Pictured: Adrian Cummins, RAI & David Doyle, GRID Finance, at The Cornstore in Cork helping to promote keeping VAT at 9%.
No doubt you know that the next Budget is just around the corner. The lead up to a budget can be frustrating, especially in the hospitality sector, where even minor changes can have a major effect. But what can you do to help prevent any financial issues that can come with The Budget?
Adjust Your Budget
It may seem obvious, but you should look at how your budget would change if the Government increased the VAT from 9%, or if the minimum wage rises. It’s essential that your business has enough cash flow to respond to any increases in your outgoing cash, as a result of such changes. Consider making a second budget alongside the one you have and see how much extra cash you may need in each scenario.
Cost of Food
Are you selling your food/drink at the correct price? Remember, you’re not just charging the customer the price of the food itself, but the time and labour it took to make the dish. The food and drink you sell must cover the cost of everything, from the premises your business is in, to the staff who work there. The general rule is to add on 30-35% margin to cover these; but run the numbers to make sure it is enough, especially if VAT rates and minimum wage rises. Be mindful to strike a balance between covering costs and still being a reasonable price for your customers. If you can’t get the balance right, consider ditching that menu item.
Gross Profit Margin
How much money have you left after your expenses are paid? Keep track of this figure to work out any patterns or problem areas. Knowing this will help you plan for your business’s future. According to The Balance, the ideal gross profit margin for hospitality businesses should sit around 20%, so if you find this isn’t the case, consider reevaluating your menu and labour costs. If your gross profit margin is already tight, an increase in tax could leave your business floundering; whereas a margin of 20% gives you room to adjust as needed.
This is a big one for those in the hospitality industry. Every ingredient used in each dish should be measured. Having clear portion sizes, using measuring cups and weighing scales, should help reduce food wastage and food cost. Every cent counts; if you are saving 20c per plate by reducing food waste, this may help mitigate costs arising from the upcoming Budget. It should also help you to plan how much food per month you need, allowing you to make better purchasing decisions.
The lead up to The Budget can be daunting, especially when there are no strong pre-budget predictions. You can only do so much to mitigate the possible effects of The Budget, but the above points are a good place to start. However, if you think you may need an injection of working capital before or after The Budget, consider a short-term finance option like a cash advance. Repayments are a daily percentage of your card machine takings, meaning this works with your business as it takes the pressure off your cash flow.
For more information on cash advances and how they work you should take a look at our business loans page.