Costly Mistakes In Your Hospitality Business
Do you make these costly mistakes in your hospitality business?
Re: Restaurant Bookkeeper. Let’s have a look at some ghastly ways profits just leave through the front door – and more importantly, what you can do about it, today. Considering we are talking about hospitality, everything we discuss needs to be logical and there needs to be a certain method to the overall finance management madness.
Let’s face it. If your managers and chefs were cost-controlling-aces, you, the business owner, would not be reading this article. Restaurant bookkeepers would be out of a job. When wages costs are 50% higher than food costs, we agree with the owners.
The highway.. or the other highway?
Can you actually increase your income?
Anyway you cut it, there will always only be 3 ways to increase your income:
-Increase your prices (that is not always possible)
-More customers (and repeat trade, with aforementioned drawbacks)
-More income per customer (better spending customers?)
All 3 can be quite challenging and take a while, while costs increase even further to enable investing in these 3 strategies. As you well know, you have to “spend money to make money”.
Pay peanuts & get ..
Different types of food businesses have their own benchmarks and systems, with their own individual cost profiles. Pubs may have less than 25% of their income as wages. Bistros and cafés can get up to 30% whilst restaurants can climb to 35%. If you want to get into fine dining, it will be even higher than that. In fact, 40% and above is routine. Bear in mind, this is percentage and not static. In fact some of them get so large proportionally, that they need external sources of cash just to break even or worse, to have a “manageable loss until things pick up”.
Here are some potentially productive options (that you should consider with great care and diligence):
-Streamline service and production processes you already have
-Reduce staff levels & re-engineering rosters
-Increase staff productivity
-Average pay reduction
-Increase good staff retention
-Manage absenteeism proactively
How about food and beverage costs?
Food and beverage cost control
This is a by-product of doing a bunch of things right. Please don’t think of this as portion size, waste and other similar aspects of the business. Cafés should not get too far higher than 25%, 30% in restaurants and less than 40% in a pub. Low labour costs and high turnover is important for pubs to generate a decent profit. Fine dining is a challenge in this area where food and beverage costs can easily and quickly blow out, making for an even more stringent production system.
Everything is connected. From getting the right prices from your supplier (Without squeezing them too hard and destroying them), delivery, storage, your preparation on site, all the stages of production through to supplying, portioning, pricing and other parts of this intricate supply chain. It is an admirable feat of engineering when it all works well together!
A little flexibility goes a long way here. You have an old favourite that is forcing you to make a profit on other items – just to cover the loss on the old favourite? You are not alone – many make this mistake for some reason. Think about it this way. Is that old dish $5 less profitable than a defined substitute? And you actually need that $5? Now you have to go and get that profit on something else on the menu – that is already well-priced, and damage a well-performing dynamic.
How about other costs?
Utilities? Flowers? Masks? Everything adds up – as a good restaurant bookkeeper could tell you. Good managers need to have a good handle on all of it and control this entire ecosystem, this maddening supply chain. If you can identify a few of these areas, it is a good idea to change them into projects, where pros and cons are analysed before changes are made, to avoid further costs and disasters down the road. This ensures a larger and more sustainable profit over time i.e. the only way forward at any point in time. There are no excuses.
Let’s say your business only turns over $1,000,000. 2%-5% is already $50,000. Over a few years, that is a few hundred thousand dollars easily. That’s a nice deposit on a house, a different lifestyle or a superb reno! Enjoy.