Top tips for how small hotel businesses can manage cashflow, by Lee Perkins, managing director of the small business division of Sage UK
1. Appreciate that cash flow is king!
A lack of cash means you can’t buy stock, pay expenses or grow, so cash flow is quite literally the life supply of any hotel business. Start-ups and smaller hotels have to be especially careful with cash flow as they usually have less of a financial buffer than more established, making them more vulnerable. This is particularly true in the current climate when trade levels could fluctuate and payment might take longer than usual to come in. Late payments to small businesses reached an all-time high of £33.6 billion in 2011, according to a BACS survey last year.
2. Understand where the difficulties come from
More small businesses fail because of cash flow problems than for any other reason. This can be down to a number of factors, such as not anticipating shortfalls quickly enough, spending too much on unnecessary stock or overestimating sales revenue. When you’re starting out, it’s not always easy to forecast what demand will be. But even successful businesses with full order books can fail by simply running out of cash for day-to-day operations.
3. Put in processes to stay on top of your finances
There are lots of different ways to control your cash flow as efficiently as possible, including good credit control, regular sales forecasting, controlling costs and cutting unnecessary spend, keeping hold of liquid cash where possible and increasing sales.
4. Make sure you’re paid on time
The best approach is to always invoice promptly and being quick to chase late payment. Understanding your customers’ individual payment processes can help too — do they pay on certain days of the month, for example? If so, make sure you get in touch with them before that date to make sure you’re first in the queue. Equally, don’t extend credit to consistently poor payers otherwise your cash flow could really suffer.
5. Look to your customer base for repeat business
Maximising sales is very important, of course. Micro businesses should make sure they are making the most of their existing customer base — through cross-selling, upselling or repeat business, for example — as this is often the most cost-effective way to lift sales.
6. Always push for better rates
Boosting profit levels is another route to a healthy cash flow. Cutting costs, negotiating discounts with suppliers, driving high value sales — these are all ways to enhance profits in your business.