A Chartered Accountant’s View On How Hoteliers Can Handle COVID Financially

-Dhamodaran Palani

As we all know COVID had created havoc in every part of the world, we humans always find ways to sail through the situations. Talking about how hospitality and allied industries have changed their business functions
B Madhushalini, a Chartered Accountant on independent practice says the hotel owners should tackle the situation on a financial angle. 

 “The Pandemic has impacted the world like never before and it is bound to change the customer’s outlook. Organizations that were dependent on human intervention have started to move towards robotic operations. Delivery services being done by drones, the supply of foods in hospitals being done by robots which earlier required human intervention are now being done by intelligent machines.” Madhushalini says further adding that organizations are automating the redundant and process-driven functions and reserving the manpower to only decision making, analytical, and governance roles.

Since costs associated with manpower and infrastructure are predominantly fixed in nature, entities may utilize these resources to study how the market will function, reassess business strategies and prepare themselves for the post-pandemic market trends. A few examples of businesses reinventing themselves are all around us (example: Swiggy and Zomato entering grocery market, catering service providers and star hotels starting home delivery of foods)

Asked about how smaller hotels can look beyond liquidation, she said “The company can look into business strategies like upward and downward integration, (i.e. getting into the business of the immediate customers or vendors). Since expertise already exists in the industry, the time and costs associated with integration will not be substantial. Further banks are providing COVID-specific loans to their customers for temporary mismatches in their working capital, restarting of the business. “

These loans have extended moratorium period and lesser interest rates. The Government has announced various financial packages like collateral-free loans, Corpus fund to support MSMEs, Subordinated debt facility for stressed MSMEs, reduction in TDS rates, the extension of tax payment dates to improve the liquidity of these entities.

She also addressed Financial issues faced by the small and medium restaurant owners  “The entity might face issues in financial risks of key trading partners, customers and suppliers, Choosing the right financing options, Managing payables, receivables, and inventory, Managing variable costs and cost optimization Controlling fixed costs, Reassessing the creditworthiness of customers, managing incremental costs associated with logistics, Maintaining the required level of liquidity.”

She also quoted Tata Group Chairman Ratan Tata in his recent on how is not ethically correct for entities to lay off their employees. “Hoteliers may focus on other cost-cutting strategies such as, bringing down employee salaries, reduce employer contribution to retirement plans wherever it is being paid more than it is required by law, Increase wellness program participants to reduce healthcare costs, transfer of staffs, early retirement, and voluntary layoff, offer extra days of unpaid leave, and also considering virtual office to reduce infrastructure cost.”, she said.

On a concluding note, she also shared how can stand-alone restaurants prepare themselves to move ahead. “Future is uncertain. And how long the virus will exist and what will be its impact in the future is something yet to be fully evaluated. It is advisable entities make plans based on scenarios from best to worst-case scenarios.”

She suggests these factors while starting a new hotel:

• Geographies of operation– Where all the restaurant is going to capture customers
• Ensuring product alignment with market needs- With changing needs, the entity has to ensure that the entity’s product satisfies the customer.
• Financing strategies– Whether to go for further loans or pipe in more of the owner’s capital.
• Maintaining channel health (ie) helping franchises/branch owners with credit facilities to manage working capital issues
• Adopting zero-based budgeting– zero-based budgeting starts from a ‘zero base’ at the beginning of every budget period, analyzing needs and costs of every function within an organization and allocating funds accordingly, regardless of how much money has previously been budgeted to any given line item.
• Developing detailed go-to-market plans for post-lock-down-collaborations, schemes, incentives
• Closely evaluating cost structures to cut down excess spend.
• Explore potential disposals of non-core assets to optimize carrying costs and make balance sheets lean.