The Bowden Group Blog

In my experience over the last 22 years as an independent consultant to the Hotel, Catering, Restaurant and Pub industry, the biggest profit pitfalls are:

• Plan it all in detail first – and do the numbers. Do a budget. Before you start a business, do a Business Plan – there are plenty of examples on the internet for free. If you don’t plan it fully – don’t be surprised if you fail.
• Keep planning – keep doing Budgets and Forecasts. It pays to plan ahead – do your budgets and monitor your progress against them.  Do a new budget for every new financial year, then do monthly forecasts to see where you are going to be financially.  If it’s not going well you’ll, have to adapt your plans – but at least you’ll know about it.
• Do regular P&L Accounts. It is vital to know where you are financially.  You may not like the answer, but forewarned is forearmed, and then you can plan for it.  Make sure you do some form of P&L account done every month.  This doesn’t have to be over-complicated, and some simple book-keeping will achieve this, internally.  If you don’t do regular P&L accounts, you’ll never know where you stand financially
• Having regular P&Ls is one thing – the next is having enough detail in the accounts to be able to identify the problem areas. A good example of this is that you must separate out the income into Accommodation / Food / Liquor, and also split out the purchases out between Food and Liquor.  Only in this way will you be able to work out what your Profit Margins are. Having badly structured P&Ls is almost as bad as having none.
• Get the Profit Margins right. You have to make enough Gross Profit to pay all your overheads, and still leave enough to make a profit.  Don’t underprice your products, but do remain competitive.  If you don’t plan to make the right margins, no amount of sales could be enough!
• Do monitor your cost prices – and check for increases. Do react to price increases – don’t try to absorb them.  So many businesses have failed because they have failed to increase their selling prices when cost prices go up.  If you just can’t increase the prices, then you need to source a cheaper product to sell at the price you have  -  thereby ,maintaining your profit margin. Don’t let your margins erode by stealth.
• Continually market the business – don’t rely on business building itself. You may be lucky, but very few are.   All businesses need to work out a Marketing strategy, and then implement it.  And you WILL have to spend some money on Marketing.  Keep building the business!
• Employ good people. Employ people with a great ‘’can do’’ attitude.  This industry is all about Hospitality – the welcome that the customer receives, and how customers are treated, is the key thing to making customers want to come back again and again.  It is SO important to have a good welcome, with a smile, and a good farewell – again with a smile, and a ‘’thank you’’.

You can train someone to do a job – you can’t train them to be genuinely welcoming.  Employ Attitude!

David Hunter, the Hospitality Business Mentor, firmly believes that three quarters of the failing hospitality providers he meets could be saved with the right focus, processes and management techniques.

•    According to the Beer & Pub Association 39 pubs were closing each week as of February, 2010

•    A report last year highlighted a 61% increase in hotel insolvencies during 2009.

David Hunter comments: “The greatest challenge faced by most failing hospitality businesses is a lack of commercial understanding in the management team.  People open a restaurant because they can cook or run a hotel because they enjoy being a host.  These are vital skills but they are not enough without the essential business acumen that keeps the management elements flowing.”

Throughout the last 25 years David has rescued hundreds of failing businesses, many of which the owners themselves had even given up on.  Once the proprietors are convinced by Hunter about the viability of their business Hunter says it often comes down to a few key things:

Hunter elaborates: “In most cases there is a lack of understanding and awareness about simple accounting procedures such as profit and loss, and cashflow.  Too often, businesses don’t even have monthly P&L Accounts, as I would recommend – most are disappointingly only doing this annually.  You just CANNOT pick up problems in time from an annual P&L.  Profitability is key, and is often underanalysed, meaning that the operator doesn’t know where he needs to improve things. Poor stock control is a problem, including both over and under-ordering – both of which can cause problems with customer satisfaction.  And finally there is poor staff management, whether it is the wrong staffing levels, or the wrong people, it can be a disaster for any establishment.”

David Hunter firmly believes that following a few key rules and focusing on the management side of their business up to 75% of the accommodation providers in the UK that are currently struggling could well be saved through better management.

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