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According to Fabozzi (2002), the hotels require financial strategies in the management. Financial strategy provides information of the financial performance and the various expressions related to the operation as well as allocation of funds to the different business departments. Hotels may start focusing on making use of this strategy to fulfill the necessity of funds in unlike market considerations. Financial strategy helps in the distribution of funds to the different departments of the hotels, such as accounts or wages, , utility billings, HR policies, marketing and much more.
The hotels financial strategies include budgeting and cash flow management. According to Peter & Pikkemaat (2006) the hotels financial arrangements may be defined as the way of meeting the demand or requirement as per the changing market conditions. The strategy also focuses on the transparent financial system. It is defined for the establishment of transparent relation with the stakeholders. The consideration of key stakeholders in the financial system is essential because of their influence in the operations and business of the hotels. According to Hall (2008) for the customer service operations, the revenues and profitability needs to assessed effectively. The hotels financial strategy is effective and efficient if considers both non-financial and the financial aspects of the capital management.
The hotels financial strategy looks at the different aspects of the operations in such a way that that the monetary information can be generated and allocated effectively. The financial strategy puts together the equity financing, capital restructuring, transactions structure, tax obligations and government regulations. According to Chong et al, (2006) to become effective and efficient in managing the financial demands and to gain the competitive advantage, some financial aspects such as budgeting, cash flow management, working capital management etc are important and considered in the financial planning. These aspects are described below:
Budgeting: Budgeting is an important aspect for the improvement and development of the financial capability of an organization. In the economic down turn many hotels have earned declined figures of revenue and profit due to non-regulations in the virtual sales activities. In the hotel industry, proper analyses of the sales procedure, along with the proper training to the sales staff would help hotels in reducing the impact of current economic downturn. In order to meet the expectations of its stakeholders and shareholders, the hotels may use sustained profitability, so that the cost, sales and profit the hotel could be estimated in advance (Hall, 2008).
According to Pirani (2010), Executive Managing Director, Colliers International Hotels, Canada, the revenue from the operation fell down by 44% in 2009 which harshly affected the future operational activities of hotel. Simultaneously, the occupancy rate and average daily rate came down by 8% and 12.3% respectively. The major fall in the important figures of hotel industry completely disturbed the volume and value of business in the hotel. As the hotel could not generate good revenue, it ultimately affected the budgeting strategy of the hotel. Resulting, the hotel had to further cut the budget allocation for the operational department, to overcome the loss (Pirani, 2010).
According to Ihantola (2006) in order to keep the hotel industry in course, there must be effective budgeting system and all the plans, objectives, and strategies could be translated in the budgetary and budgeting control process. The hotels operating budget which consists of all the income and expenditures, could be prepared as per the individual departments and activities which can further be merged in the projected profit and loss account. For the effectiveness of the hotels budgeting system, the capital budget can be included in the budgeted balance sheet which would be helpful in facing the impact of economic downturn. In order to have effective and accurate budgeting system, the actual results and budgeted results could be evaluated regularly as it is beneficial for making appropriate strategies and would increase budgeting system in the hotel industry. The comparison would be beneficiary in the revision and taking the corrective actions. To improve the accuracy in the budgeting system in the hotel industry, the hotel performance should be limited with the performance of individual. These steps would be helpful in achieving the objectives and financial targets of the hotels in the industry (Peters and Pikkemaat, 2006).
Working Capital Management: As per Pirani (2010), for the maintenance of proper cash flow, the working capital management is a significant aspect within the organization. The working capital management of the hotel industry has been affected by the weak economic environment as the components of ratios to calculate working capital also hit by recession.
The financial management of the hotel could review its banking and financial agreements and the performance of the hotel could be evaluated in the context of finance which may be helpful in the improvement of the working capital management (Magner et al, 2006). According to Ingold et al, (2000), some strategies could be adopted by the hotel industry to improve the working capital management like improvement in the financial transparency and aggressive policies.
Cash Flow Management: It is considered as one of the most important activities of the hotel industry in the negative economic growth. According to Masquefa (2008), for the proper management of the hotels cash flow system, the focus is required to be on the improvement of operational performances. In addition to this, the careful elimination of the non-required costs, no-value added services to the customers could help hotels in saving organisational cost and generating more profits. Inclusion of low cost services and special facilities to the service portfolio for the customers may help hotels in achieving the competitive advantages. The cash flow management could also be improved by making effective changes in the end business process as the main focus of the management is on saving the cost and generating more profits from the business.
Same like Colliers International Hotels, Canada, many hotels in UK and USA have observed the fall in their respective occupancy rates, average daily rate and RevPAR. All these falls generated the devalued revenues for the hotels in the countries. Therefore to overcome loses and bear the expenses, hotels cut down their budget to manage the operation with less allocation of finance. The decline in the budget affected the entire budget strategy of hotels. Since the great fall in the revenue shattered the budget policy of the hotel, so it impacted the inventory management, cash management and working capital to manage short term debt and operating expenses, etc (Hall, 2008).