One thing that you can attribute the hospitality industry’s smooth running to is how well companies manage their cash. Hospitality cash flow management has never been more critical, as the changing global economy has shown.
When there is an imbalance in the management of your inflows and outflows, debt and outside investment become critical to keeping things afloat, which can be an expensive decision in the long run. The importance of cash flow management becomes increasingly evident.
Top Reasons Why Cash Flow Management Matters in Hospitality
There are three core reasons why cash flow management is essential:
- Keeps your hospitality business operations flowing
- Builds a hedge against economic disruptions
- Creates room to grow your business
Smoothly Manage Business Operations
The recent pandemic painted a clear picture of why cash flow is a vital element in the hospitality industry. According to the U.S. Travel Association, travel spending declined by almost $500 billion in 2020 alone. For the hospitality industry, such a substantial reduction can be detrimental to business operations.
Hotels need cash to pay bills, suppliers, and staff and cover ongoing maintenance, renovations, and expansions.
Another cash outflow increase brought on by the pandemic was the payment of refunds. While hotels have always managed refunds, the cost became uncommonly large because of the unprecedented times.
Use Cash as an Economic Hedge
Cash is an excellent buffer against economic activities as it allows you to make quick decisions. An example of this would be the ability to purchase bulk items such as bed linens and non-perishable stock items before price increases.
By using cash to hedge against sudden economic fluctuations, there’s also no need to dip into expensive finance routes such as debt or external investors.
Grow Your Business
Business growth is critical to match economic fluctuations and beat inflation. However, it also requires a significant capital injection to cover expansion costs, including developing new locations and adding more hospitality services such as restaurants and on-site spas. While you can absorb this into the regular business cash flow, it might stunt growth or place ordinary business operations under pressure.
Effective cash flow management is at the center of sustained business growth because it covers the increased operational costs plus the initial outlay of capital to get things started. Plan B in this scenario is, once again, costly debt.
Added Benefits of Cash Flow Management in the Hospitality Sector
Good cash flow management in the hospitality sector means always having the funds available to meet the business’s financial obligations without turning to expensive finance.
There are several benefits to good cash management in this sector:
Foster Healthy Relationships With Employees and Suppliers
According to the U.S. Bureau of Labor Statistics, the leisure and hospitality industry has one of the highest staff turnover rates. Staff shortages can result in a lower standard, directly affecting the guest experience. Underpaying or not paying staff on time can leave them feeling under-appreciated and cause an exodus of employees.
The staff complement in the hospitality industry is quite expansive, ranging from housekeepers and cooks to maintenance staff and management. As such, salaries and wages also make up a significant part of the hospitality industry’s finances. It’s challenging and costly for a hospitality business to fall behind on salaries, especially because they’re an ongoing expense.
Supplier relationships are also essential to the hospitality industry. These range from fresh food supplies for on-site restaurants to hospitality toiletries. When you fall behind on your supplier accounts, it might tarnish the relationship. You could end up without these stocks and supplies and have to source the goods elsewhere at a higher cost.
Good supplier relationships may also lead to preferential pricing, potentially reducing overall costs.
Always Have a Handle on Your Cash Situation
Knowing how much cash you have on hand across various assets and accounts is essential. In the hospitality industry, companies typically separate cash movements for different business types like salons, restaurants, activities, and accommodations. Effective cash flow management gives you a bird’s eye view of all the cash, plus the expected movements for that chosen period. For instance, proper cash management should reveal your daily, weekly, and longer-term cash movements.
This visibility supports proper spending habits and prevents overspending. It also enables you to track your finances more effectively, leading to better forecasting, planning, and budgeting. In turn, you can grow your income while tracking the best income generators, whether that’s beverages in restaurants or specific items in the on-site gift store.
How The Biltmore Company Transformed its Cash Flow Management with Automation
When using a legacy cash management system, you don’t always have up-to-date figures at the tip of your fingers. You may also have to access multiple banks’ information individually, which can take time. Simply compiling reports or cash forecasts can take hours.
The Biltmore Company is a hospitality company with several sub-divisions, all with separate bank accounts. Tired of manual processes, the team adopted Trovata to automate and speed up its cash management process.
For hospitality groups such as Biltmore, the time-saving component is huge, since the group has over 52 bank accounts from which to consolidate data and report on.
“Since all the data from the bank portal is flowing to Trovata, creating a report with the software, especially for us, takes minutes instead of hours like before.”– Antonio Chavez, Treasury Information Analyst at the Biltmore Company
Trovata’s Modern Cash Flow Forecasting Can Help Your Hospitality Business Succeed
With the help of open banking or banking APIs (application programming interfaces), third-party services such as Trovata can access bank accounts.
Trovata allows this data to flow directly to the balances tab, enabling those with treasury functions to have instant access to all the balances without going to the individual banks. It creates bank reconciliations effortlessly, even when you bank with several different banks. This feature lets you see all the balances at a glance and streamlines finance reporting.
Cash management software is about more than just cash forecasting and financial reporting. It provides cash management solutions through open banking, which simplifies treasury management. Trovata is a next-gen cash management solution that allows you to manage, analyze, and forecast your cash effortlessly.
Learn how hospitality cash flow management pros save time with Trovata – Book a demo today.