Planning revenues and expenses

Running a private accommodation business is a relatively straightforward business and much of necessary planning can be done on the basis of previous experience. Remember that cash flow does not tell you much about your profit margin; you may have good cash flow but low profit.

You can start by estimating revenues for the next month/few months. First step in estimating your revenues is to see how many bookings/reservations you have for the next month and what is the monetary value of those bookings. Second step is to make an estimate of additional bookings/reservations for the next month (this input is based on your previous experience) and to multiply those booking with the average daily rate (ADR) of your rooms for that month. Finally, to the amount calculated you should add all the additional revenues of your accommodation, such as revenues from food and beverages, excursion trips, equipment renting, money exchange revenues and similar.

Cost estimate is a bit trickier and more complex compared to the revenue estimate. There is one part of your costs (fixed costs) that always stays the same, regardless of the volume of your business and your revenues. These costs are usually connected to: bank loans, wages for full-time employees, amortization and depreciation, and yearly maintenance costs. Another part of your costs, which is more difficult to estimate, are variable costs that are connected to the volume of your business and to your revenues. More business volume means you will have more revenues but also that you will generate more variable costs. Variable costs usually include: food and beverage costs, wages for seasonal employees, costs of marketing, commission to the travel agencies etc.

For the smooth running of your business it is very important that you write down all the revenues and expenses and try to anticipate any cash-flow problems that might occur if your costs are higher than your revenues.

While doing this, you should follow some simple rules:

  • Don’t overthink your financial analysis, you are not expected to perfectly predict your financial future but only to anticipate or to see some major cash-flow problems
  • Make your analysis robust by analyzing best case and worst case scenarios
  • Think in advance what would be your course of action in the worst case scenario – be ready for possible business problems
  • Send your invoices fast, make payments easy for the customers, deal with the payment complaints efficiently

 A video on how to manage your business cash flow effectively and efficiently (in English):

   Example of a cash flow template (in English)

  Credit management

Effective credit management is very important for smooth running of the small accommodation establishment, since tourism/lodging industry is a capital-intensive business and often enough, owners of the accommodation establishments have to take loans/borrow money in order to start a new business or improve an existing one.

In order to have access to affordable capital you should be extra careful about your credit rating. There are several simple rules you should follow to ensure a good credit rating (if, of course, you have a loan):

  • Pay your monthly installments on time, if you are running late with your monthly installment it is a wise idea to contact the bank and to explain the reasons for being late. Creditors do not like uncertainties and explaining your problems might help in preserving your good credit rating and consequently, to keep low interest rates
  • Pay your suppliers in time – this is also very important for your credit rating as it suggest that you can service all your debts in time. Your creditors (banks or other credit institutions) might approach your suppliers and check your references
  • Keep your personal finance in order, because creditors might check your personal finances in order to establish an accurate credit rating for your company. If your personal finances are not in order, there is a chance that you will be denied a loan or you will have to pay higher interest rate, because messy personal finances can indicate a higher risk for the creditors
  • Try to negotiate with your creditors for better loan terms – if you have an impeccable credit record, it is a good idea to go to the bank and to try to negotiate lower interest rates and better terms for your business
  • Keep an eye on your credit record history – you should know about the changes in your credit record history before anybody else does, especially your bank and your suppliers. You should check your credit record regularly – on a monthly or quarterly basis.

   Calculating VAT and other taxes

VAT (value added tax) is one of the most common taxes which has to be paid if you sell any goods and services, including the services of providing accommodation to the tourists. It is called value added tax because it is paid on the value you add to the product or service – the price difference between what you charge and what you have been charged for specific goods or services.

VAT rates vary in different countries and some countries even have so called differential VAT rates, meaning that VAT rates are different for different goods and service. Tourism goods and services, especially accommodation services have lower VAT rates in many EU countries.

Differential VAT rates can be found in most of the Rooms to VET partner countries:

• Cyprus – 9% VAT for hotel accommodation and restaurants (reduced from 19% standard VAT rate)
• Greece – 13% VAT for hotel accommodation (reduced from 24% standard VAT rate)
• Spain – 10% VAT for hotel accommodation and restaurants (reduced from 21% standard VAT rate)
• Slovenia – 9,5% VAT rate for hotel accommodation (reduced from 22% standard VAT rate)
• Croatia has differential VAT rate but not for hotels and restaurants