The Hotel P&L Is a Lagging Indicator

By Marty McDaniel, CHA, Chairman & CEO, The Northstar Companies

Monthly financial statements matter. I have spent most of my career living by them. But after 38 years in hotel and resort operations, I have also learned that the P&L is usually the last place an operating problem introduces itself. By the time a weakness is obvious in the financials, the decisions that created it may be weeks or even months old.

That does not make the P&L less important. It makes it historical. Strong operators use it to confirm the operating story they have already been watching unfold in the hotel. The real work is recognizing the leading indicators early enough to do something about them.

Commercial performance starts changing long before the month closes. Pace and pickup soften. Booking windows move. Cancellation patterns change. Group wash increases. The channel mix shifts toward more expensive business. A competitor changes rate strategy and the market responds. None of those things waits for accounting to publish a statement.

An operator who watches those movements daily and weekly can react while there is still time to influence the outcome. The operator who waits for month-end may only be documenting what already happened.

The same is true with labor. Payroll can miss budget because of wage rates, staffing levels, overtime, productivity or simply poor deployment. The useful question is not only whether labor cost is high; it is why it is moving.

Hours per occupied room, rooms cleaned per attendant, overtime by department, call-offs, agency usage and schedule variance can tell you far more in the moment than a single monthly payroll percentage. A hotel can look reasonably healthy on the surface while productivity is quietly eroding underneath it.

Maintenance is another area where the financial statement can arrive late. Work-order age, repeat calls, out-of-order rooms, equipment downtime and deferred preventive maintenance are operating indicators before they become a capital problem or a guest-satisfaction problem.

A property does not wake up one morning with a maintenance crisis. More often, it accumulates one. The warning signs were there: the same HVAC issue returning, rooms remaining out of service longer, parts being cannibalized, temporary fixes becoming permanent. Eventually those decisions show up as lost inventory, higher repair cost, weaker reviews or an unpleasant capital surprise.

Aggregate review scores are useful, but they are also averages built from past stays. Operators should pay just as much attention to recurring complaint categories, service-recovery frequency, housekeeping defects, response times and the nature of the problems guests are bringing to the front desk.

Three similar complaints this week can matter more than a stable monthly score. The question is whether the issue is isolated or becoming a pattern. Once a pattern reaches the review sites in volume, the operation has already had multiple chances to catch it.

Hotel food and beverage offers another good example. Covers may be up while check average is down. Revenue may be growing while purchasing variance, waste or overtime is growing faster. A banquet department can show strong top-line activity while labor deployment and event profitability deteriorate.

Activity is not the same thing as performance. The operator needs to understand what is happening underneath the revenue number: covers, check average, labor by meal period, purchasing variance, waste, banquet productivity and outlet contribution.

Hotels already have plenty of reports. The goal is not to create another dashboard that everyone glances at and nobody owns. The better approach is a simple management cadence: daily exceptions, weekly trends and monthly financial confirmation.

Daily operating reviews should focus on what changed and what requires action. Weekly reviews should look for trends: demand movement, channel cost, labor productivity, service failures, maintenance backlog and departmental operating pressure. The monthly P&L then becomes the financial confirmation of what management has already been seeing and addressing.

If I am trying to understand whether a hotel is getting stronger or weaker, I want to know more than whether last month beat budget. I want to know whether the business is building or losing demand, whether the revenue being added is profitable, whether labor is becoming more productive, whether the building is accumulating risk, and whether guest friction is rising or falling.

Those are operating questions first. They become financial questions later.

The best hotel operators I have worked with do not ignore the P&L. They respect it enough not to wait for it. They manage the decisions and indicators that create the numbers, then use the financial statement to validate whether the operation is moving in the direction they expected.

The P&L should confirm the story. It should not be the first time management hears it.

About the author

Marty McDaniel, CHA, is a second-generation hotelier with 38 years of senior leadership experience across hotels, resorts, development, multi-property operations, turnarounds, renovations and ownership-side advisory. He has led properties and portfolios ranging from boutique hotels to large full-service resorts and has overseen more than 25 renovations and 12 development projects. Today, he serves as Chairman & CEO of The Northstar Companies and leads Northstar Hospitality Management & Advisory. He is a Certified Hotel Administrator and an eCornell Revenue Management Expert.

More at MartyMcDaniel.com.