(Part 2) Transforming Your Hotel from a Cash-Draining Operation to a Profitable Business Machine

7. Find Hidden Money in Your Hotel Through Efficiency

There’s often hidden money within your hotel’s operations, just waiting to be uncovered. Challenge assumptions and question every aspect of your business. Look for ways to achieve better results with fewer resources by streamlining processes, eliminating unprofitable services, and leveraging technology for automation.

By focusing on your core strengths and doubling down on what’s most profitable, you’ll uncover significant savings that boost your hotel’s profitability.

Areas to explore for hidden money:

• Streamline processes and systems

• Eliminate unprofitable products or services

• Optimize pricing strategies

• Improve employee productivity

• Reduce waste and unnecessary expenses

• Leverage technology for automation

As a hotel owner, finding additional profit often means thinking outside the box and looking for ways to operate more efficiently. Hidden money is everywhere within your hotel—it’s just a matter of uncovering it. By optimizing processes, reducing waste, and maximizing resources, you can free up cash flow without compromising guest satisfaction or service quality. Let’s dive into how you can uncover hidden money through efficiency improvements in your hotel operations.

Find Hidden Money Within Your Hotel Through Efficiency

The concept of finding hidden money is about challenging assumptions and identifying inefficiencies that are costing your hotel money. Often, the smallest inefficiencies—whether in operations, staffing, or inventory management—can add up to significant losses. By taking a systematic approach to improving efficiency, you can unlock new sources of profitability.

Example: How a Large Resort Hotel Found Hidden Money in Daily Operations

Imagine you manage a 300-room resort hotel with multiple dining options, a spa, and several event spaces. Despite having strong occupancy rates, your profit margins are lower than expected due to high operating costs. Here’s how you can uncover hidden money by improving efficiency.

Step 1: Streamline Processes and Systems

One of the best ways to find hidden money is to streamline your hotel’s daily operations. Look for areas where processes can be automated, simplified, or made more efficient. For example:

• Housekeeping Optimization: Housekeeping is a labor-intensive department, and inefficiencies here can drive up costs significantly. Start by reviewing your current housekeeping processes. Are rooms being cleaned efficiently? Are there delays in room readiness that could be reduced?

  Solution: Implement housekeeping management software that tracks room status in real-time and assigns cleaning tasks based on priority. For example, rooms that need to be turned over quickly for new guests can be prioritized, while less urgent cleaning tasks can be done during off-peak hours. This reduces downtime for housekeeping staff and ensures that rooms are ready faster, improving guest satisfaction.

  Result: By optimizing housekeeping operations, you reduce labor hours and lower overtime costs while ensuring that rooms are available for check-in more quickly, potentially boosting your revenue.

• Guest Services Automation: Front desk operations can be another source of inefficiency, especially during busy check-in and check-out periods.

  Solution: Introduce self-service kiosks for check-ins and check-outs, allowing guests to handle their own bookings, payments, and room key issuance. This reduces the need for additional front desk staff during peak times.

  Result: You can reallocate staff to higher-value guest services, reducing payroll costs while improving the overall guest experience by eliminating long wait times at the front desk.

Step 2: Eliminate Unprofitable Products or Services

Another area to find hidden money is by evaluating the profitability of your various offerings—whether that’s F&B, spa services, or event spaces. Often, certain products or services may be underperforming or even costing more than they bring in.

• F&B Operations Review: Look at your restaurant and bar operations. Are there menu items that are rarely ordered but require expensive ingredients or take a long time to prepare? Is food waste high in certain areas of the kitchen?

  Solution: Streamline your menu to focus on high-margin, popular items. For example, if certain dishes are rarely ordered but require costly ingredients, consider removing them from the menu. At the same time, implement better portion control and food waste tracking systems in the kitchen to reduce overall waste.

  Result: By refining your menu and improving kitchen efficiency, you increase profit margins while reducing the cost of goods sold. Additionally, you may find that a simplified menu improves guest satisfaction by making it easier for guests to choose from high-quality, well-prepared options.

