the purchase and independent of the person who ultimately receives the goods in their department. Even if it’s the housekeeping staff receiving and recording the maintenance items and vice versa, you need someone independent to verify that what you’re ultimately paying for has arrived at the hotel.
- Weekly Purchase Order Reviews – Getting your team of department managers on a regular cycle of presenting their purchase order requests to the GM on a regular day of the week, perhaps after the morning meeting on Friday, is a best practice. The last thing you want is to allow them to present a purchase request whenever they feel like it. Getting those leaders organized so they request their supplies at the same time each week is like your mom going to the grocery store each week on the same day. Remember that?
- Have a Dog in Accounts Payable? – Not a real dog, that would be interesting but not very productive. You need a person who loves to chase down the very last crumbs and in this world that means people and their invoices, packing slips, POs, and approvals. Nothing, I mean nothing gets by him or her without the exact required paperwork all in proper order. To translate this, nothing ever gets paid without crossing all the t’s and dotting all the i’s. After all, it’s your money, right? Why would you let someone be in control of disbursing it who is not a dog about it?
- The three-way match – This is right out of the commander’s control book. I grew up in the hotel world working for what was a railway company. It was run by a bunch of accountants, and they had controls for absolutely everything and for good reason. The three-way match is to expense control like an offside is to hockey. If it does not happen correctly, we stop the game and start over until it’s executed properly. Matching an approved PO to the proof of receipt to the final invoice before payment ensures that the funds being disbursed are properly approved. Paying your bills without one of those three critical ingredients is “offside”.
- Management By Walking Around – MBWA. A hotel is a living and breathing thing that shows its success and challenges readily to the trained eye. By being present and observing what’s going on, or not, is a key strategy to understanding your individual department manager’s effectiveness and this is a direct connection to managing and controlling expenses. What’s that over there? How come we aren’t using these anymore? What happening to the old ones? Who ordered these? I thought the new standard was a big bottle and we were to use all the small ones up first? Who is responsible to clean this area? Where did these come from? How come we have so many of these? Money is literally sitting everywhere, and it all has a story, but you will never get to the bottom of it unless you see for yourself. It’s that old hotel mantra, inspect what your people need in order to create the results that you expect from them.
- Cheque Books – The use of a cheque book is perhaps a lost discipline that died with the advent of the bank card. I can literally remember my dad sitting at the kitchen table usually on a Sunday night, with his bills in hand and his cheque book. “What are you doing?” I would ask. “Paying the bills and making sure we don’t overspend,” he replied. That’s it! Using a cheque book is an effective way to ensure you are on top of your expenses. Read more about this tip at https://hotelfinancialcoach.com/hospitality-financial-leadership-using-expense-checkbooks/
- Zero-based Expenses – Most hotels budget and forecast expenses using a cost per room occupied or cost per cover, or worst still a percentage of revenue, or even worse than that, last year plus 5%. Those tactics are for amateurs. The real pros use a zero-based approach. What exactly is in each expense account, what does it cost, and how many do I use? I remember one day, rather early in my tenure as the assistant controller, being summoned to the meeting room where our hotel budget was being reviewed by the visiting Regional Vice President. I was asked to go find the latest invoice for cocktail napkins. That’s right, those seemingly almost worthless small paper napkins. How many are in a case, how many cases were ordered, and when was the last order? The RVP wanted to prove his point—we ordered four times as many napkins compared to the number of drinks we served. Why? Where do they go? Questions equal answers and answers equal changing habits. It’s not rocket science, it’s just good housekeeping.
- Get All the Right People Involved – Each department in your hotel is like an individual and independent business unit. Each department manager must have a system and a plan to organize and execute their piece. Don’t make the mistake of letting the accounting department be responsible for ensuring each department has its stick together. The voice from the top needs to ring loud and clear. Each manager is responsible for the same three things: their guests, their colleagues, and their numbers.
Managing the expenses in a hotel is not rocket science. It takes a little caring and attention to the details. You can do this!