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Change is an OpportunityThe recent decision of the Fair Work Commission reducing Sunday and public holiday penalty rates is certainly big news for the hospitality industry.

Without doubt, staffing costs one of the biggest costs for a hotel and the additional cost of penalty rates makes maximising the value of your venue through maximised trading hours, all the more difficult.

While the decision poses an opportunity to reduce costs, it also represents an opportunity to undertake a broader cost review.

We have seen that as businesses progress through their life cycle, cost control can sometimes become loose or that those cost controls have not kept up with advances in technology.

The time to review your cost controls is now, and here is how:

  1. Revisit Your Rosters: With the changes to penalty rates it might be a good time to revisit your rosters to ensure that your labour matches expected sales. By looking at the sales trends (by day and by hour) you can often find savings by adjusting the roster to match your forecast sales. Rotating salaried staff on more weekend shifts is still a valid cost reduction strategy even with reduced penalty rates.
  2. Stock Control and Point of Sale: Point of sale technology is an important investment for any hotel, but so too is the regular stock take to ensure that the “virtual” stock of the system matches the actuality. If your point of sale system can’t flag slow moving stock and broken up stock units, then it might be time to revisit your system. Staff should not have to key individual items and prices into the register.
  3. Revisit Your Menu: Now is the time to consider the type of meals you may want to serve on a Sunday. The reduction of penalty rates may mean that you can offer a greater variety during these times catering for a family market on the weekends. Also don’t dismiss outsourcing labour intensive items on your menus which not only take up precious labour time and kitchen space, but also are outside your core menu that you want to be famous for.
  4. Overhead Cost Review: While the Fair Work decision may assist with your direct labour costs, other major overheads can easily slip away over time. Costs such as electricity, telecommunications, gas, waste removal, cleaning, cooking oil, and maintenance contracts should be reviewed. Are you out of contract periods? Beware of automatically renewing contracts. Are there new suppliers that can introduce competitive tension into the mix?  Hedging your electricity costs can provide surety of costs for years to come on one of your major expenses.
  5. Cash Handling: Cash is king right? Well it is also expensive, bulky, difficult to store and difficult to transport safely. The cost of cash handling can be cut dramatically through recycling cash on-site. Manual cash counting is error prone, time consuming, and increases the amount of cash you need on hand to maintain your floats. Cash transport is expensive using security companies, or dangerous if done yourself. Labour savings alone can justify automating your cash handling cycle with payback periods as little as 18 months.
  6. Interesting: It is timely with interest rates being as they are, to consider your entire finance costs. Not just the headline interest rate, but also in-built fees and charges, rentals and operating leases that fund the fixed assets which you use in your hotel. Refinancing can seem daunting, but the process can be made easier with your broker, accountant, lawyer and incoming bank working together. Introduce some competitive tension into your banking relationships by getting a review of your finance alternatives. Also there are hedging strategies you can consider that provide certainty around your interest costs in the future.
  7. Consider Your Advisers: A relationship with a trusted adviser is paramount to a successful business. Even then, consider the scope of what your adviser does for you. Speaking from experience, weakness in your internal team can be identified by the creep in scope of work your external advisers are asked to do. Don’t be afraid to ask for an estimate of fees. In our experience, a full and frank conversation with your external advisers is essential to control who does what and when, and the quality of information that flows to the external professionals. Consider cloud accounting and cloud based file sharing.

Our hospitality division has worked with many venues so we are well placed to support your hotel in creating savings.  Please contact your usual Hanrick Curran advisor or alternatively, Kim Hanrick or Peter Maletz on 07 3218 3900 to discuss your particular circumstances.

 

Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.