One of the biggest challenges for tourist parks is the seasonal nature of their cash flow. How can better forecasting improve performance?
Cash flow is an essential measure of performance for any enterprise, and business owners across a range of different industries will be well aware of what this means for their operations.
For seasonal businesses such as tourist parks, cash flow takes on another dimension. Instead of being a steady, predictable stream like the MHE or residential park, there are peaks and troughs as the year unfolds.
This isn't news for experienced operators, and those that have been operating their parks for years will know when the busy periods are and when things are set to quieten down. What they might not know, however, is the value of having tangible forecasts and budgets. Not only does this provide owners with an extra degree of certainty about what their expenses may look like within a week, a month or a year, it makes it easier for other members of the team to understand where the business is heading, when it is time to save and when it is time to spend.
Seasonal forecasting shapes business planning
While anecdotal experience from veteran tourist park owners is a valuable tool in and of itself, mapping an actual cash flow forecast and budget provides a realistic and achievable vision for the future. This doesn't mean creating a rigid expenditure plan that can't adjust to unforeseen circumstances and challenges. Instead, it allows business owners to better prepare for a volatile revenue stream and be acutely aware of exactly how much money they've committed during certain time periods and whether or not they have room to spend more.
If there are any upcoming projects they wish to pursue or if they want to withdraw money from the business for personal reasons, they can plan the optimal time to do so and understand how it could affect the future of the business. This reduces the chance of surprise bills or other obligations occurring that may force them to borrow money or stretch creditors beyond breaking point.
Knowing when to grow revenue
One of the key performance measures for tourist parks is their after-tax cash flow, and knowing how to maximise this has a significant effect on business operations. It's important that tourist park owners are aware of what they can do to try and grow their revenue, and having a cash flow forecast that maps seasonal slumps and periods of growth makes it much easier to time these initiatives, i.e. understand when to start the campaign to extend the shoulder season
In most cases, this means detailing the connection between an organisation's business plan and its marketing strategy. Namely, does the way a tourist park communicates with its target audience align with its growth objectives and actually succeed in increasing revenue.
A cash flow forecast can also indicate whether or not it might be time to try something new in regards to how services are priced. While it's common in other accommodation industries such as hotels, dynamic pricing is only in its infancy for tourist parks.
For example, tourist parks may consider putting their rates up once they hit 50 per cent capacity, and then increase them again beyond 80 per cent as demand increases and supply drops. The practice is growing through the use of off-peak and on-peak rates during holiday seasons, but it's still largely an untapped method of revenue growth.
The difficulty in cutting costs
When business owners are thinking about how they can better maximise their cash flow, many might see cost cutting as an easier alternative to growing revenue. However, while it does take extra effort and planning to get out and begin finding avenues to increase revenue, it's much less disruptive than many of the cost cutting procedures businesses pursue.
The reason cost cutting as opposed to revenue growth can be so disruptive is due to the fact that it relies on business owners making a number of hard decisions. In some cases, they may need to look at cutting employees or dropping wages where appropriate or removing important customer benefits. While these changes may succeed in lowering expenditure, there's often a wider cost beyond the immediate financial implications.
Alternatively, tourist park owners may need to look at other areas that have become bloated and may not be delivering a significant return on investment or simply don't need as much financial attention as they are currently getting.
What does a business's tax position mean for cash flow?
The advantage for businesses looking to review their tax position is that this is the least disruptive way for them to maximise their cash flow. Increasing revenue growth can demand investments in new capabilities and infrastructure. Managing costs may mean lowering wages or cutting jobs, all of which impact the day-to-day running of the business. Optimising your after tax cash flows can be as simple as getting the right advice from an industry expert or dedicating the time to research any tax opportunities that may be in existence for your business now and into the future.
However, this is something that tourist park owners may struggle to achieve on their own, which is where the services of advisors such as BDO can make a difference. By understanding your tax obligations and how your future cash flows may be impacted, businesses are able to greatly improve or better manage their after-tax cash flow. We have a number of real life examples that our tourist park specialists will be happy to talk you through - contact BDO's Tourism, Hospitality and Leisure team.