RSM Australia

Surviving the hospitality cash flow conundrum

Business Insights

When the music stops, will your business cope?Surviving the hospitality cashflow conundrum

The summer holiday period is over, school’s back and the majority of ordinary paying punters are back at their respective salt mines. Whilst your cash flow hasn’t stopped entirely, it will slow down, and that’s a seasonal challenge for most business owners in the tourism and hospitality industry.

Be prepared for a cash flow cut

Hopefully you have already started this process by watching your profitability, setting targets and managing your key margins over the summer holiday period. If you have, this is good as the transition from a busy summer to a slower winter can be the most difficult for business owners to manage. The focus switches to maintaining your bank account balance as your business activity flattens out. A cash flow budget is an essential tool to help you get through this period. Your budget can be simple or complex, as long as you have something that is based upon reality, is timely and you fully understand how it works.

Profit versus cash flow

It is important to remember that profit and cash flow are not the same thing. Paying your taxation liabilities such as your BAS will not affect your profitability, but it will have a major effect on your cash flow. Whilst most taxation liabilities are not tax deductible, they are still a cost of doing business in Australia and need to be managed like any other cost. It is vital to understand the difference between profit and cash flow and to be aware that profitable businesses can easily run out of cash due to poor cash flow management.

Cash is king

Consciously making business decisions that keep your cash in the bank is imperative. Cast a critical eye over your spending patterns and see if you can manage them any better. Endeavour to not get caught with a heap of stock- as things slow down, you should be able to reduce your purchases to keep pace with your business activity. Manage your staff and their accrued entitlements and get them to take leave if necessary. Delay the purchase of capital items if possible. If they must be purchased, consider financing the item. It may end up costing you more in interest, but it will retain cash in the bank for essential operations.

Having trouble with cash flow? Perhaps you are daunted by the thought of budgeting?
At RSM, we can develop your knowledge to help you manage your business performance and improve cash flow.
Contact us today for a business improvement review.