It is not unusual for business owners in the hospitality and leisure sector to struggle with finding time to consider their strategic approach and manage their businesses efficiently and effectively, but this is key to their long-term success.
Staying focused on areas such as cash management and forecasting, as well as making the most of staff potential, can help to de-risk the business and improve profits.
For business owners seeking to work on their business, rather than in their business, here are some important pointers:
Keeping a close eye on cash management
Businesses in the hospitality and leisure sector can be subject to seasonality, which makes cashflow management more difficult. To cater for this, business owners need to have a clear understanding of the working capital cycle and make provisions for loan repayments, VAT, and off-peak times.
Accurate cashflow forecasts should be prepared and reviewed regularly, to ensure cash movements are understood, and steps taken to alleviate pressure on cashflow where necessary. By maintaining a good working relationship with bank managers and funders, business owners will not have to take tough decisions alone.
Key Performance Indicators (KPIs)
All business owners should have a clear understanding of what success looks like and measure their performance on this basis, against pre-agreed KPIs. Staying on top of industry benchmarks and assessing where the business sits is also key.
In a fast-moving sector, business owners must avoid standing still and stay focused on improving their offer by carrying out renovations, adding space, changing menus and introducing added value services.
Investing in people
People keep the cogs of any business turning. However, many business owners report difficulties with staff recruitment and retention.
Owners who invest in staff training and development, and who have career structures in place and promote the industry as a career choice, tend to have fewer problems in this area. As people costs typically represent the biggest overhead for employers in the hospitality and leisure industry, investment in people is key. Those that focus on staff development and training often report an increase in turnover and profits.
Tax shouldn’t be taxing
Whilst there are plenty of tax reliefs available, businesses aren’t always taking advantage of them. Among the reliefs not being claimed or used to the full, are capital allowances, R&D tax credits, and theatre tax credits. Business owners should seek advice about the reliefs that might be available to their business and prioritise making claims where appropriate.
Employee benefits such as accommodation, food and drink, and entertainment are commonly made available to staff in the hospitality and leisure sector. Employers should bear in mind that a tax charge normally applies to such benefits and they should be reported to HMRC. To avoid fines and claims for tax underpayment, business owners should make sure they understand the tax exposure of their remuneration arrangements for themselves and their employees.
Keeping up with technology
Over the last few years, technology has improved the efficiency of financial and reporting systems enormously. The pace of technological innovation means that business owners should review systems and processes regularly, to ensure they are using the latest solutions.
For businesses with more than one owner, a shareholder agreement can provide invaluable protection for those involved, but they are often underutilised.
An effective shareholder agreement should address issues relating to control and decision making, future share changes, potential sale of business, and rights on shares, as well as outlining any actions to be taken should any disputes arise.
Access to reliable financial forecasts is important to the efficient management of most small and medium-sized businesses. As well as helping the business to set sales targets, forecasts should reflect the business strategy and objectives. Business owners should monitor actual performance against budget and ensure that any variances are reviewed and remedied as soon as possible.
Personal tax planning
Individual shareholders can benefit from their ownership of a business in a variety of ways – salary, dividends, pensions, director loans and benefits in kind. However, the tax status of these types of remuneration may have altered recently and it is important for business owners to ensure compliance. They should keep their pay and remuneration under review and seek advice in order to ensure it is structured in the most tax-efficient way.
Working on the business, rather than in the business
Whilst it can be difficult for a business owner to distance themselves from day-to-day operations, spending too much time in the business, rather than working on it, could prove counterproductive.
Business owners that devote time to considering their strategic and personal goals and work towards achieving them, can mitigate risk and look forward to a more prosperous future.
Dave Gosling is a partner and hospitality & leisure sector specialist at top 20 accountancy firm, Menzies LLP