If you own a pub, hotel or restaurant, keeping your accounts in order is essential for the success of your business. The hospitality industry is known for its fast-paced environment, high volume of transactions and unique accounting challenges. Proper accounting practices can help you manage expenses effectively, stay on top of your cash flow and make informed decisions for your business.
We have put together the following accounting tips for your hospitality business:
1. Implement a robust accounting system
Invest in reliable accounting software, such as Xero. At Taxsure, we use Xero on behalf of our clients to complete bookkeeping tasks, manage inventory levels, reconcile bank accounts, process payroll and create financial reports.
We also include Xero as part of our package for hospitality businesses for free!
When selecting an accounting system for your hospitality business, consider the following features:
- Integration with your electronic point-of-sale (EPOS) system. Integration between your accounting software and EPOS system can streamline data entry and reduce errors, ensuring accurate tracking of sales transactions.
- Stock management. Robust stock management tools allows you to track stock levels, monitor costs and profitability per item.
- Payroll management. Employee management tools allows you to track employee’s time, manage holidays and run your payroll.
- Cloud-based software. Cloud accounting systems can be accessed anywhere, at any time; allowing you to access important financial data on the go.
- Reporting functions. Robust reporting and analytics capabilities are essential for gaining insights into your business’ performance, identifying trends and making financial-driven decisions.
Finally, consider the scalability of the system as your business grows, as well as the availability of training resources. Investing in a comprehensive accounting system tailored to the hospitality industry can streamline your operations, provide real-time financial data and contribute to your business success.
2. Maintain separate personal and business finances
Mixing personal and business funds can lead to confusion, inaccurate records and potential tax implications. By keeping your finances separate, you’ll have a clear understanding of your business’ financial performance and make the accounting process easier.
To effectively separate personal and business finances, follow these three best practices:
- Open a dedicated business bank account. Create a separate bank account solely for your business transactions. This account should be used for depositing revenue, paying staff and business related expenses.
- Obtain a business credit card. Apply for a credit card specifically for business expenses. This will help you keep track of business-related purchases and build credit for your company. You should settle any outstanding credit card balances quickly through your business bank account to avoid interest charges.
- Avoid personal use of business funds. Resist the temptation to use business funds for personal purchases, as this can create accounting headaches and potentially harsh tax consequences when it comes to your year-end.
By maintaining a clear separation between personal and business finances, you’ll simplify your accounting system and avoid tax charges on overdrawn business funds.
3. Track your different revenue streams
In the hospitality industry, revenue can come from various sources such as room rentals, food and beverage sales, event bookings and more. Ensure that you have a system in place to accurately track and record each revenue stream. This will help you identify your most profitable areas and make informed decisions about pricing, promotions and resource allocation.
To effectively track revenue streams in your hospitality business, consider the following strategies:
- Categorise revenue sources. Within your accounting system, create separate revenue accounts (categories) for each revenue stream such as room charges, food and beverage sales, event bookings, etc. This will provide detailed insights into the performance of each area of your hospitality business. Look for an accounting package that integrates with your EPOS system for seamless data transfer.
- Reconcile daily sales. Establish procedures for reconciling daily sales reports from your EPOS system with your accounting software. This helps ensure accurate revenue recognition and keeps your financial data updated so you can make data-driven decisions.
- Analyse revenue data. Regularly review and analyse data to identify trends, seasonality patterns and opportunities for growth or cost optimisation. Use this information to make decisions about pricing, promotions and resource allocation.
By meticulously tracking and analysing your revenue streams, you’ll gain valuable insights into the profitability of different areas of your hospitality business, enabling you to make informed decisions that maximise revenue potential.
4. Manage your stock effectively
Stock management is crucial for hospitality businesses, especially those with food and beverage operations. Implement a robust inventory tracking system to monitor stock levels, reduce waste and optimise purchasing decisions. Regular inventory audits can help you identify discrepancies and prevent losses.
To effectively manage stock in your hospitality business, consider the following strategies:
- Utilise stock management software. Systems like Xero can help you track stock levels, monitor costs and generate reports on inventory turnover and profitability.
- Complete regular stock counts. Establish a schedule for conducting physical stock checks, reconciling them with your system records and investigating any discrepancies. This helps identify potential theft, spoilage, or operational inefficiencies.
- Set reorder points in your inventory management software. Set par levels (minimum stock levels) and reorder points for each stock item to ensure timely replenishment and avoid stock-outs.
- Train staff on stocking procedures. Ensure that all relevant staff members, such as kitchen personnel, bartenders and servers, are trained on proper stock handling, recording and reporting procedures.
Effective stock management not only helps reduce waste and losses but also contributes to cost savings and improved operational efficiency.
5. Monitor cash flow closely
Cash flow is key to the success of any business, and the hospitality industry is no exception. Keep a close eye on your cash inflows and outflows to ensure you have sufficient funds to cover operational expenses, payroll and other obligations. Regularly review your cash flow statements and projections to identify potential shortfalls or surpluses, allowing you to make informed decisions about spending, investments or financing.
