Five accounting tips for the hospitality sector
Devising menus, training staff, ordering supplies, sanitising tables . . . for owners and managers in the hospitality sector, there are endless tasks to tackle before ‘sort out accounts’ makes it to the top of the to-do list.
Restaurants, hotels, pubs and bars are struggling through a uniquely difficult period, with the COVID-19 crisis and Brexit-related recruitment issues combining to create a perfect storm of challenges. It’s estimated that the industry has built up almost £10bn in debt during the pandemic.
Margins are squeezed like never before, which means careful budgeting and tax planning is crucial. Here, Alex Skinner, our hospitality specialist and consultant at the City of London office, discusses how hospitality businesses can plan ahead to ensure they are equipped for the future, whatever surprises that future may bring…
- Forecast – if you dare!
Covid has turned the concept of forecasting into a nightmarish exercise for many UK companies, especially those in the hospitality industry. Yet forecasting and strategic planning remain vital to any business operation.
Pre-pandemic, it was generally possible to devise a realistic forecast based on past performance data, market research and predicted industry trends. In the Covid era, any forecast must incorporate worst case scenarios such as further lockdowns or social distancing restrictions that put a cap on customer numbers.
Forecasting is a complex skill that could cause huge problems if mistakes are made. Seeking professional advice from an accountant with forecasting expertise is likely to save time and money in the long term.
- Take advantage of tax breaks
In terms of the bigger picture, industry representatives are lobbying the government for further relief on business rates, arbitration over rent debts and better VAT terms. While these discussions are ongoing, individual businesses should do all they can to ensure their tax bill is kept to a minimum.
For businesses that need to invest in new equipment, the Super Deduction Tax is a generous incentive, allowing companies to write off the cost of certain capital assets against taxable profits. Announced in the March 2021 budget, it means your tax bill could be cut by up to 25p for every £1 invested in qualifying purchases, such as new ovens or washers. The scheme ends in March 2023, so you may wish to consider bringing forward planned investments. A word of warning – beware of splashing out on brand new equipment that you may need to dispose of in the short term. Speak to an accountant about possible catches, such as ‘clawback’ rules included in the scheme.
Other tax reliefs on capital investments are available, for example the 100% Annual Investment Allowance (AIA) which, unlike the Super Deduction Tax, can be used to relieve expenditure on second hand equipment if deemed new to the business.
- Contract out bookkeeping tasks
Incurring further expense may seem like madness for businesses desperately trying to boost the bottom line. However, contracting out time-consuming yet essential tasks such as payroll, tronc admin and cashflow reporting will free up time to concentrate on customers’ front of house experience – a crucial factor in an industry that is so dependent on positive customer reviews.
Hiring professional bookkeepers ensures clear and accurate record-keeping, avoiding any last-minute rush to meet tax deadlines. With real-time reporting, a full understanding of the business is possible, enabling good decision-making in terms of future growth, or areas where cutbacks are needed.
Attempting to handle bookkeeping tasks in-house might seem like an attractive money-saving prospect at a time when every penny counts. But the long-term costs can be crippling if mistakes are made and HMRC decides to investigate. If you are set on an in-house approach, however, it’s worth investing in a short training course to brush up on the use of accounting software.
- Review, review, review
You’ve drawn up a forecast, budgeted carefully, and hired a reputable accountant and bookkeeper. It’s tempting to think that the show will now run itself, but as anyone in the hospitality sector will know, there’s always more work to be done. A regular review of the accounts will allow you to pinpoint strengths and identify areas that could be improved. Reviews of forecasts, budgets and cashflow should be carried out regularly, ideally monthly or even weekly.
As part of your review, take a look at elements such as pricing, labour costs, and the status of any credit or loans. Are there cheaper financing options you could consider?
Keep a close eye on competitors and plan ahead for ‘quick wins’. In the hospitality sector these will often have a seasonal flavour, for example Halloween-themed offers in October.
- Plan your exit
Although there are grounds for optimism, it’s a sad fact that many businesses will not survive the pressures of the pandemic. Whether your café or bar is in danger of bankruptcy, or you plan to sell it as a going concern, it’s good practice to devise an exit strategy.
A detailed exit strategy – whether or not it’s actually implemented – helps to mitigate risk and offers peace of mind that a Plan B is in place if the time comes to move on.
A variety of exit strategies are available, including bankruptcy, liquidation, family succession, or selling the business to a third party. This is a complex area with much to consider, including disposal of assets, termination of employee contracts and payments to shareholders. Speak to a reputable accountant with expertise in this area to formulate a flexible strategy that suits your business. Again, review the strategy periodically to take any new factors into account.
If there’s one thing that the last eighteen months have taught us, it is to expect the unexpected. While it’s impossible to plan for every eventuality, hospitality owners who keep on top of their accounts are better placed to survive the tough times – and to thrive as the economic outlook improves.
To discuss any of the information above, or to find out more about how Perrys can help you with your hospitality business, please get in touch.