The 2019 Budget saw a big blow being dealt to the hospitality industry with the VAT rate being raised from 9% to a whopping 13.5%. This massive hike in costs added to the constantly rising price of rent and insurance premiums could lead to many hospitality businesses struggling. That’s why we’ve comprised a list of some of the things you can do to lower costs and higher profits.
This is a big problem for businesses in the hospitality industry. It’s hard to strike the right balance between giving your customers enough food but not so much that it may be wasted. 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 increase in VAT. It should also help you to plan how much food per month you need, allowing you to make better purchasing decisions.
Cost of Food
It’s important to remember that 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. Bearing this in mind, are you charging the right price for your dishes? The general rule is to add on 30-35% margin to cover other expenses; but you know your business best so make sure this margin is enough. 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 re-evaluating your menu and labour costs. If your gross profit margin is already tight, the increase in VAT could leave your business floundering; whereas a margin of 20% gives you room to adjust as needed.
Cash Flow Management
Planning has a big impact on saving costs, even great hospitality businesses fall into financial difficultly because they haven’t got a full handle on their cash flow management. Carefully monitoring and managing the cash flow in your business makes it possible to anticipate difficulties in the short and long term. One great solution to this is investing in online bookkeeping software, which makes cash management virtually effortless.
Overheads are a necessity but paying an arm and a leg for them isn’t. Explore what switching deals are available from other providers by shopping around. Speak to your commercial neighbours to find out if they are enjoying better deals and if they are, get that provider’s details to see what is available. Either switch or use this information to apply some pressure on your existing provider, as they will usually offer a better deal to retain you as a customer.
Benefits of Upselling
Upselling is a great way to increase your profits, and if done right it can also lead to a more positive experience for your customers. Encourage your wait staff to upsell in a non-pushy manner. Something as simple as offering customers dessert or tea and coffee when they’ve finished their meal can lead to a significant upturn in profits for your business. For some ways to get the most out of this sales tactic check out our article 'The Art of Upselling: Happier Customers & Higher Profits'.
Reduce Insurance Premiums
Insurance premiums are constantly on the rise, and restaurants in particular have seen an increase of 50% on their premiums. This added to the VAT rising by 4.5% makes maintaining a hospitality business almost impossible. There are some ways to reduce your insurance premiums though. For a full list of tips, you should check out our article ‘How to Reduce Your Insurance Premiums for Your Restaurant’, but the most obvious way is to raise your deductible. This lowers premiums as the insurance company doesn’t have to pay as much if you make a claim. However, this can be a risky one, so you need to make sure you are comfortable with the deductible amount, as anything over this amount you will have to pay yourself.
Making changes and trying to save can take time to go into effect, if you find your cash flow under pressure in the meantime, you should consider a short-term finance option. Accessing external finance could help you to spread out your costs over the course of the year. GRID offers a flexible repayment option, called a cash advance, which is a simple and quick way to get the funding you need. The best thing about it is that repayments are made as a percentage of your daily credit/debit card sales, so it works with the ebb and flow of your business. You can also get approval just 24 hours after we receive your full application. So not only does it work with your natural customer footfall, but you also don’t have to wait weeks for a decision.