hospitality industry

Hospitality Industry Accounting

How to simplify accounting with a 28 days cycle. How to maintain and even approve accounting when underlying costs are unsteady, for example in the Hospitality Industry.

The hospitality industry has bigger problems because the weekend is so important for restaurants. They may do little business on the weekends if they are in a business district and usually do business lunches. Or restaurants may do business 2 days a week; Friday/Saturday.
How do you make that comparable? You want to look at February this year vs February last year but there are shifting weekends in a month. You may have 5 weekends but the same month last year had 4 weekends. This is a non-trivial problem, your number can be off by 20/30 percent.

One solution we offer is to move to a 28 day period , 4-week period so there are the same number of Sundays and Saturdays.

It requires more tech to manage that solution. You need sophisticated people to manage it. You also end up with a short-stop period. Your period may be Dec17th. Your CPA and tax guy aren’t going to take profits on Dec 17th but through the 31st.

What we do is manage that shortstop. Then put you on 13 periods per year, each period has a comparable 28 days. You end up with 364 days a year. We do slight adjustments for that.

It provides more comparability. July this year will be comparable to July of last year.

It requires more tech because:

Rent is monthly, you’re going to have mismatches going on unless you’re careful about how you do accounting for that.

What we do for rent and property taxes is that we have to accrue the expense for that every day. If a customer has 10 restaurants and we are making $3,650 rent expense accruals per year, that’s a tech heavy solution to the problem.

It’s something that adds to the value that we provide. They can make those comparisons.

We can do smaller end solutions too, but need to adjust numbers. For example July this year has 4 weekends and last year had 5. We’ll steal revenue from August and push it into July so the number is comparable.

I think of holidays as well, so many reasons you want to track more than just month to month. Events in the community are one reason as well as snow days.

Irregularity of the Hospitality Industry

Oftentimes there are not enough people to work the restaurant. Restaurants sometimes end up closing doors at random days and times during the week. How can that be managed with an online accounting solution versus how it is currently managed?

That’s an integration challenge with the POC system that the restaurant is using and the finance system.

We need to go in and pull out the days that are being closed this year versus last year. It integrates the 2 different systems and makes sure we are comparing apples to apples versus apples to oranges.

It’s not impossible, but you need sophistication to manage and integrate the answers coming out of them. You don’t want to average on a closed day as if it was low traffic. We do that for some of our clients.

Clients aren’t able to find people so they are running short shifts or can’t manage at full volume and paying more for things since covid. 

The first issue is restaurants don’t have a granular view on the cost of each individual plate, so with the standard costing system that prices out each plate accurately, you can’t just have an average number of returns per day, you really have to look at each individual plate and figure out what your average profit on steak vs linguini alfredo is. 

But that is now a double challenge post-covid. Cost of goods goes up and down so much.

Chicken thighs go from $90 dollars a case to $120 to $85 a case. Literature is full of essays on how prime costs should be X percent and costs of goods sold should be Y percent. How do you figure that out when the product is bouncing up and down in the space of weeks?

That’s the planning challenge.

How do you come up with long term costs of goods sold?

Restaurants change their prices based on the economics of finding stuff but cant change products every week because customers will get fed up with it.

A lot of standard accounting systems are being broken by these issues. It’s no longer efficient to manage the cost of goods. It doesn’t work in the scenarios we have now.

Maybe it is time to automate or to simplify with technology. There’s so much more opportunity to track with technology, something that does a better job or can handle the complexity.

That’s our strength. We can take a POC system or front office solution for health clubs, etc, and integrate and automate the financials so it’s not all being done in the back with envelopes or complex broken spreadsheets.

Is there a way for a business to step into the costs of our solutions? Many potential clients think more complex technology – higher cost.

The way technology solutions work, you pay $30,000 for someone to install sophisticated software then say goodbye. If it goes wrong you call them up again. Then they want $10,000 more to fix the problem. We charge a steady monthly fee. If something goes wrong, then it’s our problem, we have to fix it or we lose money.

There isn’t a sticker shock issue. The principle we operate on is being a long-term partner. If a customer isn’t a customer in 2 years time then we don’t believe we are executing what we should do. We lose money if a customer isn’t with us for a year. We absorb the initial cost and it leads to long-term savings but we take the risk initially. It’s not on the client.  Read more on similar topics here