Part V · Fixed Charges and the Integrated Financial Plan
Chapter 24Cash Flow, Working Capital, Tax, Major Payments, and Funding Plan
Turning book profit into daily collections, monthly liquidity, and an approximate cash requirement for the hotel
Questions this chapter helps answer
- How should a hotel convert budgeted profit into monthly cash collections, working capital movement, tax, major payments, and funding needs?
- Why can a profitable hotel still require owner funding because receivables, inventory, payables, capex, debt, or tax consume cash?
- How should minimum cash thresholds and liquidity triggers be built into a hotel funding plan?
Key concepts
- cash flow
- working capital
- collections
- receivables
- payables
- inventory
- tax
- major payments
- liquidity floor
- funding plan
Turning book profit into daily collections, monthly liquidity, and an approximate cash requirement for the hotel
EXECUTIVE TAKEAWAY
A hotel budget is not executable until management can show when cash will be collected, when suppliers, insurers, tax authorities, lenders and project vendors must be paid, which balances absorb or release cash, and what funding must arrive before the cash floor is breached. Chapter 24 begins with the Chapter 23 book-profit line and converts it into a daily, weekly and monthly liquidity plan.
Chapter 23 produced a positive EBITDA but a book loss before tax. That does not automatically mean the hotel has no cash, because depreciation is non-cash. It also does not mean cash is available, because principal repayment, advance tax, working capital, prepayments, capex, reserve transfers and funding timing sit outside the profit line. The cash model must make each of those effects visible without deducting any operating expense twice.
Learning outcomes
- Build a twelve-month indirect cash-flow budget beginning with the controlled Chapter 23 book profit before tax.
- Translate hotel revenue families into cash receipts, closing accounts receivable, days sales outstanding (DSO), guest deposits and daily collection actions.
- Calculate accounts payable, days payable outstanding (DPO), AP turnover and supplier-payment timing without treating overdue balances as savings.
- Model property and employee insurance, expatriate cover, workers compensation and other annual payments through a prepaid-expense roll-forward.
- Separate income-tax expense, advance tax cash, tax receivables, cash interest and debt principal.
- Build a major-payment calendar, thirteen-week cash forecast, monthly liquidity test, capex/funding plan and owner decision pack.
BOUNDARY NOTE
This chapter does not rebuild revenue, departmental contribution, labour, undistributed expenses, GOP, management fees, Schedule 11, depreciation or interest expense. It imports those controlled outputs. Interest expense is already inside profit before tax and must not be deducted again in the indirect cash-flow bridge. Only principal, advance tax, capex, reserve and other cash-only movements are added separately.
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DC-24 Cash Flow, Working Capital, Tax, Major Payments, and Funding Plan
Turning book profit into daily collections, monthly liquidity, and an approximate cash requirement for the hotel
DC-24_Cash_Flow_Working_Capital_Tax_Major_Payments_and_Funding_Plan_v2.1.xlsx · download readyChapter-end learning
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Discussion prompt 1
Assume corporate/government DSO rises from 38 days to 55 days for two months. Payroll, statutory payments and critical suppliers remain due on schedule.
Corporate and government collections slow materially while reported hotel revenue remains on budget. How should the cash forecast, DSO review and management response change?
Quantify the additional A/R and monthly cash absorption; identify the affected invoices and collection owners; distinguish a P&L-neutral timing issue from a credit-loss risk; test the liquidity floor; and propose collection escalation, deposit or credit-policy changes, payment prioritisation and any temporary funding response.
Discussion prompt 2
The annual obligations are valid, but their cash dates overlap. The proposed capex protects an important asset, and delaying insurance or tax would create unacceptable risk.
January includes annual insurance prepayment, advance tax, debt service and a capex deposit. The base forecast breaches the cash floor. What should the owner pack recommend?
Separate mandatory from flexible payments; preserve insurance, tax and debt compliance; review capex milestone phasing, reserve release, vendor finance and owner-funding arrival dates; show the lowest cash point before and after each lever; and document the service, cost and covenant trade-offs of the selected response.
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