From our CFO to yours, here’s why a long-term revenue management investment is critical for today’s cash flow and tomorrow’s asset valuation.
What are your hotel’s investment priorities this budget season? Renovations or staffing? Technology or marketing? How you answer may depend on your hotel type, location, and job role, but if there’s one thing we should all agree on—it’s that cash is king and protecting cash flow is mission critical right now.
As IDeaS’ chief financial officer, my main concern—especially in uncertain times—is not about growing our bottom-line profit but rather mitigating risk to optimize top-line revenue. And the primary driver of our top-line growth is cash flow. Cash flow feeds the investments in our products and services that contribute to top-line growth.
Hotel revenue management plays a central role in protecting, forecasting, and strengthening a hotel’s cash flow and overall financial position by enhancing the cash position of the asset. The additional revenue generated by a sophisticated, strategic revenue management system (RMS) directly flows into the amount of cash available. This higher rate of cash flow—combined with detailed forecasts which enable expense management—has a number of benefits critical to operating through this era of business disruption and lower demand.
From giving the hotel greater day-to-day liquidity and meeting operating cost requirements to having money in the bank for investments , the increased revenue and expected business performance insights provided by an RMS can’t be overlooked.
Setting and centralizing revenue management standards across a hotel group also improves overall portfolio performance. Data collection and comparisons between properties by brand or by region allow hoteliers to determine how to best price their properties within different markets. Accurate forecasting data, market research and analysis also allow hoteliers to execute realistic feasibility studies for all future opportunities. Estimating future project successes before outlaying capital investment will help any hotel group in the fortunate position to be considering acquisitions to make decisions likely to increase the group’s long-term cash flow and value.
Hotel owners and operators must do everything in their power to protect their property’s cash flow and stave off a forced sale. With smart revenue management strategies and technology, hotels can generate much-needed cash flow, improve financial results, and provide the data and analytics required to navigate this crisis.
What’s Your Hotel Really Worth?
But assessing the value of a hotel is challenging even at the best of times. Now, uncertainty surrounding the pandemic makes things far more difficult. Valuations require both deep expertise and a much more short-term analytical process than employed in the past.
Furthermore, pandemic-related risks and restrictions are preventing the in-person fieldwork normally conducted by appraisers such as site inspections, interviews, and market research. While many elements go into a valuation, two key ingredients are future operating cash flows typically estimated over a 10-year period—and the anticipated net proceeds from a future sale.
This requires access to market projections as well as the hotel’s performance data. But reliable projections are proving elusive in today’s unpredictable market. Further complicating matters are temporary hotel closures, scaled-back room inventory, staffing and services, and the added costs of maintaining a clean, safe environment.
Under these conditions, hotels that have invested wisely in revenue management expertise and technology are at a distinct advantage. A seasoned revenue manager can draw on deep analytical skills, familiarity with internal and external data sources, and the data-modeling capabilities of an advanced RMS to produce timely, detailed, and frequent forecasts—and reforecasts.
Accuracy, speed, and agility are critical because forecasts guide sales and marketing strategies, as well as pricing and inventory decisions. Forecasts are used by operations to manage expenditures, staffing, and resources, and by the chief financial officer, management company, and owners to project future revenues, expenses and net income.
All these functions help drive incremental revenue and reduce costs, thereby contributing directly to increasing asset value. On the other hand, errors and inefficiencies in forecasting can lead to bad decisions and missed targets, which could ultimately result in a forced sale at a below-market valuation.
Think Big without Limitations
Every dollar a hotel earns today generates cash flow to help keep the lights on and every dollar saved strengthens the bottom line. With lower demand for rooms, food & beverage, and meetings & events, hotels must redefine target markets and determine new sources of revenue.
By optimizing all revenue streams, hotel operators can find incremental revenue and savings in untapped areas. By factoring total revenue and costs into decisions, they can reduce losses and increase profitability. As demand rebounds, the returns on these strategies will gain momentum, generating additional cash flow for the business and helping expedite recovery.
IDeaS RevPlan enables smarter operational planning, forecasting, and budgeting of all revenue streams—beyond guest-room revenue alone. It’s a tool my hotel finance leader counterparts have fallen in love with because of the wide view it provides across the entire business, at all functions, to find the right financial levers to pull, at all times.
There are many ways you can take action to minimize operating costs. But over the long term you are trying to create value for your owners and other key stakeholders by increasing and scaling top-line total revenue performance. Much like a reputable investment firm, a versatile, robust RMS will help minimize losses during a downturn. This is why revenue management should never be thought of as a one-time, short-term investment, but rather as a long-term strategy that will pay back exponentially year over year.
Regardless of where the world goes next, there will undoubtably be more downturns in the future. Your hotel organization’s ability to grow successfully will depend on your capability to remain agile and adaptable, come what may. This budget season, invest in scalable revenue solutions that will work with you every step of the way and generate the most optimal revenue opportunities for your properties.
Learn more about how IDeaS will help your hotel capture the most profitable business while minimizing losses and maximizing value.