Harnessing the Power of Hotel Cash Flow Management in 2024

The hospitality industry is among the most competitive business sectors. Hotel cash flow management often becomes the factor that decides the victor. Hotels need vast capital to function, from maintenance costs to service provision expenses. That is why it is not uncommon for cash flow to suffer due to market saturation, especially in the off-season. God forbid some new calamity comes along like the pandemic, and it becomes even more important to monitor hotel cash flow and do everything in your power to keep it consistent, if not growing. 

A few days ago, we discussed how to start your very own hotel in 2024. Now that we stand at the cusp of a new era, with much uncertainty in the economy and the rapidly evolving technological landscape, it’s time to take stock of the situation. It is time to get things in order and rolling for future security and prosperity. Today, we broach the subject of hotel cash flow management and how hotels of all shapes and sizes can leverage 5 simple tricks to maintain healthy cash flow and influence growth. 

What is Hotel Cash Flow Management and Why Does it Matter?

Hotel cash flow management is simply the art of managing cash flow for a hotel business. What sets hotel cash flow management apart from other businesses’ cash flow management is the sheer amount of cash and avenues of income and expenses that hotels juggle. 

For example, a medium-sized hotel typically tends to have several different income streams. The primary income is, of course, from people renting rooms for the night. But if the hotel owner is wise, they will set up multiple income streams within the hotel. For example, allotting a hotel floor for corporate use would allow brands and franchises to set up shop and operate within the hotel. We see countless examples of fine dining establishments, for example, setting up shop within hotels to capture guests as an audience. By putting corporate space within the hotel, the hotel owner guarantees monthly rent collections as a secondary income source far more consistent than guests. 

It is also a known practice for hotels to allow organizations and people to rent out spaces like auditoriums for meetings, seminars, and weddings. This opens up yet another income stream for hotels, as even if people are not traveling during the off-season, the locals will surely end up renting such spaces for events. 

As for expenses, hotels have to cover a wide array of fluctuating expenses. Utility bills, other maintenance costs, and employee payroll are just for starters. Add on the supplier and vendor payments, which can end up in the tens if not hundreds, given how diverse an inventory a hotel needs to function. 

Significance of Hotel Cashflow Management

The point of this tangent is to demonstrate just how complex hotel cash flow management is. Imagine keeping track of so many different income streams, not to mention all of the hotel’s expenses. Just keeping the numbers straight would be headache-inducing, even with software assistance. And then you factor in the fact that much of the income may not necessarily even materialize, as people book rooms and spaces on credit. A sizable chunk of books end up canceled, with SHRGroup reporting that 20% of hotel bookings in 2022 wound up canceled.

With income and expenses all over the place and in apparent chaos, it falls on the business’ CFO or CPA to streamline processes out of the madness and keep things straight. That is precisely why hotel cash flow management deserves a dedicated discussion. 

Strategically Approaching Hotel Cash Flow Management in 2024

Dynamic Pricing Strategy and Technology Integration

One of the reasons why hotel cash flow can end up fluctuating is the lack of dynamic pricing. Dynamic pricing is a pricing strategy where, based on certain parameters, the hotel’s pricing shifts to take advantage of the situation. 

For example, if the market trends show that travel demand has decreased, room prices can decrease appropriately to attract travelers who are still coming. And when travel demands rise, the pricing rises to take advantage of the increased demand. 

On top of that, dynamic pricing is a great way to figure out ideal pricing. It ensures you are not leaving money on the table. Some hotel owners, for example, offer rooms at a much lower rate as a competitive strategy to capture more guests. But what happens when there is a lull in hotel demand, and the few guests are not charged enough to sustain operations? With a dynamic pricing tool, this problem is entirely avoided. The tool factors all these external variables into the calculation to find the best pricing. The best pricing is affordable and attractive to guests while generating good revenue. 

Dynamic pricing strategy depends on technological assistance to collect and analyze all the available data. It suggests pricing based on the market. However, by integrating dynamic pricing into your hotel management system, you gain far more than the relatively meager cost of implementation. Most importantly, your hotel’s cash flow will end up far more stable and consistent. Dynamic pricing ensures that your bottom line is not affected no matter what happens. 

Partnerships and Collaborations

Another important aspect of hotel cash flow management is securing partnerships and collaborations. For example, imagine partnering up with a local restaurant to provide a bundled experience for guests, with lodgings from the hotel and food from the restaurant. Not just restaurants but any local business can be a good strategic collaboration partner to host events at the hotel and provide guests with an experience beyond the basic lodgings. 

The business’ accountant and management must make these collaborations happen. Improving cash flow necessitates increasing income. Hence, it’s up to the accounting function to determine favorable terms and help management negotiate mutual benefits. Cash flow management is never about just the numbers. A major part of why we call it an “art” is the need for strong communication skills and critical thinking. These help come up with ways to bring more business to the business and cut down operational costs. 

Outsourced Accounting Services

While not technically a “trick,” we felt it necessary to mention outsourced accounting services early on. Running a hotel is no small fish to fry. Entrepreneurs will quickly find that the accounting workload for even a small hotel can pile up. Hiring an accounting professional will not only prove the right choice in the long run but also have a noticeable impact on operational efficiency. 

The roadblock for many here is the cost of an accountant or CFO. We suggest outsourced bookkeeping and accounting services as a good alternative. With Expertise Accelerated’s outsourced accounting services, for example, hotel owners will find opportunities for payroll savings of up to 60%. They can obtain the services of some of the best remote accounting professionals in the global talent pool. 

The taboo over outsourced accounting has long been dispelled with the advent of the pandemic. We saw almost every administrative desk job being just as if not more efficient in a remote setting. So, realistically, there are no real downsides to leveraging outsourced accounting for hotel cash flow management and many upsides. This “trick” to avoid the cost barrier of an accounting professional can do wonders for hotel cash flow management. It gives a much-deserved break to the core team. 

Looking Ahead

2024 promises to be an exciting year, with projections by Statista showing promise for the future. But all that opportunity can be wasted or missed if your hotel cash flow management is not optimized. The year has just begun; there is still time to prepare and incorporate some of this advice into your plans. 

Whatever you choose to do, we fervently hope that 2024 will be a year of great prosperity for everyone. Let’s hope we can all achieve a better future as a business community. Happy New Year from Expertise Accelerated.