• Spa and Wellness Center Analysis: Evaluate your spa’s services. Are there certain treatments that require high overhead (e.g., expensive products, highly skilled therapists) but aren’t popular with guests?

  Solution: Eliminate or reduce the frequency of offering those services, and instead promote more profitable services that require lower overhead and are in higher demand. You could also consider bundling services or offering packages that increase overall revenue while keeping costs down.

  Result: You’ll reduce unnecessary expenses while boosting the profitability of your spa and wellness center, improving the bottom line without sacrificing guest satisfaction.

Step 3: Optimize Pricing Strategies

Finding hidden money can also mean reassessing how you price your rooms, services, and amenities. Pricing optimization allows you to increase revenue without significantly raising operational costs.

• Dynamic Pricing for Rooms: Implement a dynamic pricing strategy that adjusts room rates based on real-time demand and market conditions. This ensures you’re capturing the highest possible revenue during peak periods while still attracting guests during slower periods.

  Solution: Use revenue management software to monitor demand patterns, competitor pricing, and local events. This software can automatically adjust your room rates to maximize revenue.

  Result: By using dynamic pricing, you’ll increase average daily rates (ADR) and maximize revenue per available room (RevPAR), all without additional operational costs.

• Upselling and Cross-Selling: Train your staff to upsell and cross-sell during guest interactions. For example, front desk agents can offer room upgrades, late check-outs, or F&B packages at check-in, while restaurant staff can promote higher-margin menu items or special wine pairings.

  Solution: Introduce a commission-based incentive program for staff who successfully upsell services, motivating them to drive additional revenue.

  Result: You’ll generate more revenue per guest without needing to increase your marketing spend or labor costs.

Step 4: Improve Employee Productivity

Labor costs are often one of the largest expenses for a hotel, but there’s hidden money to be found by improving employee productivity. Here’s how you can increase efficiency without burning out your team.

• Cross-Training Staff: Cross-train your staff so they can handle multiple roles. For example, during slower seasons, front desk staff can assist with concierge duties, or event staff can help with housekeeping when events aren’t scheduled.

  Solution: Implement cross-training programs that allow staff to take on multiple responsibilities during their shifts. This not only reduces the need for hiring additional staff during busy periods but also increases employee engagement and job satisfaction.

  Result: You reduce labor costs by optimizing your current workforce’s productivity while avoiding overstaffing during slower periods.

Step 5: Leverage Technology for Automation

Technology can help you uncover hidden money by automating routine tasks and freeing up staff to focus on higher-value work.

• Automated Inventory Management: If your hotel has an F&B operation or a retail shop, inventory management can be a time-consuming task with a high risk of human error. Automated inventory systems track stock levels in real-time, alerting you when it’s time to reorder and preventing overstock or stockouts.

  Solution: Implement inventory management software that integrates with your purchasing system. This allows you to streamline orders and avoid unnecessary purchases, reducing inventory holding costs.

  Result: You’ll see reduced waste, more efficient ordering, and potentially lower food and beverage costs due to better purchasing practices.

Benefits for the Hotel Owner

By uncovering hidden money within your hotel’s operations, you’re not just cutting costs—you’re creating a more efficient, profitable, and sustainable business. Each small efficiency improvement adds up over time, leading to significant savings and increased profitability without sacrificing guest satisfaction or quality of service.

Conclusion: Efficiency Leads to Profitability

Finding hidden money through efficiency is about constantly questioning and improving how your hotel operates. By streamlining processes, eliminating unprofitable products, optimizing pricing, improving staff productivity, and leveraging technology, you can uncover new sources of revenue and profitability within your existing operations. In the next step, we’ll discuss how to apply the Profit First system to your personal finances, ensuring that the same principles of profitability and efficiency extend beyond your hotel.

By uncovering hidden money in your hotel through efficiency, you’ll drive profitability and set the stage for long-term success. Stay tuned for our next post, where we’ll explore how to apply Profit First principles to your personal finances for a more secure and prosperous future.

