Often business operators get caught up in the day to day running of their business with marketing, cost minimisation and other important matters get pushed aside under the belief that one is too busy. It is common that only in tough times (such as now), that we stop for a minute and consider working on the business as opposed to in it. One of those areas 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 it costs to be able to sell a room for a night.
Often when trading is good we just go along for the ride, with no real reason or motivation to breakdown the operating expenses of the accommodation business. Those costs lingering in the back of one’s mind that may be considered high or excessive are brushed aside on the basis that sales and income is good, so it’s not an issue. It’s only when income contracts that the costs all of a sudden become a concern. The motivation to look more closely at each expense item in the Profit and Loss Statement then leads to a print out 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’s 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 regards to the supplier and if it can be sourced cheaper elsewhere. Obviously quality will be a consideration here also. Wastage may be able to 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- Advertising – excessive and outdated advertising and marketing that may have been in place for years, or has not been reviewed in a while, is a good place to look for cost saving measures.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 one’s buck” is the key here. Looking 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 has been excessive for what a small operation may need. There are many options now available if these packages offered do not quite fit or if there is a take it or leave it attitude. 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.
- Electricity & Gas – 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 bare it” type expense.
Unfortunately we are only half way there so we will continue looking further at possible savings to operating costs in next month’s issue.