At the time of writing this, the Powerball lottery is approaching $1 billion. I cannot help imagining a world in which I can spend $80,000 a day on my whims, never even touching the after-tax principal of $600 million. But odds are, my $2 quick-pick isn’t going to transport me to a life of bon-bons on the Riviera. So for now, I will need to survive on salary and incentive.

That leads me to the most mundane but important topics of discussion: earning the bonus.

The incentive is generally calculated on some formula of guest satisfaction gatekeeping along with employee satisfaction but mostly hotel gross operating profit. In this context understanding the basics of accounting, including profit-and-loss statements, general ledgers and balance sheets is tantamount to being able to drive a car. Good drivers are always monitoring the dashboard, and great hoteliers do the same; they keep their eyes on financials.

Profit—revenue minus expenses—is understood well. And while I have often been quoted as saying that you cannot “cut your way to profitability” and “you must drive revenues to achieve profitability,” there are basic best practices that must be employed to ensure costs are in line.

The biggest expense in hotel operations is labor cost inclusive of benefits. Within labor, proper real-time forecasting and schedule flexibility rules.

Having fixed schedules when business fluctuates is just dumb. Managers must flex up and flex down based on business needs. Combination positions—e.g. bellman/doorman, front desk/PBX, roomservice/cashier—drive productivity and efficiencies and allow you to weather the storms during slow periods. Conversely, during peak periods, managing overtime properly—by eliminating it or requiring it—drives profits. (Yes, requiring overtime in some cases is cheaper than straight time labor if by paying a little extra you eliminate a monthly benefit package for a full-time equivalent.)

Maintaining an internal checkbook to track expenses versus budget is critical to cost control. However, I’ve had department heads say they thought they could spend the budgeted line items even though we were missing planned revenues, and that simply doesn’t fly. A reduced forecast must mean belt tightening throughout the enterprise.

Accurate inventories, particularly in guest supplies and beverage, make for accurate month-end costs. Wild fluctuations indicate poor ordering and potentially “shrinkage,” a nice way of saying employee theft.

Finally, let’s discuss purchasing just briefly. Do you have best practices in place? This is one area where independents often fall down. In short, are you requiring three bids for virtually all purchases? Are you selecting the best bid (quality, reliability, compliance often come as cost), not just the lowest bid? You can buy the cheapest toilet paper if you want to, but only your plumbers will return, certainly not your guests.

Recently, we needed to negotiate a contract for services worth well more than $100,000 per year. The suppliers got cash-register eyes as if “here comes Mr. Moneybags Hotelowner.” Three bids were received and all were stratospheric and out of line. So we had a proxy approach the same three vendors with similar scope requirements and all the bids came in 20% lower. This gave us firepower to reject all the contracts in favor of a new supplier. We then revealed to the “new supplier” that we were the true customer and that we required further reductions; we managed to extract a signing bonus by extending the term. If you don’t like to negotiate, find someone who does; there are many purchasing consortia that can find dramatic savings.

With forecasting, labor, scheduling, inventory control and purchasing in line, you are not likely to be surprised when your monthly statements are published. Hopefully you are able to drive revenues while lowering expense and delivering profits to your owners and an incentive to your team.

Odds are better on great operating results than winning the Powerball. Meantime, here’s to Lady Luck … pick the prime numbers 01,07,11,13,17,19 and the Powerball 23.