Profit and Loss Savvy without a financial background
What do you think is the secret to being Profit and Loss savvy with a good numbers sense?
- financial background?
- accounting degree?
- head for numbers?
What if I told you - none of these!
Read on to learn about something which happened with me decades back which I will never forget.
This Blog Post will cover:
Financial analysis is all about Big Picture Overview and Drill down.
Three Decades Back in Goa, India
It was the year 1987, 36 years back.
I was the Financial Controller of Taj Fort Aguada Beach Resort in Goa, India.
The beach resort had 144 rooms including about 20 villas perched up on the hill.
The resort was built inside a 200 year old Portuguese Fort perched on a hillside, facing miles of golden beaches.
It was one of the most romantic settings for a beach resort.
The resort had a great history too hosting the Commonwealth Heads of Nation Summit in the year 1988.
But this post is not about the location and settings.
This post is about an amazing friend and my colleague who happened to be the general manager of the resort.
Unforgettable Lessons on Profit and Loss
I was a rookie Financial Controller on my first posting to the resort which was part of the world renowned Taj Group of hotels in India.
This individual was the general manager of the resort and who I reported to.
He used to conduct the monthly Profit & Loss meetings.
This itself was a novelty considering how many general managers let the Financial Controller run the show.
But I still had no inkling what I was going to be experiencing.
I thought as the unit head he was asserting his authority and I would have to step in soon.
Boy was I so wrong!
From the beginning of the meeting right up to its end about three hours later, the general manager was focused all the time.
He did his own analysis and asked questions directly to the department heads about their departments.
The resort had:
- two specialty restaurants,
- a coffee shop (these days they are called All Day Dining) and
- two beach bars.
The general manager had started his career as a Restaurant Manager.
As a result his understanding of the food and beverage business was first hand.
But he also had a great handle on the rooms department operation.
Most importantly he was tuned into the sales and marketing function intuitively.
Throughout the three plus hours of Profit and Loss discussion, I was discovering that his analysis was spot on.
I was really beginning to admire him for his numbers sense.
We also hit it off well so that was great too.
Style and Approach to Profit and Loss
His style was to first take a Big Picture Overview.
He began with an analysis of the total revenue of the resort for the month.
He then compared the revenue with both the previous year month as well as the budget.
Here I may add that a lot of general managers do not have this year on year focus.
Most times they are making comparisons with the budget only.
In the process, they lose sight of overall revenue growth which is a key factor for performance analysis.
Moreover, owners are paranoid about year on year growth.
My colleague was also:
- one of the few general managers I have worked with
- who was able to understand the effect of volume (occupancy) and
- price (average rate) on revenue.
Next he analyzed the expenses of the rooms department.
He was able to distinguish between Fixed and Variable expenses.
Finally, he discussed the profitability of the department.
He took the same approach for other revenue producing departments.
Unique Customer Centric Focus
In all of the analysis that I watched and heard him carry out, I found him always linking business results with the customer - the hotel guest.
This really intrigued me.
We live in a world where business results tend to take precedence over all other matters as a priority.
In such a milieu, it was refreshing to see a general manager not lose sight of the source of the business - the hotel guest.
When the Rooms department revenue discussion was going on, there was detailed analysis of market segments.
However, I found my colleague tuned into the profile of the guest who represented those market segments.
Why Was He So Numbers Aware?
Let us talk about the most important point of this blog post.
Something that I want hotel middle managers to take away.
Why did I find him so numbers aware?
I had already discovered over a year or so after becoming good friends that he had no financial background at all.
From my unique viewpoint as a finance professional, here are the reasons why:
Top Down Approach
- He always took a top down approach to analysis
- He began with a Big Picture Overview on revenue performance and sources
- He then drilled down into the reasons for revenue performance (occupancy and average daily rate)
- He kept the primary comparison to that with the previous year
- He supplemented that with a comparison with budget
Financial analysis is all about Big Picture Overview and Drill down.
It is critical to understand in business results to:
- step back first,
- summarize, then
- dig into details.
Comfortable with Profit and Loss Numbers
He was always comfortable with numbers.
He never feared numbers which many middle managers tend to do including general managers.
He did not allow figures to overwhelm analysis.
This he achieved by always analyzing why a number was behaving a particular way.
Many general managers get intimidated by numbers.
There is really no need for that.
Embrace numbers and get comfortable with them.
Your analysis will jump ten fold and you will be able to take powerful decisions based on that.
Cause Effect is critical
He always traced a particular number to its cause.
If revenue is down compared to previous year, he dug into why that was happening.
Financial analysis is all about cause and effect.
It is critical to understand in business results:
- what is impacting what and
- why?
Strategies You can Apply
What are some strategies you can apply to your own analysis approach?
- Use a hybrid of Top Down and Big Picture Overview & Details approach
- Always drill down into cause and effect
- Relate business results to the hotel operation
- Never lose sight of the customer
Do you still think you need a financial background to have numbers sense?
Why not?
How will you apply this learning to become more numbers savvy?
I would love to hear your comments on this blog post.
Leave your comments below.
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