Jul 25 2023

Managing Finances in Small Hospitality Businesses

Michele de Ausen

Career advice

Starting a business in the hospitality industry can be tough. With raging competition and ever-changing business dynamics, it seems to be a typical case of survival of the fittest – and it’s common for startups to feel the pressure imposed by larger corporations.

And this fear isn’t unjustified.

Reports show that 60% of hospitality businesses fail within their first year, and 80% don’t make it past five years. That means the failure rate in hospitality is 10% higher than your average business.

However, we’re not here to speculate whether or not that’s true because it’s common knowledge: if you have poor financial management skills, you’re bound to fail regardless of the industry you’re situated in.

Although there are many other reasons a hospitality business might fail, poor management of finances is no doubt a major contributor.

In this article, we’ll discuss the importance of hospitality financial management and some best practices to follow for maintaining a positive cash flow all year round.

Importance of Hospitality Financial Management for Small Businesses

According to the U.S. Small Business Administration, the three biggest causes of failure of a small business include:

- Failing to collect all the money (accounts receivables and cash control)
- Failing to manage the inventory (both physical and capacity-wise)
- Failing to properly maintain financial accounts and making decisions solely based on how much money is in the bank

The same survey also suggests that business owners who review and analyze their financial reports monthly or weekly achieve a success rate of 75-95% as compared to those who do so annually.

Knowing that the main hurdle to a small business’s success is poor financial management, the importance of financial management for small hospitality businesses cannot be overstated. Proper management would bring about many benefits for an organization, such as:

- Better financial planning
- Improve fund and capacity allocation
- Help businesses understand business activity
- Provide insights into financial decisions
- Improve profitability
- Contribute to a higher credit standing
- Better payroll management

7 Financial Management Tips for Small Hospitality Businesses

1. Create a Budget

As a small business, you’re already behind the larger competition because of limited capital. On top of that, many operating expenses accompany a hospitality business, such as labor, food and beverage (F&B), and utility costs.

Your budget would include monthly expenses, spending, and remaining capital which helps you make better financial decisions. Creating a monthly budget will help make sense of all these costs and make them easier to track.

2. Develop an Effective Pricing Strategy

Setting the right price for your hospitality services can be a difficult task. Since demand is elastic due to higher competition, setting your prices too high will make you lose customers. On the flip side, setting prices too low will make you lose revenue.

For this reason, you need to develop the right pricing strategy for your business. You would need to look at your historical data, analyze competitors’ prices, create buyer personas, and evaluate the factors that contribute to your price. Developing an effective pricing strategy will drive more profits to the business and help manage finances better – but this only works if you have a valuable offer in the first place.

3. Ensure Sound Bookkeeping

Poorly kept books are usually the main culprit of poor financial management, leading to unbalanced checks, fraud, and lost revenue due to human errors.

The first step to better bookkeeping is to open a separate checking account and use accounting software for making financial records. This way, you’ll be able to keep track of your finances and automate repetitive accounting tasks streamlining your bookkeeping efforts and keeping your accounts sound.

4. Use Automation Software

You may not be able to currently invest a lot of money to hire a professional firm to manage your finances for you. Fortunately, countless financial software and programs can help you quickly and efficiently track KPIs and create financial reports.

Using automated accounting and financial management software will help you streamline the decision-making process. These programs can quickly analyze large sets of financial data and arrange and categorize them into logical sets, making them easier to understand for stakeholders. They also reduce the costs and time spent setting up financial records and reports, as most of these features are built into the software.

5. Gain Financial Knowledge

Gaining financial knowledge isn’t a walk in the park, and you might not see any immediate effects on the performance of your business. However, having a solid grasp on how finances work and ways to optimize them can improve your financial situation in the long run.

There are many online resources available to you, but you could also consider enrolling in a university and getting a masters degree real estate or any other hospitality degree from a reputable university. You could also offer training to your employees to help them make better financial decisions in the long run.

6. Improve Cash Flow Forecasting

The hospitality industry isn’t immune to fluctuations, and businesses are often subject to seasonal changes. Having a plan in advance can help you thrive under changing dynamics rather than fearing them.

One way to achieve this is by making accurate forecasts. A cash flow forecast will give you a better idea of your cash inflows and outflows, which help make accurate predictions of bookings and expenses - to avoid issues such as overbooking or overspending.

7. Consult a Financial Advisor

Finally, it’s possible that, despite your efforts, you may not see much improvement in your financial situation, and that’s normal. Financial advisors and experts are trained professionals who can provide a deeper insight into your financial situation and get to the root of your poor financial decisions.

A financial advisor will work with you to discuss your business goals and evaluate your current financial frameworks. They will then draft a comprehensive plan for you to follow to improve your current financial management practices.

We’d advise you to look for a financial expert with relevant experience in the hospitality industry and within your niche. This will ensure that they have developed an understanding of your problems and can create a plan that suits your specific financial needs.


Hospitality financial management is pivotal to a small business’s success in the hospitality sector. This article stressed the importance of financial management for a small hospitality business’s success and how to improve its financial management efforts.

To summarize, you can improve your business’s finances by creating a budget, developing an effective pricing strategy, maintaining financial records, using automated software, gaining financial knowledge, improving cash forecasting, and consulting a financial expert to help you with your financial management.

Tags: hospitality,business,finances