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Reducing Risk to Improve the Value of Your Hotel – Part 2

The Hanrick Curran Hospitality Services Team has recently been running a Risk Assessment Workshop at the QHA regional forums to assist hotel operators to better understand and manage risks within their venue. This is the second article of a 2-part series summarising the workshop points, and articulating actions that you can take to manage risk and improve the value of your venue. Read the first article here.

Managing Risk at your Hotel

In the last article, we dealt with profit risk, compliance risk, finance risk, staffing risk, control risk, and operation risk. In this article we consider what to do with 6 other areas of risk that need to be considered and managed in order to improve value at your hotel asset.

  1. Budgets and Planning – It is often said that “failing to plan” is “planning to fail”. A well put together annual business plan that includes a rigorous and detailed budget should form the backbone of your financial control system. It will enable you to streamline your monthly review of actual performance to management by exception - focussing on issues that improve the business or stand out against your budgetary expectations. The budget build process should also take a “Kaizen” approach: the Japanese philosophy of continuous improvement. That is, consider each revenue and expense line, and challenge yourself to think of ways of improving the result.
  2. Competitors – Too often we see hotels all trying to compete with each other with exactly the same offerings and promotions. The pathway of heavy discounting will only lead you to lower profit. It is important to build a competitive advantage for your business that is hard to replicate by others: if you can differentiate yourself on things other than “price”, you will have a more sustainable and profitable business. In this regard, keep an eye out for up and coming trends, so that you can adapt and be a leading venue that customers seek out, rather than a follower.
  3. Location Risk – The location of your hotel can have a significant bearing on the risk profile of the business. For example, a hotel located in a small mining town will be a riskier business proposition, (and have a lower comparable value), than a hotel in a large suburban area. Whilst you cannot change the location, recognising the facts of your location in your strategic planning by allowing for sufficient “margin” in your forecasts to cover the cash flow effects of swings in the local economy. It can be easy to fall into the trap of spending too much against an upswing, only to be disappointed and under stress when business falls off again. Hotels that have a large part of their income dependent upon mining, agriculture or regional tourism, tend to be most at risk.
  4. Accounting and Control – As accountants specialising in the hotel industry we see a lot of different management accounting systems and processes. Unsurprisingly, a common factor amongst successful venue operators is that they have solid accounting and control systems that enable them to accurately report on the performance of each department within their hotel. With the advent of real-time point of sale and stock control systems as well as integrated rostering and accounting software, a high level of sophistication can be obtained for minimal outlay. In one recent case, our hospitality consultants helped install a modern time and attendance system with “finger vein scanners” for staff to check in and out. The result? The hotel saved 5% off their payroll in the first 3 months of operation, as well as about 10 hours per week in administration time due to automated award interpretation and time sheet collation.
  5. Marketing Risk – The hotel industry is a dynamic one, with customer tastes and preferences changing all the time. You cannot run the same “show” week-in and week-out expecting the same result. In fact, if you don’t keep up with the trends, your customers will seek out new experiences elsewhere, and your sales will suffer. For example, research is showing us that craft beers and ciders are on the rise, at the expense of traditional brews, and diners are now looking for healthy food choices on menus, such as gluten-free and vegan options. If you’re not staying abreast of the changes, and don’t provide them with things that are new and different, you are probably missing out on sales. Furthermore, the way in which we communicate with our customers using advertising is also changing. Traditional media placement in newspapers, radio, and television is being challenged by social media, which offers a direct and effective way to stay in touch with customers.
  6. Succession Risk – A large proportion of the Queensland hotel industry is still managed by families and small groups; who in some cases, have had the hotel for generations. Too often we talk to these owners and find that a succession plan has not been properly thought out and communicated. In the case of a family operation, it is important to be clear about what will happen should there be a major incident, illness or death. Who will manage the hotel? How will decisions be made? What help is to be called in. In this regard, a holistic approach involving accountants, lawyers, insurers and financiers is vital to ensure that the entire family is catered for, and that the business does not suffer, but remains a legacy asset for the family as a whole.

Understanding the risk profile of your hotel and reducing it where possible, is an important part of improving asset value. The lower the risk profile, the higher the value of the asset.  To assess the risk rating of your venue, please contact me to arrange a complimentary assessment followed by a discussion about a few strategies you could implement to reduce the risk and increase the value of your venue. I can be reached on 07 3218 3900 or in Cairns on 07 4052 7799.

Peter Maletz, Partner


Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.