1001 Business Bedtime Stories… Truth 4, Financial Management
Amanda Owns a boutique hotel and learns to manage her finances so that she starts to make money and have a lot more fun.
Once upon a time… a long, long time ago in a country not unlike Australia…
Amanda owned a small boutique hotel in the inner city.
Amanda’s hotel relied on five different corporate accounts for a significant percentage of its annual revenue. The room rates that Amanda charged these corporate customers was fairly heavily discounted, and payment arrangements varied widely between the five accounts, with some bills being settled on the spot and others on payment terms up to 90 days.
Even though her occupancy rates were very high, Amanda struggled to pay her bills and wages most months.
Clearly something wasn’t stacking up. Two obvious conclusion might have been that either her costs were too high or her rates too low. But Amanda knew that her rates were in line with similar properties in the city and she managed her costs tightly.
Each week Amanda thought, “If it is neither my prices nor my costs that I need to change, what else is open to me?”
Amanda was going grey.
Working in The Bootcamp with me, Amanda came to appreciate the difference between turnover, profit and cash, and that she needed to give equal attention to all three. Amanda also came to have a better appreciation of her ‘break-even’ point.
It was time for Amanda to set up proper controls for all three financial factors and to set in place a minimum break-even point below which it was simply not possible to go.
So she did… and it took a lot of courage.
Through working in The Bootcamp, Amanda developed a series of financial reports that showed her monthly cash was short because all her profit and working capital was tied up in corporate accounts that were paid between 30 and 90 days.
Amanda also worked out that the minimum room rate she could charge and still break even was $115 per night at 100% occupancy rate, or $145 per night at 75% occupancy, but only if the bill was settled on the spot. Rooms that were paid for at 30, 60 or 90 days would need to have significantly higher rates.
Armed with this knowledge Amanda was able to negotiate better terms and rates with four of the corporate accounts. The fifth one didn’t want to come to the party and, although it felt like the scariest thing she ever did, Amanda stuck to her guns and stopped doing business with this company.
In a matter of four months, things started to turn around and Amanda’s bank account now looks healthier than it has in years. Through the process Amanda has actually gained two new corporate accounts, both of which settle their bills weekly with a corporate credit card, further adding to the health of her business. Amanda and her staff can now focus on what they are good at: making their guests feel at home.
And Amanda and her staff will live happily ever after… The end.