Path to Good Hospitality Financial Management

Throughout my 49 years working the hospitality industry in both metropolitan & rural venues and as an industry consultant; one of the most important lessons I’ve learnt is that Gross Profit (GP) is a major key performance indicator (KPI) of the financial management of a business.

My experience suggests that many businesses do not appear to appreciate the importance of gross profit and how it can help identify the beginning of financial problems, and conversely, the path to financial success.

In this article, I will highlight the concept of using GP as a KPI for a hospitality business, and the steps required to determine it.

It can be expressed as the inter-relationship between opening and closing stock levels, saleable stock purchases and retail sales.

To help understand how to calculate the indicator, you should be aware of what the Financial Terms are, and process developed as a result of the supplied information: Opening Stock, Saleable Stock Purchases, Total Stock on Hand, Closing Stock, Cost of Goods, Sales break–up, Gross Profit. 

Hopefully you are aware of these terms and thoroughly understand how to utilise them for your venue.

Still unsure? – not to worry; in the next month or so I will be running a simple workshop course on how to Boost Your Profits, discussing gross & net profit (& true net operating profit), how they are constructed and what it tells you about the fiscal well-being of your business. In this course I will explain the calculations and formulas required to ensure your business is running smoothly.

The course will also help you to determine the following considerations:

• Do you have the correct retail pricing policies and formats are in place?
• There is no misappropriation (theft) occurring
• Have you made sure the correct saleable stock purchase patterns have been conducted with respects to overall sales levels?
• Have you made sure the goods for personal and promotional use are rung up into appropriate sales centres?
• Do you record wastage?

TIP: To assess your gross profit, it is imperative that a regular “physical” monthly stock take be conducted for each income centre; where the closing stock of one month becomes the opening stock of the next month (and so on).

If you would like any more information on the information in this article or would like to register your interest to attend the NEW! Boost Your Profits Classroom Training Course, please call me on 08 9321 7701.

Cheers
Bruce Strickland
AHA Membership Team