8. Apply Profit First to Your Personal Finances

The principles of Profit First aren’t just for your hotel—they can also be applied to your personal finances. Create separate accounts for Income, Profit (savings/investments), Taxes, and Operating Expenses (bills and necessities). Living below your means ensures you’re building personal wealth and financial security without sacrificing comfort.

By maintaining disciplined allocation habits in both your business and personal life, you’ll set yourself up for long-term success and financial freedom.

Tips for personal Profit First implementation:

• Start with small allocation percentages

• Gradually increase savings over time

• Cut unnecessary personal expenses

• Celebrate milestones to stay motivated

As a hotel owner, your business's financial health is crucial—but so is your personal financial stability. The principles that help you build a profitable hotel can also be applied to your personal finances, ensuring that you're not just creating a successful business but also securing your own financial future. By using the Profit First method in your personal finances, you can build wealth, maintain security, and ensure that you’re living below your means while still enjoying the rewards of your hard work. Let’s look at how to apply Profit First to your personal financial management.

Just like with your hotel’s finances, the key to managing your personal finances effectively is to prioritize profit first, allocate money wisely, and ensure that you’re saving and investing for the future. By setting up specific accounts for different purposes—such as income, savings, taxes, and everyday expenses—you can ensure that every dollar you earn works for you in a purposeful way.

Example: How a Hotel Owner Can Apply Profit First to Personal Finances

Let’s say that after implementing Profit First in your hotel, you’ve begun to draw a consistent monthly compensation of $12,000 from your Owner’s Compensation account. Now, you want to apply the same Profit First principles to your personal finances to manage this income effectively.

Step 1: Set Up Five Core Personal Accounts

Just as you set up separate bank accounts for your hotel’s finances, you’ll set up five key personal accounts:

1. Income Account: This is where all your personal income goes, including your compensation from the hotel, any investment income, or additional streams of income.

2. Profit (Savings/Investments) Account: This account is dedicated to long-term savings and investments. Think of this as your personal profit—money that you’re setting aside to build wealth over time.

3. Taxes Account: Set aside a percentage of your income specifically for tax obligations. As a business owner, it’s essential to be prepared for tax season, especially if you owe quarterly estimated taxes.

4. Operating Expenses (Bills and Necessities) Account: This is where you allocate money for all of your living expenses—mortgage, rent, groceries, utilities, transportation, and other necessities.

5. Vault (Emergency Fund) Account: This account is your safety net for unexpected expenses, such as medical emergencies, car repairs, or other unforeseen circumstances.

Step 2: Determine Your Allocation Percentages

Based on your monthly compensation of $12,000, allocate your income to each of these accounts using predetermined percentages. Here’s an example of how you might divide up your income:

• Profit (Savings/Investments) Account: 20% ($2,400)

  • This goes toward long-term savings and investments. You might put this into a retirement account, investment portfolio, or real estate.

• Taxes Account: 15% ($1,800)

  • You set aside this amount for taxes to ensure that you’re prepared for your quarterly or yearly tax obligations.

• Operating Expenses Account: 50% ($6,000)

  • This covers all your essential living expenses, such as housing, food, insurance, and other bills.

• Vault (Emergency Fund) Account: 10% ($1,200)

  • This goes toward building an emergency fund. Over time, this account will grow to cover several months' worth of living expenses in case of a personal financial setback.

• Income Account: The remaining 5% stays here temporarily until your next allocation. You could also adjust this based on additional financial goals, like funding a vacation or saving for a large purchase.

Step 3: Automate Your Allocations

Just as you do for your hotel, set up an automatic system to distribute your personal income into these accounts as soon as it hits your bank account. For example, on the 1st and 15th of each month, $6,000 could automatically be split into the different accounts based on your predetermined percentages. This system ensures that you’re consistently saving, preparing for taxes, and living within your means.

