Economy

Keeping cash flow coming is key to hotel success, says expert

A leading hotel industry expert has reiterated the importance of keeping cash flow and finances moving to make sure small businesses are surviving in these tough economic times.

Lee Perkins, managing director of the small business division of Sage UK, said that cash flow is certainly the king of any small business and recognising it and how to keep it flowing is of vital importance.

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“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 businesses, making them more vulnerable,” said the hotel expert.

“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.”

Mr Perkins said that 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.

He added: “When you’re starting out, it’s not always easy to forecast what demand will be. But even successful hotel businesses with full room bookings can fail by simply running out of cash for day-to-day operations.”

The Sage UK boss also feels that managing the frequency of income is key to maintaining cash flow, saying that the best approach is “promptly” invoicing clients and making sure to understand each client’s payment needs.

“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,” he commented.

Better rates are also a way to increase revenue, thinks the hotel expert. “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,” he concluded.

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