Navigating the New Year Slump: Mastering the Art of Cashflow for Hospitality Businesses

Navigating the post-Christmas slump can pose significant challenges for businesses, especially those in the hospitality and leisure sector. As sales dip after the festive season, maintaining cash flow becomes crucial. In this article, we delve into the intricacies of cash flow management, highlighting the importance of understanding fluctuations, creating comprehensive cash flow forecasts, and exploring strategies to boost cash availability. Read on to discover strategies for maintaining your company’s financial health and successfully navigating seasonal variability.

Navigating the post-Christmas slump can be a challenge

The first few months of the calendar year can be challenging for most businesses, in particular those in the hospitality and leisure sector.  A reduction in sales following the Christmas and New Year period, but with overheads and debt costs still at normal levels, can put pressure on business’ cashflow.

Cashflow is critical

The main purpose of a business is generally the pursuit of profit, with business owners focusing on levels of turnover and profit and how these can be maximised.  However, the importance of cash should not be underestimated, and business owners need to focus on understanding and managing the cashflow of their business.

Creating a cashflow forecast

A cashflow forecast enables a business to track the expected cash movements over a period of time in the future. Without forecasting a company’s cashflow it would be almost impossible to estimate how much cash your company will have at a given time.  Likewise, if you add to this wages, payroll taxes, VAT, corporation tax payments, loan repayments, deposit movements and other overheads, the situation can become even more complicated.

Managing fluctuations

It is important to recognise that a company’s profit at the end of a given month does not mean that the company has this much cash coming into the business.  It is equally important to understand that most businesses have seasonal peaks in activity, and this creates fluctuations in cash movements and balances.  Even a growing business can experience cashflow problems as it funds the growth.

Three-way forecasting

Menzies recommend the preparation of three-way forecasting, which refers to the ability to forecast your profit, balance sheet and cashflow altogether, with each being linked to the other.  There are balance sheet movements in each business that can have a significant effect on a company’s cashflow, which do not appear in a company’s profit and loss account, in particular:

  • Capital purchases
  • Debt repayments
  • Income from finance
  • Prepayments
  • Accruals
  • VAT, PAYE & Other tax payments

What is creating the cash-gap?

If your business is showing a need for additional cash funding, it is key that you have a full understanding of why this is. Is it just seasonality, is it down to capital purchases, or more worryingly is it down to an underlying issue with the performance of the business that needs to be addressed.

How to boost cash availability

There are various options available to you to assist with any cash requirement, including:

  • Improvement in the collection days of amounts owed by customers
  • Maximising the credit terms available from suppliers
  • Requesting repayment holidays on any loans or other finance in the business
  • Raising additional finance, whether from the business owners or externally
  • Arranging time to pay arrangements with HMRC
  • Reducing any dividends paid by the business
  • Focusing on driving increased profits in the business

Conclusion and next steps

In the face of seasonal business challenges, mastering cash flow is paramount for hospitality businesses. Understanding fluctuations, creating robust forecasts and implementing effective strategies are key in maintaining business resilience.

Should you require any assistance with understanding the cashflow of your business or need a cashflow forecast prepared then please contact our corporate partner, Dave Gosling or contact us via the form below:

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