- Posted by CFO One
- On June 26, 2019
Tips to improve your operations, save you time and money and ensure your financial information is timely and reliable
I work with many hoteliers and professionals in the clubs, pubs and hospitality space and the most common pain points I hear are
- Wages Costs
- Stock Control
With a few new applications or add-ons that are available in the cloud marketplace and some smart changes in your internal processes you will be able to tackle some of these pain points like a pro (or like CFO One).
If you are still battling with manual rostering and paper timesheets, forget it. You will be battling repeat offenders on time theft and trying to start early and finish late just so you can track employee activity and verify your payroll.
The biggest lever on your variable costs and therefore profitability in your business is wage costs. Here are a few tips to consider:
- Budgets – Set a dollar value for your weekly wage spend e.g number of hours to be worked x wage cost per hour, use averages if calculating by employee is too detailed or complex, start somewhere, anywhere, don’t give up because it’s too hard. Look at historical data too, consider seasonality if you want to get detailed and specific.
- KPI’s – Set a constant target of wages to sales % you’d like to achieve in your business e.g. wage cost $10k per week and sales of $35k, therefore wages to turnover targets is 28.5% and this should be constant every week, so if sales go down, then your wage cost goes down. Another KPI might be hours worked rather than dollars $ spent.
- Rosters – costed rostering tools will allow you to schedule your team’s hours, availability requests, send SMS or emails of rosters and some apps even allow you to also log actual hours and compare to rosters. Check out Tanda, Time Target/Human Force, FoundU which are all hospitality specific. Online dashboards show you your hourly wage spend throughout the day, so if you can see if you’re not busy, you can knock staff off early on a shift, saving you critical labour hours and dollars as well as in built award interpretation.
- On-costs – Factor in superannuation at 9.5% and workcover insurance at about 1.5% to 4% and for some businesses state government payroll tax will apply. Sometimes up to 18% of cost to be added to your raw wage cost.
- Measure – no point setting targets and budgets if you can’t actually measure and compare how you are tracking weekly, monthly, year to date and prior year comparatives if that’s important too. Have a standard report you can pull your actual v targeted numbers together on wages and sales. Compare, explain, analyse and articulate why you might be under or over e.g. annual leave and back filling of permanent staff or pay rises or not knocking off staff when quiet.
- Employment status – Consider casual v permanent staff e.g. if your casual staff are regularly working more than 20 hours a week it may be worth considering whether there is alignment in your business strategy to employ on a permanent basis or salaried basis as a cost saving measure.
- Pay rises & remuneration structures – if you are paying in accordance with Awards you will have rate increases or changes stipulated periodically and these are mandatory to comply with. However, if you are on fixed rate agreements or salaried employees, ensure these are pegged and checked to market rates at least annually. Any discretion in employees remuneration and increases should also be considered relative their individual performance (both behaviours and task objectives). Each employee should have a position description with objectives and goals, and a review undertaken with feedback. Pending performance results will trigger or align remuneration expectations and discussion in the future and tools such as Employment Hero or Assess Team are efficient enablers. Also consider alternative remuneration structures such as employee share schemes/option plans, bonuses, other team goals/incentives/recognition measures.
- Communicate – ensure you socialise your ideas with managers and staff about cost cutting measures, pay rises and any other initiatives you implement. Measure, monitor and share your wage results and reporting to the appropriate decision makers in the business. Enable quick decision making powers for positive changes to be affected. Make sure your collaborations are all cloud based with Office 365 and instant messaging apps like zoom, slack or teams so if you are remote or not face to face, interactions should be regular and seamless. Takes some re-training but worth it.
You should expect to have some cost attributed in your venue to stock wastage and variances. But controlling, minimising and preventing unexpected cost or stock blow outs will require good management and a smart stock controller and systems.
- Expense or Asset – If you are recognising all your purchases in a month straight to your profit and loss, chances are your gross profit margins and therefore profitability month to month will be lumpy and overstated some months and understated in other months. You should always recognise any closing stock on hand or in transit as an asset on your balance sheet to ensure you are matching your Revenue and Expenses in the same month.
- Gross Profit Margins – You want to be able to look at Sales less Cost of Goods Sold (purchases relating to sales for the month) and get an even and smooth Gross Profit Margin every month (GP = Sales – COGS / Sales). You can only do this with accrual accounting measures and knowing your opening and closing stock. Also look at your point of sale (POS) and whether there is sufficient capability to capture and record live stock levels.
- Stocktakes – If you are finding it difficult to calculate your COGS and your system doesn’t automate this for you on a Last in First Out (LIFO) or Fist in First Out (FIFO) or average cost basis, then you will need to do a physical stock count on the last day of each month. This is best practice anyway, as it will verify your system generated COGS and closing stock on hand. This confirms any stock shortages or overages and then you can analyse why? I.e. wastage, cleaning beer lines, breakages, promotions etc. What threshold are you willing to accept as tolerable variance and wastage in your business?
