How to Manage Your Hotel’s Cash Flow

The hotel industry is still in a state of flux in the wake of the COVID-19 pandemic. Three separate nationwide lockdowns, alongside several additional regional restrictions, meant that hoteliers were forced to close their doors and postpone or even refund all bookings. 

As a result, income stopped, and hotel owners could not pay their necessary costs such as staff wages, rental income, utilities and more. It’s no wonder that around 10% of hotels in London and the South East were facing closure last year, with several others making significant cuts to staff numbers following the end of the government’s furlough scheme in September 2021.

Cash flow is a high priority for any business in the hospitality sector as there are many outgoing costs to take into account to keep a hotel or restaurant running. In the past, most customers would pay upfront for hotel bookings. However, increased competitiveness and a need for flexibility in light of recent events have meant a lot of businesses are offering free cancellation and even allowing customers to book without any deposit. 

While this has helped to boost consumer confidence in the sector, and likely meant more people are willing to book when they aren’t completely sure about whether circumstances will change, it has also made a significant impact on hotels’ cash flow as they don’t receive payment until the customer checks in.

So, as a hotelier, how do you ensure you have the cash in your business to pay for those necessary expenses while maintaining the vital flexibility that travellers require during these turbulent times? In this guide, we will explore hotel cash flow, including why it matters and tips and tricks for improving your finances.

If you already know that hotel finance is what you need, then get in touch with Rangewell today, and we will scour the whole of market to find the best funding to meet your needs. 

Market outlook

We’ve already touched upon how changes to the market may have had an impact on your hotel. In this section, we’ll go a little deeper into the hotel market outlook and what to expect in 2022 and beyond. 

One of the biggest challenges affecting hotel cash flow is the introduction of flexible booking and free cancellation. Big names including Marriott, InterContinental, Hilton, Hyatt, Wyndham and Best Western all waived or relaxed cancellation fees during the coronavirus pandemic. As consumer confidence in travel is slowly restored, the benefit of free cancellation is high on any traveller’s wishlist. 

In the UK, many hospitality businesses actually benefited from the switch to “staycations”, in which holidaymakers chose to travel here rather than venture abroad, particularly in 2021. Campsites and holiday parks were among those that saw an influx of bookings; however, hotels in busier cities are yet to catch up. 

Only the fortunate were able to shift their holidays to the UK, as many more chose not to leave home at all. As a result, the total domestic tourist expenditure declined by nearly £58bn between 2019 and 2020. So, this clearly shows that the majority of people chose to stay home even when the restrictions were lifted in between lockdowns.

According to ONS figures, summer 2021 saw hospitality spending increase, but it is still yet to reach pre-pandemic rates. In addition, finding and retaining staff is still an issue for this sector as job vacancies are higher than pre-pandemic levels. Another recent study showed that personal finance and government restrictions were among the two biggest barriers for families travelling in the UK. The same figures highlighted that 22 per cent of people cited the rising cost of UK holidays as a reason for staying home. 

So, the hotel industry is now feeling the effects of over two years of reduced bookings, which has caused many significant cash flow challenges. 

Why cash flow matters

A strong and consistent cash flow is vital to the success of any business, in particular those with high outgoing costs like hotels. UK hotels reported higher running costs and therefore, smaller profit margins in 2021, as operating costs hit a 12-year high in 2021.

Whether you run a 10-room boutique hotel or a 100-room operation, there are certain costs you will always have to consider:

• Rent or mortgage: Depending on whether you own the property or not, you may have to pay either rent, lease or a mortgage on the property. There are commercial mortgage providers that specialise in hotel finance, so make sure that you shop around to find the best deal when it comes to remortgaging. In the rare circumstances that you own the property outright, there may still be other costs to consider. 
• Utilities: Running a hotel is not cheap. There will be new bills on the doorstep every month from gas and electricity through to WiFi, water, and other costs. Utilities are the absolute basic necessities for any operational hotel, and with gas and electricity costs at a high, many businesses are struggling to balance cash flow and rising bills. 
• Supplies: You probably have a large network of suppliers covering everything from toiletries to cleaning products, food, stationery and more. Each of these suppliers will have its own cash flow to maintain, and, therefore, you will need to keep invoices paid, and balances settled.
• Repairs and maintenance: In order to keep guests satisfied and the hotel operational, you will need to be quick to fix any faults and ensure that regular maintenance is carried out across the property. For example, a lift requires a LOLER Thorough Examinations by a qualified professional. Even elements like gardening and cleaning are all costs to consider.
• Staff wages and contractor costs: Of course, one of the highest costs to your business other than your mortgage or rent will be the staff wages. You cannot afford to pay staff late, so you absolutely must keep up with these requirements, including NI and pension contributions. 
• Property improvements and renovations: It’s crucial to stay ahead of the curve and keep your hotel in the best condition possible. That includes carrying out any renovations or even extensions to the property, so your guests are guaranteed the best possible experience from their stay (and will hopefully return time and time again).
• Website, marketing and platform fees: Whether you take bookings on your own website, via third party or a combination of both, you will always need to account for the costs of maintaining your web presence. Some platforms will take a cut from your sales, while others will require a monthly or annual subscription fee.