Step 4: Live Below Your Means and Build Wealth Over Time

The key to applying Profit First to your personal finances is to ensure that you’re living below your means. This means allocating a significant portion of your income to savings and investments before determining how much you can afford to spend on everyday expenses.

Example:
Let’s say you want to purchase a new car. Instead of taking on a large car loan or dipping into your savings, you adjust your operating expenses allocation to temporarily increase the amount going into your Vault account. Over the next 12 months, you save enough to make a significant down payment or purchase the car outright without taking on unnecessary debt.

By living below your means, you’re not only securing your financial future but also ensuring that you have the flexibility to make larger purchases or handle unexpected expenses without financial stress.

Step 5: Celebrate Milestones to Stay Motivated

Just as with your hotel’s debt reduction plan, it’s important to celebrate personal financial milestones to keep yourself motivated. For example, when your emergency fund reaches a full six months’ worth of expenses, treat yourself to a small reward—a nice dinner out or a weekend getaway. These celebrations will help reinforce the habits you’re building while reminding you of the benefits of financial discipline.

Step 6: Teach Your Family About Financial Responsibility

If you have children, the Profit First system provides an excellent opportunity to teach them about money management and financial responsibility. Create age-appropriate systems for them to allocate any allowance or earnings into their own savings, spending, and charitable giving accounts.

Example:
Your teenager might allocate 50% of their allowance to spending (e.g., on entertainment or personal items), 30% to savings (e.g., for future college or a car), and 20% to charitable giving (e.g., to a cause they care about). This teaches them to prioritize saving and giving while still enjoying some of their earnings.

Step 7: Plan for the Future

Once you’ve consistently applied Profit First to your personal finances, you can begin planning for larger financial goals, such as retirement, travel, or major life events. By consistently building your Profit (Savings/Investments) account, you’ll have the flexibility to invest in future opportunities, whether that’s expanding your hotel business, purchasing additional properties, or simply enjoying a comfortable retirement.

Benefits for the Hotel Owner

By applying Profit First to your personal finances, you’re not just ensuring the profitability of your hotel—you’re securing your personal financial future. This system helps you avoid the trap of overspending, ensures that you’re saving for both short-term needs and long-term goals, and provides financial peace of mind.

Conclusion: Financial Security for Your Personal Life

Applying the Profit First system to your personal finances creates a strong foundation for financial security, allowing you to build wealth while maintaining a comfortable lifestyle. By prioritizing savings, allocating funds for taxes and emergencies, and living within your means, you ensure that you’re setting yourself up for success both in business and in life. In the next step, we’ll explore common mistakes to avoid when implementing Profit First, helping you stay on track and achieve your financial goals.

By applying Profit First to your personal finances, you’ll ensure long-term financial security and peace of mind. Stay tuned for our next post, where we’ll dive into the common mistakes hotel owners make when implementing Profit First and how to avoid them to ensure continued success.

9. Avoid Common Mistakes When Implementing Profit First

The worst enemy of Profit First is often ourselves. It’s easy to fall back into old habits or cut corners when things get tough. To avoid common mistakes, stay accountable by finding a partner or group to check in with regularly. Resist the temptation to borrow from your Profit or Tax accounts to cover operating expenses—this will only set you back.

By maintaining discipline and sticking to the system, you’ll ensure your hotel’s transformation into a profitable, sustainable business.

Common pitfalls to avoid:

• Taking too much profit too soon

• Focusing on growth at the expense of profit

• Cutting the wrong costs

• Adding unnecessary complexity to the system

• Raiding the Tax account

• Trying to manage it all through spreadsheets instead of actual bank accounts

By shifting your mindset and taking small, consistent steps to prioritize profit, you can transform your hotel from a cash-eating monster into a money-making machine. Embrace the process, and watch your business thrive!

Implementing the Profit First system can revolutionize the way your hotel operates, turning it into a more efficient, profitable business. However, like any system, it’s only as effective as its implementation. Many hotel owners start with the best intentions but encounter pitfalls along the way that can derail their progress. Let’s explore some of the most common mistakes made when applying Profit First, along with strategies to avoid them, so you can ensure your hotel stays on track toward financial success.

