COVID-19: Considerations for hotels that need to temporarily close
If the financial analysis that you have completed shows that it is more effective for you to close your hotel in the short-term then there are a number of steps that you need to complete in order to do this, and to consider over the following weeks and months:
Employees
The most challenging decision for any hotel owner has been to lay off staff, either temporarily or permanently. The government has announced measures to help with layoffs either through the Department of Employment Affairs and Social Protection or through the COVID-19 Jobseekers Emergency Payment Scheme where employers will be reimbursed for payment of the Jobseekers rate (currently being reviewed so additional support may be available). However, if closing your hotel, you will still need to retain a core staff. As the proposed closure of the hotel is temporary, it will be important that once sanctions start to lift and demand starts to return, the hotel can get back up and running quickly. During the closure period, the core staff can also manage the hotel bookings, reservations, website, etc.In addition, insurance policies may stipulate that the hotel is occupied at all times to ensure security of the building. While a security company may assist, the core staff employed may complete this on a daily basis – with a rota in place for checking the property.
Suppliers
In order to reduce your outlay during the closure it will be important to minimise costs and purchases where possible. Variable costs (food, beverage, consumables, etc.) can be stopped immediately; however, there are other monthly payments (fixed costs) that should be reviewed to see if these can be reduced or payment delayed.Contact your regular suppliers. If they are not being impacted as much, they might be in a position to help. Where possible, negotiate for the most favourable credit terms with suppliers and critically evaluate your supplier base to determine if your current agreement is still the most favourable for your business at this current time.
List all of your suppliers, from utilities to food to your bank. Contact all of them to discuss credit terms, bills and any monthly direct debits that can be delayed until the hotel is open again with revenues coming in.
If you had a capital expenditure program planned, you may need to hold off on this and defer non-essential spending where possible.
Bookings
Contact all pending reservations to inform them of the closure and encourage them to re-book at a time later in the year. Also, contact all channel managers and OTA sites to inform them of the closure. Follow up on cancellations as this presents a clear opportunity for future bookings when you are back open.It will be important that your website/online booking capabilities are still open and monitored, but updated to reflect the temporary closure. This includes recording a voicemail message on all phone lines. Your own channels are your most cost-effective source for future bookings so it will be important to leverage them as much as possible.
Pick a date from when you will open – be that 30 March (as per the government’s current guidelines) or later (the most likely scenario). At this stage you will have decided on an updated deposit and cancellation policy.
Continue to communicate with your regular guests and customers. Create packages and offers for the summer and later in the year that will appeal to them. While you may not be marketing these just yet, having them ready allows you to market when the time is right.
Operational
While the hotel is temporarily closed with no guests, the property will still need to be occupied. The building and grounds will need to be cared for to ensure that they are maintained well.Your core staff will still need to oversee bookings, hotel communications and calls from future guests. The time could be used to clean, organise and repair all areas of the hotel. This could also be a good time to update your databases and CRM system so they are optimized when you reopen.
Cash flow
The timing of the virus, at this time of year has further compounded cash flow for hotels. In March, hotels are typically coming out of their low season and heading into the start of positive cash flow. Instead, with no or limited cash inflows, debts are now going to accumulate. Any debtors should be contacted to look for payment.
After you have spoken to your creditors and suppliers, and reduced, where possible your outgoings, we would recommend that you complete a cash flow analysis for the next one to three months. Current supports from Government such as the non-penalty for the delay in submitting payment with the VAT return will help with cash flow. Applying for support from your bank or the SBCI, for example, may take longer.
Communicating with your bank or financial institution will be very important. Understand what it is that you will need over the next few months – working capital, overdraft or a moratorium on your debt (either principal or interest). The reality is that hotels may be closed for longer than 2-3 months, or if open will have limited business for several months after. Therefore, in looking at your cashflow needs, a six-month cashflow statement may be necessary to prepare. Understand from the bank if any of this will impact your facility or covenants.
Without a doubt this will have a lasting impact for the sector. However, the expectation is that this is temporary and Ireland and the world will start to travel again and hotels will gain business. The domestic market will be very important to the sector in helping it get back on its feet.
Mairea Doyle Balfe is part of our specialist hotel, tourism and leisure team. We are here to help hospitality businesses that need expert support during this crisis. Contact a member of our team.
Mairea has also recently recorded a series of webcasts for Fáilte Ireland that cover a range of liquidity topics:
- Dealing with short term cash flow
- Operational cost management
- Engaging with your bank
- Government supports
