How’s your relationship with numbers? Do you find your business’ financial statements a source of fear or frustration? Some business owners get totally overwhelmed by their financials and choose to monitor just a few numbers – usually bank balance or weekly sales. Other analyse too many numbers and suffer from ‘paralysis by analysis’ – they just don’t take enough action!
Your business probably consists of many separate businesses – in a Hotel there are Bars, Café, Bottle shop, Restaurant, Accommodation, Functions rooms, Special Events, Gaming or more. Right now there are more than 1000 things that you could do to improve any one of those businesses.
But where do you start? How do you allocate your precious time between working on staff, systems, sales & marketing, suppliers, stock control and sustaining cash flow – then find that extra time for strategy & planning. How can you really make use of the Pareto Principle or 80/20 Rule to find more profit?
Generally speaking, you want to make more profit by attracting more prospects (walk ins), increasing your sales conversation rate, increasing your average $ sale, increasing your yearly transaction per customer (return rate) and increasing your profit margins – by buying better and increasing prices where you can. Start with what you have by working on your existing client base and selling them more before paying big money to market to new prospects.
Measuring your results is a key to running a successful hotel or any business. “What you can’t measure you can’t manage” is a popular phrase with both accountants and consultants.
But are you really a ‘numbers person’? Do you love perusing a P&L statement or do you prefer the buzz of talking to patrons? How’s your Financial Literacy – do you really understand the items on your Balance Sheet?
People come in two broad types – emotional and logical – and the full range in between. Emotional people or “people people” are big on passion, talking and entertaining their patrons. They spend a lot of time out front with customers. They don’t really like analysis, budgeting or financial planning. Logical people on the other hand are task-oriented, more introverted and really happy in the back room. They love the numbers, doing the books and analyzing them.
If you find that you’re not making much of a profit, it could be because you don’t like numbers. It’s simple – if you focus on your financials you’ll make more profit. What you focus on expands! You can start by measuring and finding out what’s really going on in your hotel. You can then set your goals, targets and budgets. As an old proverb goes “Man who aim at nothing hit it with amazing accuracy”. So what can you really measure and manage?
A good point of sale system can measure and monitor your sales in detail and give you break down by time, type of products – meals, drinks, salesperson or covers/checks. You can use this information to increase sales, margins and profits with better staff rostering, menu design, stock control, advertising allocation, marketing programs, improving staff sales performance and even implementing a rewards and recognition program.
Connect a computerised doorway Traffic Counter to find out how many people came in and you can calculate and track your sales conversion rates. You can find out if your patrons are buying less than last year or if sales are down due to fewer people coming in.
To get a handle on your sales and marketing performance you could count your enquiry phone calls, email enquiries, web visits, site inspections, quotes & tentative bookings to calculate sales conversion rates. Finding out source of existing customer enquiries and where they live can focus your advertising spend. Even a simple “Business Card prize draw” can help you find out where your customers work.
The total number of customers on your database or email club can give you a measure of the effectiveness of your marketing efforts and provide an asset to sell when the time comes.
You can measure your Customer Service numbers with feedback sheets or online survey programs like Ultrafeedback. You can even measure intangibles like a Relationship or Event satisfaction with a Quality Quantifier (“On a scale of 1 to 10”). Avoid complacency – 8.3 is just the “average customer service” satisfaction level in Australia. Consider asking your staff and customers – “What would make it a 10?”. Use quality circles to find and fix your “ugly bits” first.
Your two big costs are wages and COGS (Cost of Goods Sold – Food & Drink). There are many things you can do to improve staff efficiency and reduce wages – close monitoring is a great start. Your Wage % is greatly affected by the team you’ve chosen and what they do with their time. Consider the effect of focusing them on high-value activities rather than low-value ones. Consider the real cost of a staff member. A typical full-time employee works about 1200-1300 useful hours in a year. To calculate their Real hourly rate take their Gross Annual salary and divide by 1000. So a $50,000 p.a. employee = $50 per useful hour. This allows for about 20-30% on-costs.
Watch your Cost of Goods Sold % like a hawk – Check your buying, processing & preparation, wastage and selling methods– especially merchandising, menu design & margins. The fastest way to reduce COGS% is by increasing sales of high margin products and putting your prices up. Training your team in basic Sales skills is essential.
To help the kitchen and wait staff improve your profit you’ll need to know your High Margin & Low Margin menu items by measuring Total Food cost % or Gross Profit $ per item. Even a special project of weighing the rubbish or counting the bins can help reduce wastage.
Profit made on Food can be improved by the menu placement of low and high margin items and analysis of which items are selling. You can improve your food sales by focusing efforts on increasing Items per sale, Average dollar sale, Splits – Lunch/Dinner or E/M/D, side order % or even average tip %.
If your chef is highly creative but doesn’t really like financials, at least calculate your weekly food cost %. You can avoid the hassle of a weekly food stock take by writing a list of all the delivery invoices for the week and calculating the total. Measure your food sales and divide by the weekly food cost. Average the last four weekly results to get a “running average Food cost %” each week. This should trend down over time as your chef is now focused on the cost of food products, the effect of menu pricing on margins, portion and waste control and the results of selling just low margin food – like steaks. It’s much better to work on a weekly basis than to just complain about food costs at your regular financial meeting either quarterly or annually.
There are ways to make financials more fun for the numerically-challenged. Daily focus on visual feedback, charts & graphs in the back of house area can get up to 20% improvement in results. Motivate your team with simple competitions based on sales results.
Get some help. Ask your accountant or advisor to provide your numbers as a “Financial Dashboard” (two pages of little coloured charts) or organize a monthly management meeting to verbally discuss the trends and suggested actions. Get someone to explain your Balance Sheet and the effects of non-cash items in your P&L – depreciation, amortisation etc. The results far outweigh the cost! Find out the difference between a business profit and a capital loss before you learn it the hard way.
Comparisons are really useful – can you compare your numbers to last week, last month or last year. Watch the overall trend – are we up, down or sideways? There are different management strategies to be used for growing, stagnant and declining businesses.
Capture and measure data. Track, record, analyse, compare and examine. Ask why? Monitor your trends. Make an action plan. Do something different.
Every business needs a numbers person – beyond basic bookkeeping – a financial analyst. Learn to love the numbers even if you don’t want to. Focus + Fun = Financial Success. Make it a game and have more fun!