- KPI’s – stock turn and inventory days are important measures to get an indication of how quickly your stock is sold and converted to revenue. Low stock turn means you will have a lot of your cash tied up in inventory that isn’t being brought and sold. Then you may suffer losses on obsolete or unpopular stock items. Consider promotions, price buying packages, a CRM for notification to customers on SMS and email and POS push notifications, if you see lags on slow moving stock and promotions you wish to push.
- Price Checking – how often do you agree a price with your supplier and then get an invoice that doesn’t agree? There are some smart apps that process accounts payable invoices and have automatic price checking functionality that will flag agreed price list variances, see Lightyear as an example of this functionality.
- Paying suppliers – Accounts payable automation is key to ensuring suppliers are paid on time, accurately, on payment terms and this creates great relationships and partnerships when coming to negotiate supply agreements and pricing. Lightyear is a tool that creates efficiencies by integrating with Xero or MYOB or similar and act as an online repository and filing cabinet for your accounts payable invoices, statements, electronic processing (no more paper invoices), approvals and disputes, as well as logging date and user access and actions.
- Supply agreements – regularly check the market and competitors to ensure you are getting the best pricing and ask your suppliers for price discounts if volumes or relationships are strong. You may also be able to negotiate sponsorships, promotions and collaborations with your suppliers that cross promote your products and businesses where there is a fit.
- Layout – if your kitchen or bar are configured in your venue in a way that attributes to breakages, petty theft or large clean/wastage variances, then consider redesigning layout and logistics for storage, preparation and serving. If you have long beer lines to your taps, consider relocating storage of kegs to minimise wastage on cleans etc.
We see cashflow in hospitality businesses vary wildly each month, with January and February often the most challenging for venues that fail to plan. Late payments over the holiday period and additional expenses, such as bonuses and Christmas parties can all leave the cash flow position feeling very stretched.
- Cashflow forecast – Create a cashflow forecast and don’t sugar coat it. Be realistic in your assumptions and pay particular attention to large and irregular outflows like BAS & IAS payments, superannuation, insurance, debt finance repayments, workcover renewals and income tax payments. Look at your timing of your cash inflows and outflows including accounts payable according to suppliers payment terms. You can use Vistr, Float or Castaway to give you some visual modelling on your cashflow projections. Or a simple excel spreadsheet would do the trick. It’s not the tool that’s important here, it’s the discipline and focus to apply what you know is happening in the business already into a simple inflows and outflows type scenario. If you need financing or debt facilities, the first thing they will ask you for is your cashflow projections and an understanding of your cash conversion cycles.
- GST – Keep your accounting records in good order. If your accounts are clean and up to date, you can review your net GST liability at any time, so there should be no big surprises when it comes time to pay your BAS. Get your BAS done as early as possible each quarter. This way you know how much you owe and have time to plan before payment is due.
- Separate bank accounts – Set up separate bank accounts for trading, gaming, wages, GST etc if you feel you need to. If you’re struggling to plan your cashflow this can be a useful strategy. Set aside an amount each week or month to be transferred into this account for future payments.
- Interest free debt – if you are disciplined and controlled enough to set a budget and allocated funding to separate bank accounts as above, then you can probably consider applying for a traditional bank credit card with interest free days (up to 60 days), which is repaid in full at the end of the payment period. If you are not disciplined about your credit spending, then this will be become more of a hindrance than a help.
- Payment terms – because you’ve got a great account payable automated process and you are paying suppliers on time and in full, you may be able to request additional credit terms. Try extending payment due dates from 7 days to 14 days and this will alleviate any immediate outflow or deficit crisis. Just ask the question.
- Avoid ATO payment arrangements – they are expensive forms of debt, far higher than traditional bank lending rates. Banks also hate ATO debt, so this might compromise any bank facilities you have and if you miss a payment you will need to renegotiate terms with the ATO, which is administratively time consuming.
Managing wages, stock and cash can be tough, but with careful planning and utilisation of some of the above strategies, you can make the tasks easier and lose less sleep over running your business optimally. We are here to help and ready to work as part of your team and outsourced solution at CFO One. We have been providing bookkeeping and accounting solutions to our hospitality clients who are happy they outsourced to us, check out QHA Award Winner, Prince Alfred Hotel’s Decision to Outsource.
And if you want to understand more about CFO One, what a Chief Financial Officer can do for your business or what services or solutions we can offer, then check out 3 part series below.
Director, CFO One Pty ltd
Tamara is a Chartered Accountant (CAANZ) with over 20 years’ experience in commercial accounting, finance and risk management. She is Director at CFO One and heads up the Operations Team, focussing on hospitality clients, specifically hotels, pubs, taverns, clubs. Tamara will ensure you have fit for purpose cloud-based systems and best practice internal processes so you don’t need to worry about your day to day back office functions. Tamara’s philosophy is that she puts huge value on getting the numbers right enabling accurate reporting and meaningful decision making.