How To Stretch Your Cash As a Hotel Owner Operator

Welcome

Welcome to another edition of MoneyTalks, a Somo Financial Group newsletter dedicated to helping businesses like yours navigate the financial landscape using some of the best-kept Wall Street secrets. Somo Financial Group is a Commercial Business Alliance dedicated to helping companies save money and make money by bringing top-tier financial products from Wall Street straight to Main Street. And today, we're diving into a topic that hits close to home for many of you in the hospitality sector: optimizing cash reserves for hotel owner-operators.

Market Outlook on Cash, the Economy, and Interest Rates in the Hospitality Sector

As we all know, the U.S. economy is a constantly shifting landscape, and for those in the hospitality industry, it’s more unpredictable than ever. Hotel owners across the country are feeling the pinch from rising interest rates, fluctuating real estate prices, and shifts in customer travel preferences. With interest rates hovering at levels not seen in years, and the cost of borrowing capital on the rise, hotel owners are finding it more expensive to fund operations or expand their properties. Add in the unpredictable nature of travel demand—especially in a post-pandemic world—and managing cash flow has never been more crucial.

On top of that, inflationary pressures are driving up operating costs across the board, from payroll to utilities to the cost of amenities. The question for many hotel operators is: How do you keep operations smooth and maintain profitability in such an environment?

Optimizing Cash For Property Owners

Let’s break it down: Cash reserves are like the lifeblood of your business. Without proper cash management, even a strong revenue-generating hotel can find itself in financial hot water when faced with seasonal dips or unexpected expenses. But it's not just about holding onto cash—it's about making that cash work for you. Think of it like this: You wouldn’t leave a car idling in the garage without driving it, right? Similarly, you shouldn’t let your cash sit stagnant when it could be earning interest or helping you get through a tough season.

Why does this matter? According to the American Hotel & Lodging Association, hotels that don’t actively manage cash reserves are 60% more likely to experience operational disruptions due to cash shortages. That’s why having a system that helps you optimize and forecast your cash flow is essential to surviving—and thriving—in this industry.

Let’s look at an analogy: Managing cash reserves is like managing the temperature in your hotel rooms. Just like you adjust the thermostat to keep your guests comfortable, you need to adjust your cash reserves to keep your business running smoothly, regardless of whether it’s peak season or the slow season.

In-depth Analysis: How to Optimize Your Cash Reserves

Managing cash isn’t just about hoarding money—it’s about putting it to work efficiently. Hotels, especially those operating in highly seasonal markets, often face the challenge of inconsistent cash flow. However, with the right cash management strategy, you can overcome these challenges and turn cash flow volatility into opportunity.

1. Automate Cash Sweeps: Imagine being able to take any extra cash from your daily operations and automatically move it into interest-bearing accounts. This can add an extra layer of profit to your bottom line with minimal effort. Companies using this type of automation see on average a 2-5% improvement in cash yields.

2. Cash Flow Forecasting: Forecasting allows you to predict when and where cash shortages might occur. You wouldn’t drive a car without a dashboard, so why would you run your hotel without forecasting your cash flow? By looking at historical data, industry trends, and seasonal variations, you can ensure that you’re never caught off guard.

3. Liquidity Management: Maintaining liquidity is key to riding out fluctuations in the hospitality industry. Keeping excess funds in liquid, high-yield accounts not only provides a buffer but allows you to respond to opportunities when they arise. You might find yourself in a position to quickly acquire a neighboring property or invest in an amenity upgrade that boosts your value proposition. Don’t fall for certificates of deposits (CDs) whatever you do. In real estate liquidity is KING. The big boys don't use CDs, they use high interest accounts like the ones through Somo.

Case Study: How One Hotel Chain Optimized Cash Reserves

Let's look at the story of a mid-sized hotel chain which operates 15 properties in the southeastern United States. Like many in the industry, they experienced significant fluctuations in occupancy rates, with peak seasons during the spring and summer but dramatic slowdowns in the fall and winter months. These seasonal dips often led to cash shortages that forced the company to rely on short-term loans, which ate into profits due to high interest rates. Additionally, unexpected expenses such as urgent property repairs or equipment breakdowns would further strain their liquidity due to this season's severe storms and weather. To combat these issues, the chain implemented a two-pronged strategy: automated cash sweeps and enhanced cash flow forecasting to be more prepared for the unexpected events that happen in hospitality.

