Can the business survive the fix?

Suppose a six-property hotel group has lost money for three years. It has $6 million of unrestricted cash and currently spends $1 million more cash than it receives each month, before any one-off restructuring costs.

At a constant burn rate, the simple runway is six months. That is an initial warning, not a detailed liquidity forecast.

Ask what sits inside the burn figure. Does it include interest, debt repayments, maintenance spending and seasonal movements in customer receipts? Are there large payments due before the six months are over? Is all the stated cash available to meet those obligations?

If the business owes a $2 million payment in month two that is excluded from the burn estimate, the headline runway is overstated. The date of the payment matters as much as its size.

Use a detailed weekly cash forecast to expose immediate pressure points, alongside longer-term scenarios for the recovery plan. The turnaround needs both time horizons.

Profit and cash answer different questions. Depreciation reduces accounting profit without creating a current cash payment. Capital expenditure consumes cash even when only part of it appears as an expense in that period. Collecting an overdue customer balance improves cash without creating a new sale.

For the hotel group, an EBITDA improvement does not by itself show that the company can service debt, maintain the properties and pay for the turnaround. Build the bridge to cash using the information the case provides.

Similarly, selling an unused asset may buy time but does not fix recurring operating losses. Treat it as funding for the recovery and explain what improvement that funding will enable.

This distinction keeps a recommendation from mistaking a temporary cash release for a sustainable business model.

Assume two airport hotels remain profitable, while four city-centre hotels suffer from reduced business travel, high property costs and deferred maintenance.

Analyse the properties separately. Compare occupancy, realised room rate, channel commissions, servicing costs, local fixed costs and the investment required to keep each property competitive. The profitability framework helps trace which changes explain the decline.

Then ask whether the cause can be fixed. A poorly managed sales channel may respond to an operating change. A property whose main customer segment has permanently moved away faces a different problem. A viable hotel with an unmanageable financing burden presents a third.

Avoid spreading the same percentage cut across every property. Reducing service at the profitable airport sites could damage the source of cash supporting the rest of the group. Protect spending that preserves their ability to earn, while testing weak properties against a realistic recovery case.

“Close the loss-making hotels” sounds decisive. It is incomplete until you know what closure saves, what it costs and which obligations remain.

Consider one property with monthly revenue of $500,000, variable operating costs of $200,000 and local fixed cash costs of $350,000. It loses $50,000 per month before allocated group overhead.

Suppose closing it removes all revenue and variable costs, but only $250,000 of local fixed costs. The remaining $100,000 continues under existing commitments. Closure would then leave a $100,000 monthly cash outflow, worse than the $50,000 loss while operating.

This does not prove the property should stay open forever. It tells you that the exit proposal depends on changing those remaining commitments, finding another use or comparing longer-term alternatives. An allocated head-office cost does not become a saving simply because the property's accounts no longer show it.

Add termination, remediation and transition costs when the facts support them. Do not assume a buyer, landlord or lender accepts the proposed terms without an agreement.

Return to the whole group. Suppose a proposed restructuring costs $1.2 million at the start of month one. It leaves cash burn unchanged at $1 million per month for the first two months, then reduces it to $600,000 per month from month three.

Starting with $6 million, cash after the upfront cost and two months of burn is $2.8 million. At the improved burn rate, that funds about 4.7 further months. Total runway becomes about 6.7 months under this simplified model.

The plan buys less than one extra month compared with the original six-month runway. It improves the business, but it does not restore positive cash flow.

If a recovery initiative only produces benefits after month eight, this plan does not fund the wait. Management needs earlier cash improvement, additional committed funding, a cheaper transition or a different strategy.

Use the downside scenario as well. If implementation slips or bookings weaken, the financing need arrives sooner. A statement that savings “eventually reach” a certain amount is not enough.

The first actions should preserve the ability to operate: establish the cash forecast, identify near-term obligations, prioritise essential spending and begin the relevant financing or contract discussions while options remain.

In parallel, work on the economic causes of the losses. For the hotels, that might mean protecting the airport properties, testing a new demand segment at one city site and negotiating an affordable exit from another. Each action needs an owner, cost, start date and expected cash effect.

Make liquidity, operating improvement and asset decisions support each other. A cash release matters most when it creates time for a credible operating recovery.

Do not wait for a 90-day commercial trial to finish before dealing with a cash problem already visible today. Design the trial and funding plan together.

For an extended-stay pilot at a city hotel, useful milestones could include paid bookings, achieved room contribution, required service costs and the time to collect cash. Compare them with the assumptions needed for the property to become viable.

Define what management will do if those assumptions fail. A pilot that always leads to “give it another month” can consume the remaining runway without producing a decision.

The recommendation should say which parts to retain, which changes to fund, what financing is required and when to reassess. If the plan cannot produce a viable business within available funding, say so clearly. An orderly reduction or exit may preserve more value than an unaffordable recovery attempt.

Try Apparel Inventory Overhang to practise separating cash release from recurring economics. Explain what selling excess inventory solves immediately and what must change to prevent the same problem from returning.