One of the problems inherent in owning and running a hotel is that the activity of the business, and therefore its profitability, will vary so much over the course of a given year.
Your rooms might be packed with guests during summer – but empty during winter. You might face additional costs related to certain times of year, like heating during winter.
So, how do you deal with this seasonality? Let’s take a look at a few essential strategies.
Budgeting for Seasonal Fluctuations in Revenue
To begin with, you’ll want to make sure that you’ve anticipated the changes you’ll face. If you know that there’s a major event upcoming in the local area, then you might anticipate an uptick in custom – especially if you’ve got historical data and experience to draw upon, which suggests this.
Through accurate forecasting, you’ll be able to deal with your cash flow effectively. This will allow you to avoid unnecessary debt, and ensure that your services are priced appropriately. When you know that demand is going to be extreme, you can charge more.
Working with specialised hospitality accountants might allow you to devise a better, more accurate forecast – which will, in turn, allow you to be more proactive.
Managing Operating Costs in Low and High Seasons
Your operating costs will vary over the course of a year. We’ve already mentioned the cost of utilities, like heating, when the weather is cold. But your staffing needs might vary considerably, too. During Christmas, you might experience special kinds of demand on your hotel restaurant. Having the staff you need to run it effectively will have a big impact on your profitability.
You’ll also need to think about monitoring your costs in the off-season, especially if you aren’t sure of exactly how much you’ll need to spend to keep up with the peak season. When there’s not a lot going on, you can use the extra time and space to optimise your operations.
Tax Considerations for Seasonal Businesses
Seasonality might have tax consequences when it comes to VAT, corporation tax, and capital allowances for refurbishments. If a new kitchen is completed over the course of spring, then you might be able to file certain refurbishments in either tax year.
In some cases, you’ll be able to claim back for investments in capital, like the structure of the hotel itself. Improvements in energy efficiency can present particularly worthwhile opportunities, as the Exchequer will often lend financial support to businesses that carry out these improvements.
Optimising Pricing and Revenue Management for Maximum Profit
We’ve already considered that prices might be adjusted to help cope with high demand in peak seasons. On the other hand, prices might also be lowered during periods of low demand, to help to ensure that rooms are not left empty, and to maintain at least some cash flow. This is dynamic pricing and revenue management at its most basic.
In practice, setting the right price for your services is a matter of considering the local competition, and having a strong data-driven understanding of what the market rate is. Special tools and concepts like Revenue Per Available Room (RevPAR) can often be extremely helpful in this regard.
Planning for Long-Term Growth with Seasonal Revenue
It’s important that the extra revenue you earn during busy seasons is appropriately invested so that you’re ready to take maximum advantage of the next busy season. Building work, upgrades, and marketing might be invested in during the off-season, in order to secure the long-term financial prosperity of the business.
