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How your hotel can manage cash flow to improve business sustainability

  Posted in Resources  Last updated 21/11/2023

What is cash flow management?

Cash flow management, the real or virtual movement of money at your hotel, is important for maintaining the smooth operations of your business.

The definition of cash flow management is “the process of monitoring and managing the money that travels in and out of your business.” The proper management of cash flow in the hospitality industry allows a hotelier to accurately forecast how much money the business might need on hand at any given time in order to meet its financial responsibilities.

Cash flow problems occur when the cash timing of your expenses and income are not aligned. If you have bills to pay, but there is lag from invoices you have sent out, your cash flow is interrupted and you start to experience debt.

To avoid this situation you need to manage your cash flow efficiently, so this blog will run through some tips to keep you on top of your finances.

Table of contents

Why is cash flow management important?

Cash flow issues can easily snowball into serious situations. In fact, many businesses don’t survive due to poor cash flow management.

On the other hand, effective cash flow management can help you make better decisions, grow your business, and achieve the best outcomes for your hotel.

Cash flow is vital at your hotel because you always need money on hand to:

  • Pay suppliers
  • Pay bills
  • Pay for repairs
  • Perform renovations
  • Pay staff
  • Absorb refunds and cancellations

If you aren’t generating your incoming revenue promptly or regularly, you’ll quickly run into problems. It’s important that you can secure your hotel’s liquidity and build cash reserves by always tracking your performance and using any data at your disposal, and ensuring on-time payments from customers and suppliers. When an online travel agent (OTA) takes payment on your behalf for instance, you need to make sure you claim your payment as soon as you are able.

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Hotel cash flow analysis and audit

Analysis is important in every facet of your business to determine where money is being spent, where money is coming in, and where money can be saved. Analysing your cash flow enables you to make decisions on how you will improve it.

Will you:

  • Raise your room rates?
  • Undertake extensive cost-cutting?
  • Make efforts to improve staff and operating efficiency?
  • Switch or change your promotions?
  • Introduce new packages and/or extras?
  • Increase or decrease the amount of third-party channels you connect with?
  • Pivot your strategy to attract more direct bookings?

These are all questions you should consider, and can answer with certainty if you’re performing regular analysis at your property.

Performing a revenue audit

A revenue audit involves verifying all your hotel’s revenue transactions through a set period of time. The idea is to identify where your business could be earning more money or where you’re spending more than you need to. You may need to take into account seasonality – peak and off peak periods – when you do this.

It will let you gather insights, drive data-led decisions, and streamline your cash flow. How often you perform an audit is up to you but make sure you are doing it at least every few months.

Upstay has provided four easy steps for performing a revenue audit:

1. Segmentation

Segmenting makes your data more spread out, accessible, and easier to work with. Once you’ve segmented, you can gain a good overview of who your customers are, what they are doing, and what value they offer your hotel.

2. Comparison

Compare yourself to your competition. Picking one of similar size and type will give you a good perspective on how you’re set up relative to what else is on the market for guests. Use what you can gather on other hotels to see where you could improve or gain an edge.

3. Analysis

This involves looking into your internal operations. That includes all currently used technologies, employees, and the payroll overall. A revenue audit should highlight where the money is going and how it’s being used – only then can you manage revenue more effectively.

Are you maximising your potential revenue from all possible avenues such as your distribution, food and beverage services, and ancillaries? Make sure you know if and when you’re hitting your key performance indicators.

If you aren’t meeting them, is it because they need to be reassessed or because something is not working as it should?

4. Overview

The last step of the process is to overview your pricing, revenue, and finances. Overviewing your existing pricing strategies will let you make any needed adjustments based on your audit.

Image representing cash flow management

Cash flow management example

Hotel cash management is a subject that can feel complex, confusing and generally hard to define, so a cash flow hotel example can help to bring a bit of clarity.

A good hotel cash flow statement example can be found here. This is an example of a trended monthly cash flow statement, which CFOs and other internal financial managers use to track and analyse cash flow trends month on month. Particularly high or low numbers are highlighted to make the information easier to digest, which helps a financial controller ensure that cash is moved wherever and whenever it is needed.