While the Profit First system is straightforward in its principles, there are several key areas where hotel owners often go wrong. These mistakes can hinder your ability to generate consistent profits and build a financially healthy business. By understanding these pitfalls ahead of time, you can take proactive steps to avoid them.

Mistake 1: Taking Too Much Profit Too Soon

One of the core principles of Profit First is allocating profit first, but this can lead to a common mistake—trying to take too much too soon. Over-allocating to your profit account while neglecting operational needs can put undue strain on your hotel's cash flow, especially during periods of low occupancy or unexpected expenses.

Example:
Let’s say you operate a 100-room boutique hotel and you’ve been setting aside 10% of your revenue into the profit account. However, you encounter unexpected maintenance costs for your HVAC system. Because you’ve taken a larger share for profit, you find yourself short on funds to cover these crucial repairs.

Solution:
Start with smaller profit allocations and gradually increase them over time. For example, start with a 3% or 5% profit allocation and increase by 1-2% quarterly, as your hotel’s cash flow stabilizes and operational efficiencies improve. This gradual approach ensures you don’t starve your hotel of the resources it needs to function effectively while still building your profit account.

Mistake 2: Focusing on Growth at the Expense of Profit

Many hotel owners get caught up in the idea that growth—adding more rooms, expanding services, or investing in new technologies—is the ultimate goal. However, focusing solely on growth without ensuring profitability can lead to financial instability.

Example:
You may be tempted to use your profit allocations to expand your hotel’s facilities—perhaps by adding a new event space or upgrading your spa services. While these investments might generate future revenue, they often require substantial upfront capital, which can drain your profit and leave you with more debt than before.

Solution:
Before embarking on any growth initiatives, ensure that your core business is consistently profitable. Focus on maximizing the profitability of your existing operations by improving occupancy rates, optimizing F&B margins, and reducing operational costs. Once your hotel is generating steady profits, you can reinvest those profits into strategic growth initiatives.

Mistake 3: Cutting the Wrong Costs

Another mistake that hotel owners often make when implementing Profit First is cutting costs in the wrong areas. It’s tempting to reduce expenses quickly to improve cash flow, but cutting too much or in the wrong places can have negative consequences on guest experience, service quality, or staff morale.

Example:
You decide to cut costs by reducing staffing levels at your front desk during peak check-in times. While this saves on payroll, it results in longer wait times for guests and lower satisfaction scores, which ultimately leads to negative reviews and lost bookings.

Solution:
Focus on cutting unnecessary or non-essential costs that don’t impact the guest experience. For example, renegotiate supplier contracts, eliminate underperforming services, or implement energy-saving measures that reduce utility expenses without sacrificing quality. Always prioritize guest-facing services and staff engagement when making cuts.

Mistake 4: Adding Unnecessary Complexity to the System

Profit First is designed to be a simple, effective system, but some hotel owners complicate it by creating too many accounts or adding unnecessary layers of management. This can lead to confusion, increased administrative work, and difficulty tracking progress.

Example:
Instead of sticking to the five core accounts (Income, Profit, Owner’s Compensation, Taxes, and Operating Expenses), you create additional accounts for various departments—such as F&B, housekeeping, and maintenance—making it harder to manage allocations effectively. This complexity makes it difficult to track cash flow and prioritize profit.

Solution:
Keep the system simple. Stick to the core five accounts and only create additional accounts if absolutely necessary. For most hotels, managing these five categories is sufficient to maintain control over cash flow while prioritizing profitability. Avoid over-complicating the system, which can lead to unnecessary confusion and administrative burden.

Mistake 5: Raiding the Tax or Profit Accounts for Operating Expenses

When cash flow gets tight, it can be tempting to dip into the Tax or Profit accounts to cover operating expenses. However, doing this undermines the entire purpose of the Profit First system and can lead to financial trouble down the line—especially when tax season arrives.