Maintaining good cash flow is often a challenge for hospitality businesses due to the seasonality of the trade. Do you want to know how you can improve your cash flow? Click here to learn more – we have an article dedicated to this topic.
6. Manage payroll and staff costs efficiently
Labour costs can be a significant expense for hospitality businesses. Ensure that you have a payroll system in place to accurately track employee hours, calculate wages and record holiday. Additionally, monitor employee-related expenses such as benefits, training and uniforms to keep costs under control.
Here are some tips on how you can manage payroll and employee expenses efficiently:
- Implement a time and attendance tracking system. Utilise mobile technology to accurately record hours worked by each member of your team via an app, such as Xero Me.
- Optimise your staffing levels. Consider the use of seasonal staff during peak periods such as summer holidays or Christmas. Prepare your rota based on anticipated demand to reduce the risk of over-staffing.
- Offer performance based incentives to staff. Implement an incentive program tied to productivity, guest satisfaction (online reviews) and revenue targets. Reward your top performing staff to increase motivation and retain valuable employees.
- Utilise online training platforms. You can provide your staff with cost effective training and development by using online training platforms and resources. Consider cross-training staff in both front of house and back of house positions to reduce the risk of staff shortfalls.
7. Review financial data regularly
Frequently review and analyse financial information, including the balance sheet, profit and loss account as well as cash flow statement. These reports provide valuable insights into your business financial health, performance and identifies areas for improvement. You can use this information to identify trends and make informed decisions to grow your hospitality business.
Here are some tips for effectively utilising financial reports and data:
- Identify key performance indicators (KPIs). A wide variety of financial KPIs are used by hospitality businesses to help monitor their success and drive growth. For example: revenue per available room (RevPAR), inventory turnover and occupancy rates, just to name a few.
- Review the profitability of all income streams. In order to maximise profitability, you can analyse the performance of each source of revenue i.e. food, beverages, events and rooms. You can then identify under-performing areas and develop strategies for improvement , such as re-allocation of resources.
- Complete variance analysis and forecasting. Compare actual figures to budgets, forecasts and historical data and investigate any significant variances to understand the underlying causes.
Having access to reliable and accurate financial information is the backbone to any successful hospitality business.
Unfortunately, hiring a full finance function comes at a huge cost. As a small hospitality business, you would not need to hire a finance function on a full time basis. However, you do need the expertise of each of these roles. The problem is you can’t employ 56% of a finance assistant, 45% of a bookkeeper, 30% of a financial controller and 10% of a finance director, etc.
Thankfully, Taxsure can help. We provide a bespoke Virtual Finance Office service to small hospitality businesses. We can provide this service for less than the cost of a full time junior staff member. Explore our Virtual Finance Office service today.
8. Stay compliant with HMRC and Companies House
The hospitality industry is subject to various taxes, including VAT, corporation tax, payroll taxes and machine games duty. Limited companies must also file accounts to HMRC and an annual confirmation statement to Companies House. Ensure that you understand and comply with all applicable tax legislation to avoid late filing penalties and interest charges.
Here are some tips to help you stay compliant with HMRC and Companies House:
- Create a separate savings pot for your VAT. As a VAT registered hospitality business, you should put aside 1/6 (16.67%) of your gross income for your VAT liability. VAT returns must be submitted to HMRC by third party software such as Xero. Your VAT return must be submitted to HMRC within 5 weeks of the period end date. For example, if your VAT period ended on 30 April, you must file your VAT return and pay any outstanding liability to HMRC by 7 June.
- Pay your employee’s and employer’s PAYE & NI liability to HMRC. You must pay the tax and national insurance you have collected from your staff’s salaries as well as any employer’s national insurance to HMRC by 22nd of the following month, assuming you pay your staff on a monthly basis.
- File your annual accounts and company tax return on time. Lets say you have a limited company with a year end dated 31 March 2024. Your annual accounts should be filed at Companies House by 31 December 2024 and your company tax return should be submitted to HMRC by 31 March 2025. However, it is important to note that your corporation tax liability would be payable on 1 January 2025. Therefore, we recommend getting everything filed way before the deadlines, so you are prepared for your end of year tax liability.
- Utilise tax saving opportunities. Working with a specialist hospitality accountant like Taxsure can help reduce your tax liability while still being compliant with HMRC. We will take into account your personal circumstances, business structure, tax allowances and reliefs available to you.
9. Work with a specialist hospitality accountant
With Taxsure’s expertise in the hospitality sector, you will have everything you need to make better financial decisions, improve your accounting systems, be more tax efficient and enhance your operations. Our specialist accountants will be by your side every step of the way.
In order to take your business to its next level of success and beyond, contact our team of hospitality accountants today.
In conclusion
By implementing these accounting tips, hospitality businesses can maintain accurate financial records, manage their inventory effectively, stay compliant with HMRC and make informed decisions to drive growth and profitability.