It is becoming even harder to make profits in the hospitality sector. According to the UKHospitality, costs in hospitality businesses are at a 12-year high. Controllable costs have risen to an average of 52.5% of turnover and payroll costs (the largest cost for eating and drinking-out businesses) now stand at 29.4% of turnover, which is an increase of 1.5 percentage points in the last 12 months.
As business owners, we need to ensure that we are managing our capital and expenses as effectively as possible.
It still amazes us how many businesses (both in and out of hospitality) have no idea of the cost of Accounts Payable (AP) to their business. You’ll never see AP as a row on a Profit & Loss account, but the process of managing AP certainly impacts the P&L. Typically, when we discuss this with a finance team of a hospitality organisation, the staff wages (or the cost of the bookkeeper) are top of mind, but what about all those additional costs? It can be easy to forget that there are costs associated with running a business department that aren’t always visible and tangible.
We recently helped a hospitality group in Australia to automate their Accounts Payable with Lightyear, and they have been able to add 0.5% back into their overall Gross Profit. That, with savings made in their back-office staffing levels, was the equivalent of a 7% increase in net profits, from 13.1% to 14.0%. Here’s how the exercise went.
Price-checking of food deliveries - increased Gross Profit
By loading up the cost per kilo/unit of the 20 most commonly purchased proteins (220g salmon, 250g rumps, 180g burger patties etc), the group identified the equivalent of £9.5k of overcharging in a 3-month period - call that £38K per annum - that correction increased food GP by 0.5%.
In addition, removing the need for chefs to manually price-check (an exercise which obviously wasn’t working as it should), saved 1,500 hours per annum, which meant 1,500 less casual hours, which equated to £17K per annum. That saving reduced labour as a percentage of turnover by 0.2%. All up, implementing Lightyear improved food margins by 0.7% - that was 0.7% of turnover straight back to the bottomline.
Beverage stock-takes - improved Gross Profit and less Stock on Hand
Whilst price-checking of beverage did result in a small increase in GP of 0.2%, the main savings and benefits were seen during stock-takes. Lightyear allowed the Operations Managers to automatically keep stock-systems up to date with deliveries. There were now no data-entry errors, which resulted in stock-takes becoming faster and more accurate, but it also resulted in more than 4% reduction of stock-on-hand levels. By having the inventory systems up to date, managers were able to order more accurately, and stop erring on the side of caution. That resulted in there being more than £50K in the client’s bank accounts, rather than on shelves.
Consumables and Expenses - less overspend
By allowing managers to see in real-time what they were spending on print, entertainment or advertising for instance, managers were less likely to overspend. They were no longer tracking expenditure on spreadsheets. Lightyear allowed them to see in real-time what they had spent, and made budget forecasting a whole lot easier and precise.
All up, implementing Lightyear resulted in direct savings in food and beverage to the tune of close to £100K, it also allowed head-office to reduce their head count in Accounts Payable by 4 to 2, resulting in a further £75K of savings. All up, Lightyear generated savings of around £200K, for only around £500 per month.
Lightyear is different from anything else in the market
- Lightyear is the world’s fastest Accounts Payable software. It offers:
- Real-time line-by-line data extraction, so no more data-entry
- Automatic price-checking, so no more overcharging
- within a customisable approvals workflow, so no more paper shuffling or lost bills
- Automatic supplier statement reconciliation and error handling, so no more time-consuming manual reconciliations
- and online archive storage for 7 years, so no more, well...filing cabinets.
Are you ready to add gross profit back to your business
Lightyear are offering all UKHospitality members the chance to save time and money in their AP process.
You can sign up for a FREE 30-day trial of Lightyear and get your Let’s Get Going on-boarding program for free.
Use referral code UKH30 to avail of this offer.