Example:
You’ve set aside 15% of your revenue into the Taxes account, but you encounter an unexpected low-occupancy period and need additional funds to cover payroll. You raid the Taxes account to bridge the gap, leaving you short when quarterly taxes are due.

Solution:
Resist the temptation to borrow from your Tax or Profit accounts for operating expenses. If you find yourself in this position, it’s a sign that your operating expenses are too high or that your cash flow management needs improvement. Instead, reevaluate your operational costs and look for areas where you can reduce expenses or generate additional revenue without compromising your future tax obligations or profitability.

Mistake 6: Trying to Manage It All Through Spreadsheets Instead of Actual Bank Accounts

Some hotel owners make the mistake of trying to implement Profit First using spreadsheets instead of setting up actual bank accounts. While spreadsheets can track numbers, they don’t provide the same discipline and separation that actual bank accounts offer.

Example:
You’ve set up a detailed spreadsheet to track your income, profit, and expenses. However, when cash flow gets tight, you find yourself dipping into money set aside for profit or taxes because the funds aren’t physically separated in different accounts.

Solution:
Set up actual bank accounts for each of the five categories. This physical separation ensures that you’re not tempted to use money allocated for taxes or profit to cover other expenses. It also provides a clearer picture of your hotel’s financial health and enforces the discipline necessary to follow the Profit First system effectively.

Stay Accountable: Find a Partner or Group for Support

Implementing Profit First requires consistency and discipline, and it can be easy to fall back into old habits, especially when things get tough. To stay on track, find an accountability partner or join a group of like-minded hotel owners who are also using the Profit First system. Regular check-ins and discussions can help you stay focused and motivated.

Example:
You could connect with other hoteliers in your network who are also implementing Profit First, and set up monthly meetings to share successes, challenges, and tips for optimizing the system. This shared accountability helps keep you on track and provides a support system during difficult financial periods.

Benefits for the Hotel Owner

Avoiding these common mistakes ensures that the Profit First system works effectively for your hotel. By sticking to the principles of prioritizing profit, managing cash flow efficiently, and maintaining discipline in your financial allocations, you can build a more stable, profitable business that thrives in the long term.

Conclusion: Stay Disciplined, Stay Profitable

The Profit First system has the power to transform your hotel’s financial health, but only if it’s implemented correctly. By avoiding common mistakes—such as over-allocating to profit, focusing solely on growth, or borrowing from Tax accounts—you can ensure that your hotel remains profitable and financially secure. In the next step, we’ll recap the entire process and provide additional tips for scaling your hotel’s success while maintaining financial stability.

By staying disciplined and avoiding these common pitfalls, you’ll ensure that Profit First works for your hotel, leading to long-term profitability and financial security. Stay tuned for our next post, where we’ll recap the entire Profit First process and discuss strategies for scaling your hotel while maintaining financial health.

Want to Be Part of Mentor Hotelier? Here Are Ways You Can Help:

• Join the Mentor Hotelier Community: Subscribe to our newsletter and join a vibrant community where you’ll learn innovative strategies and discover the latest digital tools to improve your hotel’s productivity and streamline the workflow of your entire team.

• Every Successful Hotel Has a Story to Tell: I understand the challenges of managing a hotel—I come from a family of hoteliers. So every week, I interview hoteliers and managers, from boutique hotels to large chains, to share their stories and insights with our community. Would you be open to a quick chat to share your experience?

• Group Consultations with Fellow Hoteliers: Join our group consultation sessions, where we gather periodically as a community of hoteliers. These private, small-group consultations allow us to share challenges, insights, and strategies, working together to find tailored solutions for your hotel.

• Collaborative Team Training and Implementation: As part of the Mentor Hotelier community, we work together to create resources that help train your teams and implement the latest tools. Whether it's for improving operations or enhancing guest experiences, our collective efforts ensure everyone benefits from shared knowledge and support.