While this is not an exhaustive list of all hotel running costs, it should give you a good idea about what you will need to account for in your outgoings. Without the income of regular bookings, you may struggle to meet some of these necessary costs. This is made even worse when circumstances out of your control result in last-minute cancellations that you are unable to fill with new customers. 

Now we have a detailed understanding of cash flow and the typical costs associated with running a hotel. Let’s take a closer look at how you can better understand your cash flow and, ultimately, start to identify challenges before they affect the operations of your business.

Understanding your cash flow

Even though you probably work with an accountant on your business accounts, it’s still recommended that you have knowledge of your cash flow and can learn to spot risks before significant problems arise. 

Cash flow analysis and auditing

Take the time to sit down with your accountant and ask for a detailed overview of your current cash flow. If you use cloud-based accounting software, then you may already be aware of areas of concern, such as overdue invoices. 

This process will bring to light any areas of concern regarding your cash flow. Are you unable to pay your suppliers on time? Is cash flow stopping you from recruiting a new member of staff? Is your bank balance low? Your accountant will not only help you answer these questions, but they can also support you with a revenue audit that takes into account your incoming vs outgoings and helps to improve and streamline this process.

Revenue auditing is a complex but worthwhile activity as it really drills down into the nitty-gritty of your business finances. With this information, you will be able to make smarter and better-informed decisions about your business and how you reinvest your profits into growth. 

The hotel industry is one that relies heavily on seasonality, with school holidays and festive periods bringing in a large portion of the cash flow that needs to be invested in the property all year round. Any seasonal business will need an intelligent cash flow strategy to ensure they aren’t cut short during quieter periods. 

The revenue audit will answer questions including, but not limited to:

• Where does your income come from, and how is this segmented?  (e.g. rooms, food, spa, etc.)
• What are the profit margins for each of the above areas?
• Where do you have the biggest trouble receiving payment (e.g. room cancellations)
• Do you have any outstanding supplier invoices?
• What upcoming costs do you anticipate (e.g. renovations)

From here, you will have a list of key areas to improve. You may even decide a traffic light system (red, amber, green) is the best way to prioritise each area of concern. Now let’s explore ways in which you can improve cash flow and, as a result, free up the funds you need to grow your hotel business.

How to improve your hotel’s cash flow

While no two hotels are the same, there are a few common issues that affect businesses like yours time and time again. From overdue invoices to last-minute cancellations, it’s important to have a strategy in place to deal with the likely causes of your cash flow problems.

Here are some steps you can take to improve your cash flow today:

Send and chase invoices promptly: Make sure your payment terms are clear and you chase any unpaid invoices as soon as they become overdue. When signing a new contractor, ensure payment terms are clear and details of any late fees that may incur should they not pay on time. 

Identify seasonal highs and lows and plan your spending around these dates: For example, if you know your property requires significant renovations, then plan this in during quieter periods so your guests' experiences aren’t affected and you can use the profits from the previous busy period to tide over any closure. You may also want to consider short term finance for this purpose, more on that later.

Offer preferential rates to guests who pay upfront: Since customers have come to expect free cancellation and booking changes over the last couple of years, it will likely cause you more harm than good to change these policies now. However, you could always present customers with the opportunity to save a small percentage on their booking if they pay upfront. 

Actively assess your bookings and assemble offers during slow periods: As a hotel owner, you will know that some times of the year are busier than others. Anticipate those quiet periods by offering discounted rates or bundled packages with food and/or spa access, rather than waiting until the last minute to fill empty rooms. 

Encourage upselling: Ensure your staff are adequately trained about upselling opportunities, such as having your reception staff ask if guests want to book a table in the restaurant. This will optimise any sales in a friendly and helpful manner.

