Most businesses in the hotel and hospitality sector are experiencing cash-flow difficulties at present and are under increasing pressure from their bankers. This tends to have arisen due to the following factors:
Number of guests visiting the business has decreased
Average spend of these guests has decreased
Fixed costs remain high, including interest repayments
Activities of competitors
The areas of concern will be evident in your financials. These will manifest themselves in one of the following indicators:
- Gross profit % decreasing.
- Gross profit % remaining steady but net profit falling.
- Increasing pressure on cash flows to pay creditors at month’s end.
- Increasing difficulties making Revenue payments on time.
- Increasing pressure in making monthly bank repayments.
- Allowing the number of debtor days to increase.
- Not turning over stock quickly enough.
The next area that can have serious long term implications is the quality of the product you are offering. This will show itself through one of the following:
- Low occupancy rates for bedrooms, conferencing and banqueting facilities.
- Low RevPAR
- Low average spend per head.
- Low average room rate.
- Low level of repeat business.
- Low level of local business.
While the hotel and hospitality industry is well known for having high levels of staff turnover this should be limited to lower level employees. A good business will retain a central core of high quality staff. If you are finding that this is not the case it may be an indicator that the business is not being as well run as it should be.
The current economic environment is bringing many pressures to bear on hospitality and hotel businesses. The reductions in disposable income, the lack of availability of funding from the banks and the uncertainty surrounding the future are having a huge impact on the industry but it has to be remembered people will always spend money, they may spend less of it, but they will spend it nonetheless and a well positioned business can take advantage of that. Attitudes, perceptions and priorities within hospitality businesses have to change, and we can make that happen.