7 Expert Accountancy Tips for Hospitality Businesses
The hospitality sector, encompassing restaurants, hotels, cafes, and more, operates on tight margins and faces unique financial challenges. Without efficient and effective financial management it can be a tricky sector to thrive in, shown by the fact the sector accounted for 10% of administrations in the first six months of 2023.
Despite this there are some tried and trusted accounting strategies for hospitality businesses which can help your business thrive:
1. Implement a Reliable Point-of-Sale (POS) System
Accurate Tracking: In an industry where transactions happen round the clock, it's essential to have a reliable POS system that can track sales accurately. This not only helps in managing day-to-day cash flow but also aids in financial forecasting.
Inventory Management: Modern POS systems can sync with inventory management tools. This synchronisation helps in monitoring stock levels, understanding which items are best-sellers, and preventing theft or wastage.
Many POS systems integrate with cloud accountancy software such as Xero, which we recommend for our hospitality clients.
2. Understand Seasonal Cash Flow
Hospitality businesses often experience large fluctuations due to seasonal trends. Luckily there are a few ways you can combat any unexpected drops:
Forecasting: Use historical data to anticipate busy and quiet periods. This will help you prepare for high-demand times and conserve resources during leaner periods. For a more detailed analysis in understanding seasonal trends, an accountant can create a set of management accounts which includes profit/loss reports, balance sheets and cash flow forecasts.
Flexible Budgeting: Adopt a flexible budget that can adapt to your varying income levels. This can help you allocate resources more effectively and avoid unnecessary expenditure during slow seasons.
3. Keep Tabs on Labour Costs
Wages are among the most significant expenses for most hospitality businesses, and on average are costing a business around 40% of their turnover. Costs have increased rapidly with wage increases across the sector of 9.5% in 2023 outpacing the national average. Here’s how you can make sure labour costs don’t get out of control:
Efficient Scheduling: Use staff scheduling software to ensure you're not overstaffing during quiet times or understaffing during peak hours.
Training: Invest in training programs for your staff. Well-trained employees can perform their tasks efficiently and will feel more valued, reducing the need for excessive overtime and ensuring that customer service remains top-notch. Staff training costs are also an allowable expense for your hospitality business!
4. Understand your Cost of Goods Sold (COGS)
For many hospitality businesses, a major expense is the cost of goods sold (COGS), which includes food, beverages, and other consumables. With inflation in the UK at record levels in the last 12 months, these costs have spiralled for many hospitality businesses and can impact your gross profit margin. Here’s what you can do to mitigate this:
Regularly Review Pricing: As your costs fluctuate, especially for items like fresh produce or imported goods, make sure your pricing reflects those changes. Regularly reviewing and updating your menu or service pricing ensures you maintain a healthy profit margin.
Bulk Purchases and Negotiations: If storage allows, consider buying non-perishable items in bulk to take advantage of volume discounts. For perishable items, negotiate with multiple suppliers for better rates to protect your bottom line.
5. Streamline the Accounts Payable Process
Managing the accounts payable efficiently ensures that your suppliers and vendors are paid on time, which can be pivotal in negotiating better terms and discounts. To do this, we recommend you:
Automate Payments: Use accounting software such as Xero that can schedule payments to prevent late fees.
Maintain Relationships: Foster strong relationships with key suppliers. Consistent, on-time payments can often lead to better deals or more flexible payment terms.
6. Consider the timing of your capital spending to help with cashflow
Capital allowances apply on various items needed for the running of your business including commercial kitchen equipment, miscellaneous fixtures and fittings, fire alarms and CCTV equipment, some types of vehicles and much more.
Consider when you are purchasing these items and when the tax relief will be received from the purchase. Consider if spending should be brought forward so the tax relief can be claimed sooner to help with cashflow.
If – like most hospitality businesses - you are the proprietor of a commercial space, you should also consider if there is potentially unclaimed tax relief in the form of embedded capital allowances. Embedded capital allowances can take the form of integral features, such as heating and plumbing systems.
Not Sure Where to Start? You Need a Specialist Accountant!
Navigating the financial intricacies of the hospitality industry can be highly challenging without specialist knowledge, which is where we can come in.
Linggard and Thomas are chartered accountants based in Newquay, Cornwall that understand the complex finances of different businesses, working with many clients in the hospitality sector.
We are a pro-active accountancy firm that go beyond the numbers to give you tailored advice to empower your business to grow.
Get in touch today to see how we help you succeed.