by Andrew Morgan - QTHB
04th August, 2020
No better time than now (part one)
Often, business operators get caught up in the day-to-day running of their business
Marketing, cost minimisation and other important matters can easily get pushed aside under the belief one is too busy. It is important, in tough times such as these, that we stop for a minute and consider working on the business as opposed to ‘in’ it. One area of working on the business is looking at individual operational costs. What it is costing to run the business and get the product on the shelves? In the case of accommodation, what does it cost to be able to sell a room for a night?
Often, when trading is good, we just go along for the ride without any real motivation to breakdown operating expenses. Those costs lingering in the back of one’s mind may be considered high or excessive and are brushed aside on the basis that sales and income are good, so it is not an issue. It is only when income contracts that the costs suddenly become a concern. The motivation to look more closely at each expense item in the Profit and Loss Statement then leads to a printout of the general ledger, and a more thorough examination commences. Often with startling results!
In trying to turn a negative into a positive: when trading is quiet, it is a good time to sit down and reassess the expenses of any business. Let us take a look at some of those expenses within accommodation businesses that can be drilled down on, to minimise and achieve a better profitability position.
Interest on finance – generally one of the major expenses of most businesses. It is never a set and forget situation, which ends up often being the case. The interest rates available for commercial lending have reduced substantially over recent years. However, many loans that have been in place for a while, will not be in-line with market rates presently available. Contacting the lender to negotiate a better rate may be possible or refinancing with another lender may result in a dramatic reduction in the cost of interest to a business. As with most things, it pays to discuss and shop around.
Cost of sales (stock) – the cost to purchase stock can be looked at in regard to the supplier and if it can be sourced cheaper elsewhere. Obviously, quality will be a consideration here. Waste may be better controlled by upgrading or amending systems within the kitchen or laundry areas.
Advertising – excessive and outdated advertising and marketing that may have been in place for years, or has not been reviewed in a while, is a good place to look for cost saving measures. Focusing on ‘bang for buck’ is key. Look at what has been working and what has not, is a good way to cut excess spending on obsolete items.
Pay TV – this has been a very high expense for businesses and in a lot of cases, excessive for what a small operation requires. There are many options now available if these packages no longer fit. Streaming services are growing rapidly in numbers, popularity, and in what they offer. Again, it all comes back to having an option or a more cost-effective alternative.
Bank and merchant fees – seek and negotiate better arrangements with the provider.
Commissions – considering this expense item conjures up thoughts of unnecessary and excessive costs being incurred by accommodation businesses. Look at how guests found the business and ensuring they can book easily and directly via the business’ own website, to cut the cost of needless commissions whenever possible.
Utilities – this is always a heavy expenditure for any accommodation business and needs to be minimised wherever possible. Actions such as moving to solar power or wholesale providers are areas where these expenses can be researched for a better deal. One or the other may be more suitable, depending on the situation. With a bit of time and effort researching this, there can be substantial savings available in an often seen as, having to ‘grin and bear it’ type expens
Unfortunately, we are only half-way there so we will continue looking further at possible savings to operating costs next month!