Weldon Mather (1992) is an independent hospitality and tourism consultant in the hotel, restaurant and pub sector. He works with clients throughout the UK and Ireland including banks, owners and managers, receivers/administrators, liquidators and investors. www.wmconsultancy.eu
The following article was recently published in EP Magazine where Weldon asks the questions facing businesses as they continue to adapt to a rapidly changing environment.
Adapt or die
You know the old adage about death and taxes? Today, in the hospitality business at any rate, there is a third certainty; change. Or rather, if the hospitality business wants to survive, change is a certainty. And by the way, the change I’m talking about is not adding a pitch-and-putt course or a new ballroom. It’s contemplating seeking the support of a lender to avoid entering into administration or liquidation.
It’s pretty hard to be prepared for change, to be strategic about it, when you are worried that your business is just not going to make it through the summer. It is probably a terrifying time. The motivational speaker and author Brian Tracy describes fear as “False experiences appearing real” and when you think about it, the things we worry about most are probably those that never happen. Instead of putting the energy into worrying, why not put it into preparing, being ready? Successful business people are always thinking of contingencies. When the shock happens, even if it isn’t the shock they were expecting, they have the right attitude to deal with those unforeseen circumstances because they are used to being prepared.
I am going to talk about being prepared for that change. I propose to outline just how critical your attitude to change can be in the transition to a bank or bank-appointed management company having a more active role in the running of your business. I’ll also set out some practical things you can do to encourage lenders to take a more benign view of your predicament.
2012 was a game of two halves – London versus the regions. In London, things were bullish, buoyed by the Jubilee and the Olympics. In the regions, the graph looks somewhat flatter, and that is not projected to change in 2013 (PWC UK Hotels Forecast) but here are some tactics that will help hospitality businesses in trouble anywhere in the UK.
1. Do learn to let go
I recently switched from a PC to Mac computer after much deliberation and many happy years using Microsoft products. To say it was a big change is an understatement; no amount of research and planning can prepare you for leaving your computing comfort zone. As the techie in the shop said, “It’s like learning a new language” and he was right about that. Before I could even begin to learn that new language, I had to learn to let go of PC mode.
Learning to let go of the old reality is one of the key factors in embracing change and is just as important as grappling with the new circumstances. Let’s say things hit rock bottom this summer in your tourism business. The sooner you realise that you need help, the better. You’ve probably already let go of the pre-financial crisis way of thinking but are you pursuing a deliberate head-down-and-keep-going policy? Let go of the way-we’ve-always-done-it and look around you. Be honest with yourself and your team. If you decide to go to your lender, be honest with them too.
2. Do learn to adapt fast
The downturn has gone on so long that no business can possibly say there was no warning about the current difficult trading circumstances. We can learn a lesson from Ireland. In 2008, the economy fell off a steep cliff and kept falling taking many tourism businesses with it (a 9% reduction in hotel numbers). It was the businesses that failed to adapt to the new reality, and quickly, that are gone or struggling. Rather than survival of the fittest, it is a case of survival of the most adaptable. Hospitality and tourism businesses that accept the changed consumer landscape and consequently change their business models have a far greater chance of survival.
3. Do have the figures
The most important part of your business jigsaw right now is proper management accounts and forecasts. The Uniform System of Accounts for Hotels is widely used by bigger properties but is sadly lacking in smaller operations. There are too many businesses operating with patchy financial information and consequently no idea of how their business is actually performing. Don’t hesitate to ask your accountant to provide analysis of your profit and loss accounts by type: rooms, food and beverage, leisure and other. In this way you can get an accurate picture of how each department is performing and take remedial action if there are issues. Waiting to get your half-yearly reports is pointless. Problems will have gone undetected for too long. Demand clear and precise KPI’s (key performance indicators such as GP% and RevPAR) and accounts because if you don’t understand your costs, then you don’t understand your business. Don’t forget the business plan which should complement any forecasts and projections.
4. Do have a cash flow projection
Many business owners are still unsure about profit and loss and, most importantly, cash flow. The banks are no longer focused on forecasted profitability – they want to see what cash the business can generate in the short term to cover capital and interest (C&I) and if this can at least be replicated in the following year. That’s all that really matters when a credit committee is deciding whether to support a business. By demonstrating a clear understanding of the cash flow forecast, lenders will be far more comfortable with extending credit terms or restructuring a loan.
5. Don’t hide it
If there is one thing that banks hate it’s surprises: keep in constant touch with your lender and be up front about any potentially cash-consuming issues that may occur in the future. Give the true picture; don’t try to hide anything.
6. Don’t fudge it
Another fatal mistake is overpromising on cash flow and consequently not delivering as agreed. Remember that in most cases your lender holds all the cards and will decide whether you remain in business or if the dreaded administrator is appointed. Be open to changing the way you do business and accepting that your lender wants to hear words like “partnership” and “cash contribution”.
7. Team talk
The quality and calibre of management is also critical to continued bank support. If the executive team can come across as being strategic, united, commercially focused and, most importantly, open to change, the lender will factor it into their deliberations. It’s really important that management is actively adapting to the new circumstances by demonstrating not only what savings and changes have been achieved already in the hotel or restaurant, but also what is planned for the following twelve months.
To summarise, even where your business has had to resort to unpalatable arrangements with lenders or is on the brink of it, you can still use your mental preparedness for change to smooth over the transition and get the best outcome for your ailing business. Lenders like robust financial accounting, accurate cash flow forecasts, a proactive and united management team, and constant, open communication.
Back to my new laptop for a second. By trying a different way of computing I wanted to see if Apple is really all it’s cracked up to be. More importantly, I wanted to become familiar with a different system even if that meant experiencing change, uncertainty and a steep learning curve. I could have stayed in my comfort zone but then I wouldn’t have challenged myself to try new things and find different ways of doing things. Business is no different.
As an independent hospitality and tourism consultant, I regularly come into contact with business people who are finding smarter ways of doing business and constantly preparing for change. These people are not about to become another statistic.
