I love working with hospo businesses.
It probably has something to do with the fact that eating is one of my favourite activities. Particularly when it’s set in a cool atmosphere and washed down by a yummy vino. But also, because most hospo business owners are in the trade because they’re so passionate about what they do. This always inspires me to help.
Unfortunately, hospitality can also be a really difficult craft to make a go of. It often involves a whole lot of hours and not a lot of money to show for it.
Luckily, the formula for success is one that’s relatively simple (she says, from the comfort of a desk). Here is where I get all financial on you, but bear with me.
The profit and loss pie (delicious!)
A key tool to use for measuring the success of your business is the Profit and Loss report, lovingly nicknamed the ‘P&L’ by bean counters. You should be looking at one of these for your business on a regular basis during the year.
Imagine your P&L is a pie. The whole delicious pie is your total amount of sales.
What money your punters pay you then has to be cut up into pieces and served out to different expense categories. In a hospitality business, there are two pieces of pie which suck up most of your moolah. It’s no surprise.
Wages and the purchase of food/beverages. It is these two expenses that you have to manage really carefully. Get those right, and make them into the smallest piece of pie humanly possible, and you’ll have far more pie left to pay for your fixed operating expenses (think lease, power, interest etc), assets, debt repayment and tax.
If you’re savvy with cost saving then there will still be pie left for you to take home as the business owner. We call that dessert…
Cutting the pie wisely
So, how do you manage wages and purchases, you say?
First of all, it’s useful to know what size the piece of pie should be. We use something called benchmarking to determine this.
This means compiling together a whole lot of P&L’s from a whole lot of hospo businesses and work out how big the different slices of pie are with the successful operators.
Very broadly, a slice that is 30-35% of your total pie (or sales) is a rough indication of what you should be paying in wages. Then again, the same percentage for purchases.
However, this can change based on the type of establishment you are. For example, if you are fine dining you’re going to spend a lot of wages on food preparation so that percentage is likely to be a bit higher.
The purchases percentage will be different depending on whether you sell mostly food, mostly alcohol or a mix of both. Your accountant can guide you with this. For more on benchmarking have a look at our eBook, “Ten Tips for Busy Business Owners”.
Once you know what you’re aiming for, then the key with wages is to roster extremely well. Don’t have staff lingering, send them home. Don’t open hours where you’re not busy. On the purchases side of things, be super careful with the wastage of food, dish size, cost of ingredients and ordering. Negotiate good deals with your suppliers so you’re getting the best deal, or shop around. Investigate the numerous number of tools available to help you measure and manage these numbers.
Slick hospitality owners are successful because they are fiercely pedantic about these percentages. They’re the ones eating the pie!
And remember, our eBook, Ten Tips for Busy Business Owners, is an easy to understand guide aimed at helping you run your business better and get comfortable with expenses.