“We were always focused on our profit and loss statement. But cash flow was not a regularly discussed topic. It was as if we were driving along, watching only the speedometer, when in fact we were running out of gas.”
—Michael Dell, founder and CEO, Dell Technologies
In times of economic turmoil, cash is always king.
Cash flow is the real indicator of your hotel business’s overall health and viability – and when sales volumes are low, you might find yourself running on empty sooner than you think. As the coronavirus-triggered travel worries throttle demand for international tourism, hotels worldwide are now struggling to keep their cash flow positive in order to pay bills, preserve their image, and cover their operating expenses. After all, cash is like oxygen for a business – and any business without cash on hand is usually fated to suffocate.
For hoteliers facing such difficulties, It may be tempting to swiftly cut down on as many expenses as possible to keep your business afloat–but that will leave your hotel struggling to catch up to competitors in the long term.In this article, we’ll share some recommendations on how to strategically increase your cash inflow and reduce your cash outflow during times of low occupancy, without impacting the quality of your guest experience.
Between the halt of new bookings and the effects of past cancellations, many independent hoteliers are now struggling to keep a positive cash flow; in order to drive cash into their business, they are seizing the limitless potential of diverse income sources to generate revenue from extra F&B services, different modes of operation, and their domestic market.
Don’t be afraid to try even if you’re a small hotel. You need to think of your property as more than rooms and rates, but in a more holistic way that leans towards complete revenue generation. Here are a few examples of what hotels can do to tap into some extra revenue:
In times like these, there’s no room for waste or inaccurate inventory levels. Hotels nowadays are trying to salvage all the value they can get from the resources they have, especially from F&B operations – which have proven to be an eminent source of income during the current times.
Financially speaking, ignoring the right ways of sourcing and managing inventory will kill your cash flow; a hotel with a limited cash flow will severely damage its expenditures if it ties up much needed funds in inventory that is not required or likely to expire before use. By adopting POS & inventory technology solutions, you can manage your inventory by having real-time visibility into stock along with their expiry dates. You also have the ability to automatically track usage of ingredients through pre-set recipes of sold menu items. Tracking all these activities can be difficult to do manually and if not tracked adequately, it can result in overstocking, revenue leakage or wastage.
During times of low demand, offering potential guests your full room inventory may not be the wisest decision financially; think of all the recurrent expenses needed to keep your rooms operational such as lighting, heating, air-conditioning, labor, maintenance, amenities and all that is in between. Instead of making all your hotel rooms available but unused, close down a number of rooms to reduce running costs during times of low occupancy.
Using your hotel’s PMS, you can temporarily set specific rooms out of order for a certain time period; that way you will not get reservations on those rooms as they will not be part of your room inventory on any of your sales channels, such as your website and OTAs, during that time period.
A good way to preserve your working capital is to postpone payments to some of your suppliers. To accomplish that, it is important to know when each of your suppliers is anticipating payment and which of them is willing to give you an extension.
Some hotels may decide to force payment extensions on their suppliers, especially when they’re stuck with inventory that can’t be turned into profit. However, this will most likely damage your hotel’s supply relationships and impact your business in a negative way in the long run.
The best way to go about it is to compile a list of all of your suppliers, and contact all of them to discuss credit terms, bills and any monthly direct debits that can be delayed until the hotel has enough revenues coming in.
In the point above, we talked about the strategy of delaying payments to your suppliers to improve your cash flow; don’t be surprised if your debtors are thinking of doing the same thing to you. That’s why it’s important to improve the rigor of your collection processes and avoid any errors in your billing, as this can lead to costly delays in receiving payment.
Some people are still skeptical about international travel in the time being, but they sure are on the lookout for affordable accommodation options for future travel plans. If you provide potential guests with a discount on early bookings, it’s going to be a win/win situation for both of you; getting the cash in early will help you improve your cash flow, and price-conscious guests get a great deal by booking their stays at your hotel.
To encourage both domestic and international travelers to book stays at your property, advertise your early deposit discounts on your hotel and OTAs’ websites. It’s best to use a Channel Manager and an Online Booking widget on your website to ensure error-free room availability and flexible payment options for collecting deposits.