In these times of recession, all businesses are currently looking at ways of cutting costs and squeezing the very most out of their staff to ensure that they stay profitable. At the very least, they wish to survive this recession in the hopes of increasing their business or trading their way out of trouble as soon as the upturn in the economy starts. Publicans and the licenced trade are no different and along with the general leisure and tourism industry, have seen a dramatic decrease in trade over the last two years.
There are a number of reasons for this: the availability of cheaper alcohol from the bigger supermarkets, the increasing trend for drinking at home and the increase in random breath tests. This, on top of the aftermath of the smoking ban, has seen the closure of many pubs around the country. Some statistics indicate that, on average, over the last three years almost a pub each day has closed down. The statistics in Britain are even higher with some indicating that as many as 52 pubs are closing per week!
There can be many ways of dealing with these changes. Some people will be reactive to it and will wait to see what other premises do and copy them; others are proactive and will try a lot of new things with the hope that some of them will catch on and will be implemented successfully. Then there are others who will do nothing and will try to ride out the storm, will close their eyes to it and hope that it will pick up. That is the section of publicans who are in most danger of not surviving this recession.
While in the last Budget the government decided to reduce the VAT rate by 0.5 per cent and to reduce excise duty, these small measures will not on their own help to sustain the industry in short to medium term.
Businesses can lose money and possibly not realise how and why they are losing money. Like the dripping of a slow-leaking internal pipe or a small crack in the window, over time they are ignored and cannot be seen anymore. But all the while, the leak is causing damage to the structure and the heating bills are increasing due to the loss of heat through the crack. Publicans and the licensed trade – like all businesses – can lose money without realising it. I describe below my top 10 ways that publicans lose money without realising it. Some may seem very obvious, some more subtle, but all are common areas for consideration for your business.
10 ways a publican loses money without realising it
(1) By not seeking a rates reduction for vacant parts of a premises and/or residential portions or for a decrease in sales turnover. Commercial rates have sky-rocketed over the last number of years both as a result of increasing turnover and because of the expansion of businesses and the property space they needed. As businesses are shrinking alongside shrinking turnovers, it may be time to talk to your commercial rates office about a rate reduction.
(2) By paying VAT on Sky subscriptions. As Sky are a British company, you cannot claim the VAT paid on these invoices. They will charge VAT unless you specifically quote your Irish VAT number, after which they will stop charging you VAT.
(3) By having an insufficient overdraft. Many bank customers are unaware of the implications of going over their limit. If you are over your limit, referral fees are charged per item and an interest surcharge is then charged on this amount, which is usually nine per cent.
(4) By not assessing pension contributions. At a time when many businesses are experiencing tight cashflow, business owners are often unaware or forget that they can freeze their own pension contributions until cashflow improves.
(5) By not doing regular stocktakes or having tighter controls on stock rotation and re-order levels to ensure that there are not too many weeks-worth of stock which will lead to cashflow problems and further pressure on bank current accounts.
(6) By not submitting and paying tax returns on time. Late returns and payments of same cause unnecessary interest and penalties and possibly instigate revenue audits because of not being tax compliant. Tax compliance is the biggest reason for selection for revenue audit.
(7) By not monitoring staff costs. This is the largest cost and should be controlled and matched to any decreases in turnover during the year. Trading conditions have changed and in most cases the main trading hours have been compressed to Fridays and Saturdays. Premises that serve food have also seen a dramatic change. No longer are senior barmen necessary to serve food when lower-priced staff can do the same work. Publicans also need to change around responsibilities of staff and regularly re-rotate staff on duty together to ensure they are not collaborating in pilferage or the misappropriation of funds or stock. Publicans need to keep a keen eye on the quiet days as well as the busy days, ensuring they are not overstaffed on the quiet days.
(8) By not renegotiating terms and discounts with main suppliers. In these recessionary times, now is the time to bargain. There are enough suppliers around that deals can be done on the renegotiation of the terms and discounts.
(9) By continuing the old tradition of giving staff a couple of free drinks or free food during their breaks or after work. This was a great perk for staff but in these recessionary times feeding the staff and giving perks such as a free drink after each shift is just no longer possible given the tight margins that some pubs are operating to these days. Staff entertainment costs and budgets are being cut dramatically in every other industry so why not here too?
(10) By assuming that a food operation in a pub will automatically create a profit. Some of the best restaurants cannot make a profit. It takes a lot of work and effort to make a restaurant work. Combining a successful restaurant and a successful pub is even harder to do. There are a lot of tight controls necessary to ensure that a pub can produce good food at a good price and still be profitable. There are also a lot of hidden costs that if not controlled, will bring down the overall profits of the business and will bring an extra burden on a publican’s finances rather than elevate the profits.
The above is not an exhaustive list. There are many common areas where publicans can tighten controls, control costs and both react to the recession while still being proactive to encourage clientele back into the pub again.
By employing professionals that don’t have an in-depth knowledge of the business or who can’t cover a full range of issues in the trade, publicans can be harming their business without them knowing it. Professionals who can create synergies and have the best contacts in the industry are also going to serve publicans better.
David L’Estrange can be contacted at 01-2780811.