Cash flow hotel example

The following table is provided as a sample cash flow for illustrative purposes only—it is not intended for actual use. The data and descriptions are fictional and do not represent the financial activities of any specific entity.

Description January February March Total
Operating Activities
Net Income 50,000 45,000 55,000 150,000
Loss (Gain) on Hedging Transactions -1,000 2,000 -1,500 -500
Loss (Gain) on Sale of Fixed Assets -3,000 1,500 -2,000 -3,500
(Inc) Decr in Guest Receivables 4,000 -2,000 3,000 5,000
(Inc) Decr in Room Inventories -1,500 1,000 -500 -1,000
(Inc) Decr in Prepaid Expenses and Other Assets 2,000 -1,500 1,500 2,000
Inc (Decr) in Trade Payable and Accruals -2,000 3,000 -1,000 0
Inc (Decr) in Deferred Revenue – Adv Dep & Gift Cards 1,500 -1,000 2,000 2,500
Inc (Decr) in Accrued Payroll & Related Taxes 3,000 -2,500 2,000 2,500
Inc (Decr) in Accrued Liabilities & Other -1,500 2,000 -1,000 -500
Net Cash Provided (Used) by Operating Activities 54,500 47,500 56,500 158,500
Investing Activities
(Inc) Decr in Capital Expenditures -10,000 -8,000 -12,000 -30,000
Cash Received From Sale of Hotel Property 5,000 6,000 7,000 18,000
Capital Lease Payments -2,000 -1,500 -2,500 -6,000
Net Cash Used in Investing Activities -7,000 -3,500 -7,500 -18,000
Financing Activities
Cash Received From Issuance of Mortgage Debt 10,000 0 0 10,000
Cash Paid For Mortgage Debt Repayments -5,000 -5,000 -5,000 -15,000
Dividends Paid to Shareholders -3,000 -3,000 -3,000 -9,000
Net Cash Used in Financing Activities 2,000 -8,000 -8,000 -14,000
Net Increase/Decrease in Cash 49,500 36,000 41,000 126,500
Beginning Cash Balance 100,000 149,500 185,500
Ending Cash Balance 149,500 185,500 226,500

Cash flow management techniques

The importance of hotel cash flow can’t be understated – so how can a hotelier improve their property management and cash flow management? The following strategies can help to ensure you always have the necessary cash on hand.

Dynamic pricing strategies

The most effective way to manage cash flow? Get more cash flowing in. Dynamic pricing strategies are a way to ensure you generate maximum revenue for every room, by monitoring factors like demand and competitor pricing to set room rates that are tempting for potential guests while making you more money.

Diversification of revenue

Putting your rooms to one side, what other ways might your hotel bring in cash? Diversifying your revenue streams through services like a bar, a restaurant, a day spa or tour offerings can increase cash flow and make your hotel more financially resilient.

Monitor expenses

Regularly review your outgoings to guard against unnecessary financial waste. This process can help you identify serious savings, e.g. trading disposable items for washable, to increase your levels of available cash.

Hotel cash flow projections

Being able to properly forecast demand and make projections for revenue and expenses will go a long way to smoothing out your hotel’s cash flow.

Using revenue management systems, business intelligence tools, or other hotel software such as a channel manager and booking engine allows you to accurately track a number of data points to inform strategy, such as:

  • Which of your packages or promos deliver the best returns
  • What extras are popular with guests
  • Which booking channels perform optimally
  • Market price comparisons
  • How competitors are setting rates
  • How much labour and staffing will be needed

The more information you have at your disposal, the more precise you can get with setting rates at different times of the day, month, or year. You’ll also know what kind of offers to put to market and when to use particular promotions to drive extra business.

Having key insights is especially important in the COVID-19 era when demand might be interrupted at any point, or be generally decreased, because you’ll be able to react and adapt much quicker.

One key strategy is around optimising your business mix. It can be tempting in 2021 to treat any incoming business as great business, given the world’s unpredictable state. However, this could result in more issues. If low-value guests drive down ancillary revenue, hotel profits could again suffer.