Automated Cash Sweeps:
Previously, the chain allowed excess cash from daily operations to sit in non-interest-bearing accounts, earning nothing while waiting to be used for payroll, utilities, or debt payments. After consulting with Somo Financial Group, they decided to implement an automated cash sweep system that transferred excess cash into higher-yield accounts daily. This simple automation allowed them to earn consistent interest on idle funds without having to lift a finger. Over a year, this change resulted in an additional $25,000 in interest income across their 15 properties—a sum that previously would have been lost.

Cash Flow Forecasting:
Cash flow forecasting was another critical component of their strategy. By closely analyzing historical data and seasonal trends, the chain was able to anticipate when their cash reserves would be most depleted and when revenues would surge. This forecasting provided them with a roadmap for when to draw on reserves, when to invest in upgrades or marketing, and when to cut costs. The data-driven approach also helped them optimize inventory purchases, reducing the amount of cash tied up in unused supplies during the slower months.

Here’s a specific example of how forecasting helped them: One of their properties located near a popular summer tourist destination on the gulf coast struggled each fall-winter to cover operating costs. Thanks to better cash flow projections, the company was able to plan ahead by negotiating favorable terms with vendors for deferred payments during their off-season. They also took advantage of low-season rates to renovate their rooms, funded by the interest income earned from their cash sweeps. By the time the summer rolled around, their property was not only financially stable but better positioned to take advantage of the tourist rush without losing any downtime.

Results:
The combined effect of automating cash sweeps and improving cash flow forecasting meant that chain reduced their reliance on short-term loans by 50% in just one year, cutting down on interest expenses by over $40,000. More importantly, they were able to create a cash buffer that allowed them to handle unexpected expenses without scrambling for additional capital or utilizing revolving lines of credit. Over time, the hotel chain was able to reinvest those savings into property upgrades and improved guest experiences, leading to higher occupancy rates and better reviews.

This case study highlights the power of professional-level cash management tools. It’s not just about survival; it’s about creating opportunities for growth. Figure out how to go from reactive to proactive like the big hotel groups do. It is a lot of work, but its always going to pay off and with Somo Financial Group we make it easy.

Key Takeaways:

• Cash Management Matters: Proper cash management can be the difference between thriving and surviving.

• Automate for Success: Automating your cash sweeps allows you to capture interest with minimal effort.

• Forecasting is Key: Cash flow forecasting provides you with a clear picture of your future needs.

• Liquidity Provides Flexibility: Keeping cash in liquid accounts ensures you're ready for both challenges and opportunities.

• Professional Tools Are a Must: You need the same sophisticated tools that big players use, regardless of your hotel’s size.

Actionable Steps & Recommendations

Don’t wait until cash flow issues become a problem—take action now by scheduling a meeting to explore Somo Financial Group’s cash management program. Setting up our program is easy, and once in place, it works automatically to keep your reserves optimized and your profits maximized. Our team of professionals will guide you through the process and ensure you’re using the same strategies that top-tier businesses rely on.

Raising money, or looking to source financing options for your next expansion plan, acquisition, or renovation? Click here to learn more about how Keystone Elite Advisory can help your business with fundraising and corporate strategy.

Conclusion

Managing a hotel’s finances is no small task, but with the right cash management tools in place, you can weather any storm and even capitalize on opportunities as they arise. Remember, when it comes to managing your business' finances, you don’t have to go it alone. Let Somo help you keep your ride smooth and steady. We write this newsletter on the second and fourth Monday of the month on topics around operating and managing your business using some of the best-kept Wall Street secrets. Somo Financial Group is a commercial business alliance helping companies save money and make money. Enjoy the journey, and till next time! Deuces.