A Dynamic Business in a Challenging Environment

Every business owner looks for ways to grow their business. So when an accommodation group in the north of Western Australia had the opportunity to grow through acquisition of a brewery it sounded like a match made in heaven. Right? Not without some challenges as this accommodation group found. This article documents my discussion with The Chief Operating Officer (‘COO’) of this accommodation group.

This group is a family owned and operated business, specialising in short term accommodation and hospitality throughout the north of Western Australia. They are passionate about sharing the immense and stunning landscapes of the Kimberley region with as many guests as possible. The business is built on a family tradition of commitment to guest satisfaction and their aim is to provide guests with consistent quality and service in all their accommodation, and food and beverage outlets.

The Patriarch has been in the short term accommodation industry for over 30 years and built up a portfolio of properties. They built a river lodge development approximately 7 years ago when the tourism industry was booming. During construction of the development the GFC hit and the tourism industry experienced a significant decline.

In an already challenging seasonal industry the reduced cash flow became a major concern for the group. This was further exacerbated by the purchase of micro-brewery. While the intention had been to smooth out the seasonal cash flow, the rapid growth of the brewery created its own cash flow issues.

I spoke with the COO about the group’s business philosophy and how they manage some of their challenges.

MT: What are the benefits of being a family owned and operated business?

COO: “Being a family owned and operated business – we can react and change tack more quickly, as opposed to a larger corporate. Being a family business, our relationships are stronger with people and suppliers. Trust and integrity is more believable”.

“The patriarch is very family orientated and focuses on keeping family interested and involved. Key family members run and control various aspects of the business and report back to me as the COO. This style of management with clearly defined roles and responsibilities for the various family members works very well for us.”

MT: Short term accommodation and hospitality are highly competitive industries. How do you differentiate yourself from your competitors?

COO: “With our accommodation (business), yield profitability is key for us – not occupancy rates. The risk is our competitors can drop their rates as they are occupancy rate driven. People are more price conscious than they used to be. We can’t and don’t compete with new accommodation properties in the region. We focus on customer service and repeat business. We focus on our strong points and adjust our target market.”

“The brewery business is different. Competitors are always trying to copy our products and are always a concern/consideration. There is not a lot you can do other than remain creative”.

MT: The locations and industries you operate in have highly seasonal cash flows. Added to this recent years have seen some significant drains on your cash flow. How have you managed this?

COO: “Running a brewery with an accommodation business has its benefits and its pitfalls. It provides supplementary income for a seasonal business but has been a cash drain due to its rapid growth. Cash flow forecasting and repositioning regularly is KEY”.

“Our business model and overall cash flow has changed over the years. It was much more seasonal in the past. Since purchasing the brewery, we are now busy in the off season too”.

“The brewery stock levels need to be managed well. Stock has to be on hand to meet demand, especially for large distributors such as Woolworths. Working out what stock levels to hold becomes challenging. Storage becomes an issue. With no contracts in place, there is a risk of stock going to waste. Spoilable product can be turned back for any number of reasons”.

“It helps that our bank has an understanding of our seasonal nature. Our capital debt reductions are made 4 months of the year during the accommodation peak season. Financing is sought for our significant insurance premiums and then is repaid between June and October, our peak season. Seasonal overdraft facility limits are in place to provide cash flow during the off season. Invoice financing for the brewery is in place and it has helped to improve cash flow too.”

MT: What would you say was the biggest change you needed to make as a business?

COO: “We needed a change of mindset and to be more forward thinking. Being in a routine was not working anymore for us and we needed to adapt to change”.

MT: In hindsight, what would you have done differently?

COO: “Put a lot more fat into the budget for the river lodge development project. The project started 7 years ago. The tourism Industry was booming when the development started. Initially we were only developing a portion of the whole project. Things were good and we decided to develop the project in full. Then during construction, things got tight. There was a decline in the tourism industry and things were not so good. The GFC hit. Issues with a dropping AUD and cost of flights had a significant impact on guest numbers and bookings across all properties. At the brewery we were not as prepared as we should have been. We were doing a lot of things at once, and building Berkeley at same time”.

MT: I recently had the pleasure of delivering a Financial Management short course for 14 of your management and administration staff. Has this had an impact for the business?

COO: “I attended this course a few years ago and I got a lot from it. I still refer to the manual from time to time. I thought it would be good for our staff to understand the financial side of business and to get a better appreciation for our business and for what I do.”

“One of the key learnings they came away with was an understanding of P&L’s and Balance Sheets and the ability to analyse and calculate the figures that make up those reports. Also they have an increased awareness of the factors that could affect our business and can now use some basic tools to understand them before the business is impacted greatly”

The Patriarch also said “In attendance were our venue managers, accounts staff, heads of departments and directors, some fourteen in total.

“Without exception we all found the course of great benefit. It provided a practical and easily understood insight into management accounting practices that every business should be undertaking. The case studies even though not directly related to our industry were taken from real business and were easily related to our experiences as business proprietors.”

I come from a strong banking background and was able to explain what banks look for in the financial report of their clients. Despite having been in business for over forty years these performance measures were previously a mystery to me.”

“My presentation was clear and precise and easily understood. There was opportunity for questions and concepts that were difficult for some were covered until all participants were up to speed.”

“The greater their understanding of what makes for a profitable business the easier it is for the owners to operate.”