Cash flow management strategies

Something you can do to maintain a healthy cash flow is to keep some general health checks and tasks top of mind.

Here’s a list of tips and tricks to use when thinking about how to prevent your cash flow from stagnating:

  • Set clear payment terms on invoices that are sent to guests
  • Send invoices promptly and chase them up the minute they are overdue
  • Always take seasonal and competitive pricing into account
  • Forecast as accurately as possible
  • Build good relationships with suppliers to negotiate extended payment terms
  • Take note of warning signs such as delays in paying or being paid and a lack of liquid cash between transactions
  • Regularly evaluate performance to understand where problems are occurring
  • Setup automated payment processes where possible
  • Consolidate vendors so there’s minimal movement of funds and it’s easier to reconcile payments all in one place
  • Being clear on which costs are fixed and which are variable
  • Ensure all upsells and add-ons have been charged to prevent revenue leakage

Remember that many pieces of the puzzle make up a successful small hotel operation. Having a clear overview is the best way to spot and fix early cash flow issues.

Cash flow management tools: Guest payments & automation

Creating efficiency and clarity in how you accept and process payments from guests can certainly help you smooth out your cash flow. As stated, it’s important you can get paid as quickly as possible and that you can access that money as soon as possible, to ensure you have cash on hand.

Guests and nations across the world are increasingly going cashless. The top five countries by percentage of non-cash payments are:

  • Belgium (93%)
  • France (92%)
  • Canada (90%)
  • United Kingdom (89%)
  • Sweden (89%).

Asian nations are set to explode in this sphere too. South Korea is already in the top 10 and is quickly becoming almost entirely cashless. In China, purchasing is shifting from a mobile-first approach to “mobile-only”.

Not only do you need to be prepared for this from a guest experience perspective, but an operational perspective. The first step is automating your online payments.

By adopting a hotel payment processing solution, you can automate transactions, accepting payments and submitting refunds in a single click.

Integrating a payment gateway with your booking engine enables you to take deposits via credit/debit card at the time of booking, helping you to ensure cash flow, prevent fraudulent credit card use, and secure bookings (prevent no-shows).

The idea of automating is one that should take hold across your business if you want to increase efficiency, make your hotel easier to run, gain greater insights, and ultimately improve cash flow. Using hotel technology to manage distribution, bookings, payments, and forecasting ensures you always have instant, accurate, and integrated data to work with. This will let you know your financial health at any point in time.

Recruitment and staffing

Naturally the amount of staff you employ, how much you pay them, and how many hours they work are factors that will affect how much cash you have to play with.

Labour rates, benefits, insurance, and taxes only continue to grow so being efficient with recruitment and staffing can make a big difference to your bottom line.

No hotelier wishes to have staff sitting around under-utilised as a result of not having enough work to do, but neither do you want your staff overworked and stressed because there isn’t enough of them. Accurate demand forecasting plays a major role in knowing how to schedule staff and tasks such as housekeeping duties.

Automation and tech enters the thought process again here. How does your labour stack up to new technology? For example, can manual front desk tasks be automated by a property management system and channel manager? Virtual assistance and online check-in is becoming much more prominent today.

Leasing vs buying

Whether you have bought or are leasing your commercial hotel property may also have impacts on cash flow.

There are pros and cons for both scenarios. For instance if you buy the property you have these benefits:

  • You can sell it – obvious one but the ability to liquidate can be valuable
  • You have control over changes – if you need to make alterations to boost performance you have the freedom to do so
  • Your repayments are a fixed cost that you can factor in every month

However some disadvantages include a large upfront cost, limited flexibility, and ongoing costs you have to bear.

Leasing gives you a lot of capital that is freed, but expenses can be variable and there is greater uncertainty.

Make sure you are weighing up all options whenever thinking about what is the best financial move.

By Dean Elphick

Dean is the Senior Content Marketing Specialist of SiteMinder, the leading technology provider delivering hoteliers unbeatable revenue results. Dean has made writing and creating content his passion for the entirety of his professional life, which includes more than six years at SiteMinder. Through content, Dean aims to provide education, inspiration, assistance and value for accommodation businesses looking to improve the way they run their operations achieve their goals.

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