Tourism Excellence

Growing a Business

people on the beach

Businesses are ‘organic’ and tourism businesses – like most businesses - have a defined life cycle. Some businesses may take years to pass through the following four phases, while many move through them very quickly. It’s important to recognise and understand where you are in the life cycle:

  1. Start-up
    Uncertain markets, establishing products, uncertain marketing, low/no profit, heavy management involvement in the business
  2. Growth
    Establishment of market share, expansion of product lines and or markets, sales growth, possible internal expansion to meet growth
  3. Maturity
    Levelling of sales because of increasing competition or decrease in demand. This requires new strategies to avoid…
  4. Decline
    Decrease in sales and profits. If not addressed, it will end in failure

How you manage each stage and respond to the challenges of each is often a reflection of how strategic you have been in your business planning phase.

In the ‘Starting Up’ section we discussed the need to be in tune with the marketplace. Many of the techniques for doing this are discussed in module 1. Tourism operators also need to be aware of changing economic and social trends. The ability to ‘read’ the business landscape and to adjust your product offer and its marketing can defer or considerably slow-down the decline phase of the product cycle.

As your business grows it may be worthwhile re-examining the type of business structure that will best meet your financial and personal interests during the years ahead.

Click here to download a table that explains the pros and cons of each structure, then discuss it with your accountant, business advisor or solicitor.

The middle years of a business can often be the most challenging. The initial excitement has probably worn off and the strain of working in a people business 24-7 may be starting to take its toll. The initial vision and objectives you may have started with can become submerged in the day-to-day detail of running the operation. It may be time to re-visit some fundamentals:

The 7 steps to successful business management

  1. Identify your strengths, weaknesses, opportunities & threats
  2. Determine the critical success factors of your business
  3. Develop a long term vision for the business
  4. Translate your vision and critical success factors into key objectives
  5. Develop the strategies, tactics and actions to achieve the objectives
  6. Install a system to monitor and measure performance
  7. Review, revise and improve your performance

(courtesy Penna Management Pty Ltd)


At this stage you should be working ‘on’ rather than ‘in’ the business. If you developed a business plan from the beginning, you should be reviewing it annually and making necessary adjustments. If you didn’t and you wish to systematically grow your business into a valuable commodity for profit and sale, then it is essential that you prepare a strategy for the next few years.

Try to do your own business plan or in conjunction with a consultant, as you will have a far better sense of how your business should operate and where you want it to go. Involving stakeholders such as family and staff can help to build commitment and a sense of collective ownership.

Some businesses can be challenged by too much growth too soon and are in the seemingly enviable position of needing to develop strategies to handle their success. It not handled carefully, it can be almost as detrimental as having too little business.

Case Study (PDF - 131kb): To learn about a tourism business that has managed to cope with its success.

Regular measurement of the business is essential. A thorough annual review and analysis of your business plan is highly recommended, but you should also nominate some key performance indicators that you can review every month or quarter. Regular monitoring will alert you to changes in the marketplace.

Some established businesses find that even though they may be profitable, they still have problems meeting liabilities when they fall due. Cashflow is the lifeblood of any business, so it is vital that you prepare a cash flow ‘map’ and monitor it regularly.

There are seven ways to drive profit in any business:

1. increasing the number of leads

2. increasing conversion to sales

3. increasing average sales value

4. increasing sales per customer (ie repeat custom)

5. increasing the profit margin per sale

6. decreasing variable cost per sale, and

7. decreasing fixed overheads

Some of the indicators of a healthy business are:

  1. Yield: the profit generated by the business divided by the number of patrons
  2. Revenue per customer
  3. Cost of sales: the cost of purchase as a percentage of the revenue derived from sales
  4. Total retail sales
  5. Admissions as a % of total revenue
  6. Marketing costs as a % of total revenue
  7. Occupancy or utilisation: eg seats on a tour vs total seats available

 

The above regular checks undertaken by you and/or your accountant are like a regular diagnostic service for your car. If you fail to do them regularly, you may still be able to use the car, but it might be a rough ride or it could be very costly to get it back on the road.

When you significantly alter costs of the business (eg a major marketing campaign, renovations, reduction in staff costs etc), it is useful to again conduct a break-even analysis. If you don’t conduct a break-even analysis, over the medium to longer term you could be unknowingly operating on an unviable basis. By the time you realise it, the business could be in terminal decline.

Click here to learn about the Victorian Government’s low cost mentoring service to assist businesses to review their operations. Specialist tourism mentors are available.

The following are some additional pointers worth considering as you emerge from the establishment phase into the growth stages of the business:

 

« Back to Starting out Go to Technician to Entrepreneur »