Financial Management - The Job of a Hospitality Manager !!

When searching for hotel jobs near you, there is the possibility that you may stumble upon management positions in the hospitality industry. .

So what does a hotel manager do? What challenges do they face on a daily basis? What is the role of financial management? We will explore the various roles that make this one of the more rewarding jobs in the world.

Budget Analysis/Execution

For the purposes of this article, let's start with the budget process for the hotel manager and work our way from there. Every year, a budget will be prepared in meticulous fashion by highlighting every general ledger account, which includes revenue and expenses. 

Your revenues are from sales of any kind, while the expenses are anything that costs the business money to provide a quality service to the guests. A budget will project everything for the upcoming year, with each revenue and expense tracked through general ledger accounts. 

For a hospitality manager to be effective, well, they will prepare an accurate budget! How is this done? The use of historical figures is important and an easy start. However, a manager will understand how upcoming events will impact the operations.

 For example, if the hotel sits on an oceanfront, a manager will be aware of the increase in room revenue during the summer months when families are more likely to vacation and stay in a hotel.

How does a hospitality manager know if they are executing their budget effectively? This is achieved through a process known as variance analysis. The idea is to have as little variance as possible, meaning that a strong budget is being followed very closely with little deviation. 

Obviously, this is not always possible as market trends can affect occupancy in many ways. However, the general rule of thumb is that when revenue increases, expenses will most likely increase. The inverse should also be true; when occupancy is lower than expected, expenses need to trend in the same direction. This leads us into our next section: revenue management.

Revenue Management

In the hospitality industry, there are various revenue streams that generate an income for a property. This includes the sales from rooms, conference spaces, food and beverage, and much more. 

As a hotel manager, it is extremely important to understand the impact of each operation and the overall effect they have on the total revenue. Simply stated, without occupancy, there is no money flowing into the property. 

The manager has a job of being very involved in the sales process by generating and following up on leads with the Director of Sales, ensuring the Revenue Manager is setting the best rates for the property, championing the quality of the food and beverage department, and keeping the calendar full in the conference room.

Managing the Expenses

So what expenses will you typically see in a hotel operation? Here's the short answer: a bunch! Generally, one of the biggest expenses in the hospitality industry is salaries and wages. This is the cost of all the jobs in the hotel. 

Every hour worked is an expense that is incurred. This is why it is common practice for managers to decrease hours of the staff during the slower periods - remember what we said previously: when revenue decreases, so should your expenses.

 If a hotel pays its employees vacation time or sick time, it is normally in the salaries and wages as well.

Another significant expense in the hospitality industry is supplies. These are the amenities that fill the hotel. If you've stayed in a hotel room, you can see the many supplies at work - toilet paper, linen, bathroom amenities, light bulbs, coffee amenities, water, snacks, and much more. How about the supplies used by a housekeeper - the cart, cleaning chemicals, uniforms, cleaning tools, etc. 

Hotels usually have contractual services that provide added amenities for guests. These include high definition premium cable, Wi-Fi, gardening/groundskeeping, newspaper subscriptions, in-room phones, etc. Let's keep moving... what about the other expenses? Marketing/advertising for the property or jobs, maintenance material (for fixtures, furniture, and equipment), depreciation on major purchases/renovations, credit card sales expense (yes, merchants get a nice percentage every time a Front Desk Associate swipes a credit card) and the greatest expense of them all - taxes! OK, so this is quite a list.

 The point is this - by generating revenue, these expenses are much easier to handle! Also, an effective hotelier will find every way possible to lower all of these expenses. This is most definitely one of the fun parts of the job.

Accounting Processes

Does the job sound challenging yet? Well the accountability of these funds is equally important as generating income and managing expenses. If you don't like accounting, that's OK! I can promise that you will learn it as each day passes at your job. 

Financial management includes the proper accounting of all transactions in the hotel. Each hotel has an internal or external accountant who will ensure that these transactions are recorded into the proper general ledger accounts. 

Usually, the most common method is through accrual basis accounting, where transactions are recorded in the month they are executed (as opposed to cash basis, where they are recorded once expensed). This allows for better tracking of the overall budget. As a hospitality manager, your job is to review and ensure the proper accounting of all funds in and out of the hotel. Wasn't that easy enough?

Fiscal Oversight

Another important process in regards to financial management is ensuring the proper oversight of all monies in the hotel. For example, each hotel has a cash drawer that Front Desk Associates will use for cash paying guests as well as reimbursements for any kind. 

If you were the manager, you will definitely want to ensure there is proper oversight of these drawers so they can be in-balance at the end of the day. The PMS (Property Management System) will record all cash transactions and can be accessed at anytime.

It is not uncommon for hotel managers to take on the job of randomly conducting surprise cash counts for the purpose of "showing" the staff that you are doing your job with the fiscal oversight process (and of course, handling any issues if the cash count is out of balance). Typically, theft isn't a big issue in the hospitality industry, but it is always susceptible.

How about the oversight of your purchasing processes? Put yourself in a hotel manager's shoes for a second. There is the job of an employee in your hotel that buys all of the supplies previously mentioned at your property. 

Here's how the process works: supplies are purchased, products or services are received and inspected, payment is processed (sometimes this occurs first), and the transaction is posted onto the books. Would you be happy with just one person handling this entire process? Meaning, they will buy stuff, go downstairs to receive it from the shipping company, and authorize the payment? 

The short answer is no. At a smaller hotel, this may be the only feasible option, which isn't necessarily the worst thing. However, it is always preferred to have a separation of duties in the purchasing process. The person purchasing typically is not the one you want receiving the items, which is because there is the possibility for theft and it would be very difficult to track this as a manager. 

Some hotels will appoint Front Desk Associates or other members of the team to do the receiving agents for items ordered for housekeeping. This is a good example of strong fiscal oversight.

In summation, financial management is an important part of a hospitality manager's job. The beautiful thing about this subject is that it encompasses every position and all parts of the hotel operation. By learning financial management, you are in essence learning about everything that goes on at the property. That is a beautiful thing!