If it is a business, it has got risks involved.
Here the word risk holds true in every sense. When you fail in risk management, your business fails. Same goes for hotel business plan. Hospitality is all about relationship between a guest and a host, wherein host receives guest with goodwill, including reception and entertainment of guests, visitors, or strangers. (That’s what Wikipedia says) This very nature of hospitality business makes it inherently competitive, volatile and thereby subjected to go downhill.
The industry is at a touch-point where hardly one-third of hospitality business start-ups sustain and make it longer than a decade. Evidently, most of the properties that are opening up now won’t be around in next couple of years. With low overall profit, hotel businesses might struggle to outlast an average business lifespan.
When it comes to running a hotel business, there is a lot more than just people checking in and out. Hotels operate 24/7.
Hotel management covers diversified operations and departments such as customer service, staff management, inventory and assets management, hiring, training, marketing, accounting. Therefore, it takes immense expertise to sustain the business and last long in industry.
Why should you read this, even if your business is working very well?
Because precaution is better than cure. Simple!
It is better to safeguard your business from a set of events and situation leading to close-down than trying to fix when the ship starts sinking. Send this research to your fellow hoteliers for them to stay mindful of these key practices. Nevertheless, this guide shall give a slight hint of what can cause a turmoil in your smoothly running business and how to overcome it.
Reaching to the root of the subject under consideration, Customer Success Team at eZee approached some businesses to figure out why a hotel business plan would collapse. Here’s what they found:
What do hotel businesses do wrong?
Businesses don’t fail just like that; at times, they simply fail to reach their full potential. Economy, guests influx, places, expenses, wage and goods costs and management can be hard.
Not all reasons are responsible to collapse a hotel business plan, but these are factors that could erode your profit. Presented below is just a collection of how-and-why-it-happened. You can mitigate risk of damage by keeping in mind these strategies in order to radically elevate business performance index.
Bad reviews by guests speak a lot about you!
Bad reviews are never healthy for any organization, let alone hotels. Poor customer satisfaction renders negative reviews. When a guest is not happy with services they often take it to internet and it can be hazardous to your business.
The best way to deal with negative reviews is to RESPOND to them, quickly and politely. Justify their pain points and restore their faith in you again.
Mind well, your response to a negative review helps other guests decide whether to visit you again or not.
Unfavorable market conditions
The neighbourhood your hotel is standing in changes with each passing moment. The market you operate in is no different. When economy is at the downturn, value fluctuations of assets and business; and subsequently revenue; can be dead expensive. Poor market timing, declination in year-over-year, resulting in compact RevPAR, all these are signals that you are falling through cracks.
If only you have ample capital/refinancing resources and workforce, you can pull through the distressed downturn environment and possibly recoup your CapEx. Otherwise, it may bring about foreclosure or bankruptcy.
Huge debts, non-payment of loans, cost overrun
When cash flow reaches the bottom, your last resort would be reserved assets or liquidation. But when even this fails, you default and simply lose the property. Incidentally, higher leverage typically renders a hefty interest rate. Simply put, as capital cost and debts go higher, so does risk to reward ratio. In case if you fail in repayment, then you have no choice but to close down.
When your reserved capital is insufficient, it results in reduced profit and thereby quality; brand erosion, and eventually lifespan of business – something that took years to build.
The remedy is a disciplined approach to managing cash flow and CapEx. Rule of thumb:
Always set aside a contingency amount that you can sustain on for at least 6-12 months for repayments or operational essentials. Keep a check on expenditures, Because, a penny saved is a penny earned.
Lack or absence of Marketing/Internet presence
If you are still not able to let go of those obsolete marketing methods, Matter-of-factly death bells are ringing for you.
There was a time when just putting a neon sign for vacancy outside hotel entrance, you could bring in guests looking for accommodation. But times have changed! A neon sign does not work anymore.
Today, marketing has grown to be deeply sophisticated and systematic. There are segments of audience, channels to approach them, and all tools to get global. Then you have emails, mobile apps, and social media to connect with your guests in each and every corner of world.
Bottom line is, you should be able to attract right guests in right season, utilize complete inventory, drive more profits and manage business like a boss!
Your location can be quite weak to expect reasonable guest influx or it can weaken over time due to changing landscapes of a location.
Sometimes, property is located at a wrong or marginal location, hence wrongfully calculating potential business variables might lead to downfall. Once infrastructure is built, it becomes a permanent address of your hotel till it running, it cannot be moved. Nevertheless, market condition would always change, in your favor or against you.
In a nutshell, the location based factors such as cash flow, ROI, asset valuation, exit value, and everything that you can imagine; always speculate them as early as you can to withstand varying location dynamics.
If your competitors are doing better than you, then definitely they have a better shot at business than you. Strongly positioned competitor, be it new or renovated; can nudge you out of market.
Competition is inevitable. you cannot escape it. Only way out is to develop a “Warrior Mindset”.
And there is more to it
The spectrum of reasons is wider than you can imagine. There are more driving factors, such as;
Incompetent staff leading to amateurish performance
Old school business model: Non-adaptability to market changes
Shortcomings in management
Low occupancy rates
Absent or poorly structured business plan
Little or no understanding of Business Metrics
If you learn and assimilate in advance every nuance of how to avoid such mistakes, you would soon become a seasoned hotelier. Hospitality is a service industry, unlike other businesses. It needs to be actively managed consistently day after day. You need to have systems, processes, policies, plan and a purely analytical mindset to survive and succeed.
Stay prepared and take insights from this compilation and you’ll learn what to do and what not to do.
Access the complete guide here: How to save hotel business from closing down: Turnaround tips
About eZee Technosys
eZee Technosys is one of the few complete hospitality IT solutions providers in the world. Offering solutions that cover hotel management, booking management, online room distribution, restaurant management, guest feedback and hotel mobile apps. eZee offers on-premise along with cloud based solutions as well as mobile applications for eZee solutions. Founded in 2005, eZee Technosys today serves more than 6000 clients in more than 140 countries across the globe. Visit eZee’s corporate website for more.
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