Set ‘danger zone’: Determine at what point your cash flow becomes a problem for your business and make sure you are notified well before the bank balance is too low. It’s all about being proactive and not reactive to difficult financial situations.

Cut costs where possible: Of course, you need to maintain a certain level of service for your guests. However, there may still be some areas where you can save money, such as changing your toiletry supplier or introducing self-check-in to save on reception staff hours. 

Secure finance: If cash flow is constantly a worry for you, then finance might be just the solution you need to ease the pressure and allow you to return focus to what matters most. Keep reading to learn about the types of hotel finance to improve your cash flow.

Types of hotel finance

If you are considering finance for your hotel business then we highly recommend speaking to an independent broker like Rangewell. Our specialist team of advisors will assist you with your application and help to determine the best funding options available to you on the optimum terms for your hotel. 

If you are interested in learning more about types of finance typically offered to hotel businesses like yours, keep reading. 

Secured loans

As the name suggests, a secured loan is tied against the value of an asset - typically your property. There are many different types of secured loans, some of which fall into the same categories as other finance products we’ll discuss below. All secured means is that the lender uses your property as security for the loan.

Unsecured loans

For businesses that don’t own property or significant assets, unsecured loans are sometimes available. This type of business loan is not subject to you owning assets; however, there may be other restrictions or considerations you need to think about for this type of loan. For this reason, you should speak with your broker to determine whether secured or unsecured loans are right for you.

Asset finance

Asset finance is a great option if you need to purchase equipment, such as computers or kitchen equipment. This is typically a form of hire purchase that helps you spread the cost of those expensive assets with fixed monthly payments. 

At Rangewell, we will help you to determine whether you qualify for a single agreement to cover all your equipment needs.

Tax loans

Quarterly VAT and annual tax bills will always hit the doormat regardless of your current performance. Since these bills are calculated on past performance, you may not have the cash flow to comfortably pay them. 

Thankfully, there are funding products specifically designed to help you spread the cost of your taxes across affordable quarterly or monthly payments. With this, you can avoid imminent cash flow problems and free up cash to invest in the property. 

Merchant cash advance

If you take debit or credit card payments through a card terminal, perhaps in your bar or restaurant then you may qualify for Merchant Cash Advance. The lender provides a cash advance which is then repaid as a small proportion of each card payment.

Revolving cash facilities

If cash flow is a consistent problem, then you may need something that offers a buffer, such as revolving credit facilities. With this type of finance product, you can access an agreed line of credit with a fixed limit. It acts similar to a business credit card, and you only pay for the money you take out, so it’s great if you find yourself needing small and irregular cash flow support. 

Hotel refinance

If you have several finance products already, then you may not be on the best terms for your circumstances - especially if you took out the loans before or during the pandemic. So now is a good time to take a step back and reassess your current finance. From here, we can help you determine whether refinancing will allow you to free up cash by reducing payments or even change finance products altogether to a solution that is more suitable for you now and going forward.

Jigsaw funding

This is an umbrella term for the act of combining finance to create a bespoke product that works for you. Perhaps you require a business credit card but also could benefit from a one-off bridging loan to support the cost of property maintenance or refurbishment. Or you want to invest in new equipment with asset finance but also want to extend your premises or open a new hotel altogether and require a larger, secured loan to turn these plans into a reality. 

Whatever your needs, jigsaw funding is often a good option but it can only be provided by an experienced broker like Rangewell, who will take the time to dive into your circumstances and assemble a funding solution tailored to your unique needs.

These are just some of the more common types of hotel finance that can help boost your cash flow and allow you to focus on growing your business in the long term. To find out what’s right for you, get in touch with Rangewell today.

Hotel finance for cash flow from Rangewell

Hopefully, this guide has shed light on the world of cash flow management for hotels. We worked to identify some of the biggest issues facing hoteliers in 2022 and beyond and offered several solutions that might work for you and your business.

If you think hotel finance might be right for you, then it’s time to pick up the phone and speak to Rangewell’s specialist team of advisors. Unlike a traditional bank lender, we will scour the whole of market, including a number of specialised hotel finance companies, so you can access the best possible funding on the right terms for you.

What’s right for one hotel business may not be the best solution for another. So, whether you are still struggling in the wake of the pandemic or you need to free up cash to invest in property improvements, then speak to Rangewell.

Not only do we help you find finance, but we will also support you in the application process and identify any potential risks that we know lenders are on the lookout for. It’s this level of experience and expertise that makes Rangewell’s service unparalleled.

Ready to improve cash flow at your hotel? Contact Rangewell today.