Financial fitness—like any form of fitness—requires discipline and clear-sighted goals. When you set your sights on improving your health, you get a personal trainer to help you determine how to achieve your fitness aspirations, they help you write up a plan to achieve these goals and methods to measure them. The same process is used when getting financially fit. As a hospitality business coach, I have helped businesses create “fitness plans” and implement metrics to help them succeed financially.
It is easy to spot hospitality owners who do not control their key financial metrics. They are exhausted - working harder and harder - and their profit margin refuses to increase much from quarter to quarter, and year to year. But if you know which best financial metrics you should be targeting then you can avoid this fatigue and put the work in and get results back.
Best practice metrics for a hospitality business:
The above numbers are what we call “best practice” meaning successful businesses should be hitting them. Sadly, most hospitality businesses in New Zealand do not achieve these, even worse, the numbers above are not even the goal. Most hospitality businesses in New Zealand have no intended target for the most basic numbers in their business. Many hospitality businesses in New Zealand achieve around the 25-30% for overheads but remain well off when it comes to the Prime Cost of 60%.
So, let's look at prime cost. Experience tells me that most hospitality businesses are sitting at over 70% for prime cost. This means that the business is not managing the cost of goods and wages effectively and this results in a poor net operating profit at the end of the year. Think of these businesses as a sinking ship.
What a business needs to do to improve prime cost is:
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Set 60% prime cost as the annual goal
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Decide on the ratio - this will be different depending on the style and approach of the F&B operation. Eg; a daytime cafe might be 25/35 a pub might be 28/32 . In today's environment, you should always aim to have cogs lower than wages.
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Implement systems that will manage prime cost effectively - eg Loaded - then use the system to its full potential.
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Get help from experts - surround yourself with people who are “working smarter” than you and who can coach or mentor you to get your business on track.
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If you are reading this and believe you can't achieve these metrics in your business then you won’t. However, if you implement the systems, the culture and the correct approach you can and will accomplish these industry best practice results and you and your team will benefit from a business that is sailing not sinking.
If you’d like to receive a FREE one-hour coaching session to discuss this or to look at some other areas of your business you can book a session here. I’d love to talk to you about your business and share my experience and expertise with you.
