How to Streamline Your Business Practices to Save Your Bottom Line
Hospitality is a very lucky industry in that more often than not, revenue comes in very fast – services are consumed, money is paid. This immediacy is awesome as it removes the anxiety of having to wait for things like invoices, which can drag on – there’s no invoicing a diner! – though having said that, hospo folk often do the opposite when it comes to paying others.
Working for, or better yet, owning a hospo business can feel like you’re working in the most dynamic and fulfilling industry out there. It also, especially lately, can feel overwhelmingly as though dramatic changes, whether it’s an out-of-the-blue quiet week or an out-of-the-blue global pandemic, can occur at the drop of a hat. Now more than ever, saving money where we can is vital, and ensuring cash flow is working as efficiently and smoothly as possible is a must.
Check out our super-simple, easy-to-implement tips below, brought to you by our head of bookkeeping, Caroline Crawford, to up your cash-flow efficiency game.
Change up the frequency of your wages
Pay weekly! Hospitality labour directly produces revenue, so paying two or four weeks later disconnects the sale and the expense. To mitigate this, simply switch your payroll to weekly from fortnightly and your output will match your input.
Pay super monthly, instead of quarterly. Set a reminder to pay on the 28th of each month and it’s done! While there’s no financial benefit of monthly payments, avoiding huge spikes once every three months is ideal.
Stop buying in bulk!
Don't let managers get lazy and order supplies once every six months, order what you need and pay for it as you use it.
Match your supplier terms to the time of stock holding.
If you buy produce, you use it within the week (give or take) so you can pay for it within a week.
If you buy wine that takes a month to sell, then negotiate 28 days of credit. Just because a supplier offers you 60 days credit, it doesn't mean you have to use it!
Paying for a product before you have sold it is bad for cash flow. Paying for a product you have already had the money for weeks ago is also bad. Cash flow should be nice and smooth - money in, money out.
Take control of your bank balance
More than 70% of small businesses hold less than one month’s operating costs in the bank in cash (just a gentle reminder of those tight margins!). You can easily loosen them up a bit by mitigating big cash spikes. Check it out:
Use a separate bank account (sometimes called a liabilities account) to move across what you will owe in GST and PAYG so there will be no surprises when they’re due. Ask your bookkeeper (us!) to help you estimate and track your GST and PAYG liabilities.
Speak to utility and insurers about payment frequencies so you can pay as regularly as possible. Icare and worker’s compensation will often let you pay quarterly instead of annually.
Speak to your bookkeeper and accountant about paying weekly, instead of in one large lump sum at the end of the quarter or financial year. This allows you to claim these fees and GST against your upcoming BAS lodgement.
The aim of the game here is to avoid two or more of your larger payments coinciding at the same time, when you may happen to be in a quieter trading period, leaving you low on cash reserves. Generally, by moving to more frequent payments across the board, while perhaps scary to begin, you’ll avoid running into potentially large issues if you’re low on cash when a big bill comes in.
Got your cash flow all covered? Excellent. Now it’s time to get your tax and payroll sorted. Head here to get in touch. We’ve got all your hospo accounting needs covered.