THE BLUE BOOK: FINANCIAL AND MANAGEMENT ACCOUNTING IN THE HOTEL INDUSTRY by Tolba Mohamed

Author:Tolba, Mohamed [Tolba, Mohamed]
Language: eng
Format: epub, pdf
Publisher: MOHAMED TOLBA
Published: 2020-09-25T00:00:00+00:00

What sources of revenue earlier overlooked or less desirable can be generated?

In a challenging situation, revenue may be reduced along with drops in room rates and occupancy, as well as F&B average spending and the number of customers. Therefore, the cost-cutting initiative must be in place at the earliest. Guest satisfactions may be slightly affected; however, it is the responsibility of all employees to ensure a balance between guest satisfaction and costs incurred.

A sound contingency plan will, at some point, revisit areas where the benefit of change was previously considered undesirable. This may include extra energy conservation measures, outsourcing of departments or services (including valet parking, concierge, laundry, business center, restaurant, and coffee shop), as well as the temporary closure of F&B outlets and unoccupied hotel floors.

A good contingency plan will provide actions to be taken if business from major companies/accounts that normally produce a large percentage of hotel revenue are lost/ Companies in the market might go bankrupt, acquired, or move their headquarters. When occupancy falls, the typical hotel strategy is to replace profitable business expected with customers who are paying less.

Capital spending should be thoroughly re-examined and potentially reduced. Reduced investments in capital expenditures will lower the required rate of return, which will support the reduced NOI. On the other hand, a period of lower occupancy may provide a window of opportunity to complete renovations or other return on investment projects with the least displacement of revenue.

Insurance is another form of contingency planning. Hotels usually have adequate coverage for property damage and business interruption. To decide on which insurance policies to acquire, management needs to evaluate the probability and severity of identified risks, then weight and match them to the risk appetite of the company. The lower the deductible amount and the more comprehensive insurance, the higher the premium. In the case where the management/franchise agreement requires insurance policies to be purchased from a specific company, ensure that research has been done on appropriate rates; otherwise, bring it to the attention of the operator.

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