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Know your numbers: the difference between success and failure

Figures out today from the Local Data Company show that the number of leisure openings saw a net decline in the last 6 months; the first time this has happened since 2012.

Everyone knows it's been a tough time for hospitality and retail recently. The amount of high profile companies using CVA's is staggering. Carluccio's, Prezzo, House of Fraser, Byron, Mothercare, New Look and Jamie's Italian have all turned to CVA's and it isn't any easier for independent operators.

According to government figures, almost 1,000 restaurants went bust in the UK last year (up 20% on previous years), retail saw net closures of over 1,000 stores and pubs are now closing at a rate of 2 per day.

This is why it is imperative to know your numbers. It really can be the difference between success and failure for some. At the very least, it can be the difference between a great year and a disappointing one.

Lots of operators do not have a handle on their figures. Here's some basic reasons why you should know your numbers and a few suggestions on what you can do to bring yourself up to speed.

1. it's easier to save a pound....

It's an old adage, but it really is easier to save a pound than make a pound. Just to get the doors open each day you have to spend money; heating, lighting, telephones, general maintenance, system costs, card processing fees etc.

These are costs you have to cover with your sales. The lower the cost, you lower your break even point. I know it seems obvious but time and again we see people either not knowing what these costs are or accepting their overheads as fixed. And the overheads we're talking about here are ones that have no impact on the customer, so to cut them is a no brainer.

To summarise: know your costs and then try to reduce them.

First things first, get on top of your overheads and understand properly what costs you are incurring each month. This is pretty straight forward using cloud accounting software (we use Xero) and invoice processing software (our preference is Receipt Bank).

From here you can either do some leg work and get comparing prices, speak to some experts (like energy brokers) or you can try out a service like Reducr which does the comparison for you.

Saving a grand on your energy bill can take a couple of phone calls. Getting an extra grand in profit from new customers is a much tougher prospect.

2. see what's on the horizon....

Cash flow is lumpy. When you've got VAT, PAYE, corporation tax, quarterly rent and one off expenses it's easy to see why.

If you are not on top of your numbers you will spend too much time managing your cash flow and suppliers and not enough time ensuring your store is nailing operations.

If you're not looking ahead, it doesn't only suck productive time from your day, it means you can't proactively manage upcoming issues. It's why some profitable businesses fail.

What can you do to avoid this? Well after point 1, you now have your records on some cloud accounting software with invoices feeding into this effortlessly. All you need to do now is get some bookkeeping done. You can do this yourself if you have the time and like numbers (do an online course if you are going to take the plunge), or you can outsource it. We suggest you outsource it (get on with driving your business forward, not crunching numbers). There are many accountants and bookkeepers out there who can do this for you (we know, we're one of them!) Cloud accounting has opened up the market so you don't need someone local; find someone who fits.

With your bookkeeping done you can get monthly reports on tax liabilities, estimates on corporation tax and work with your accountant on cash flow forecasts. No more surprises.

3. maximise your sales window....

If you are in physical retail or hospitality there is a good chance that you will be doing over 60% of your turnover during 25% of your total opening hours (16-18 hours a week, probably focused around the weekends).

Are you doing absolutely everything to ensure that you can squeeze the maximum amount of sales out of these key sales windows? and how do you know you are? some basic questions to ask yourself:

  • What are your sales by hour and by day?

  • how does your spend per customer differ between high sales periods and low sales periods?

  • how is this reflected in your sale mix?

  • how many customers is each member of staff dealing with in a quiet hour vs a busy hour?

  • whats the optimal customer/staff ratio?

From this you should get some ideas for up-selling and cross selling, how you should be staffing your premises during these busy times and how you push the better (£) margin products. Keep digging and looking wider you will start to see opportunities from customer flows, menu/product design and staff training.

Most of the sales information is available from your existing EPOS system in spreadsheet format and will require you, or your bookkeeper or accountant to do a little bit of analysis work to pull out the figures.

For staffing information vs sales information; you are best looking toward your scheduling software which can do these comparisons for you very quickly. This is especially pertinent for hospitality, as scheduling software has loads more benefits on top of this (in terms of costs and reducing administration time).

If you don't yet have scheduling software in place, not to worry, there are lots of scheduling software options out there - Fourth is the industry leader in hospitality and the sales and labour forecasting coming out of that system is brilliant. For a more affordable option, Deputy and Planday are both fantastic alternatives - EPOS integrated, available on-line and intuitive to use.

4. find your opportunities intelligently....

Point 4 isn't really one point, it's at least 50 points, but its snappier if I limit the post to 4.

If you have all your business information in place - detailed sales info, cost of sales (which we haven't covered here), labour scheduling, labour costs and overheads - you are in a great position to find opportunities and accurately test your solutions. A short list of things you can aim to do:

  • extend your sales window

  • identify new revenue streams

  • refine product offering

  • improve your COS margin

  • improve your labour margin

  • increase basket spend

  • improve off peak sales

The key point here is that a business isn't guessing; you see opportunities from the numbers, set targets, implement a solution and test whether it works against existing numbers.

The upside is potentially huge.

And this is just the start - knowing your numbers is the springboard to business growth (you can read more on our thoughts on this here).

Getting this all in place doesn't need to be expensive. For system costs: accounting, invoicing and scheduling can all be used for little more than the cost of a cup of coffee each day, and this is ignoring the saving available when leveraging the finance info. You should have more money in the bank from doing all this, not less.

If you need to get a bookkeeper to start keeping records there will be savings available to offset this from your year end costs - your accountant will be getting great records - less work for them, lower fees for you.

So if you're not making the most of your information you've got a lot of upside to look forward to, be it increased sales, reduced costs or more time to spend working on your business (and not managing your cash flow).

If you don't know where to start, speak to an accountant or bookkeeper and they can help get you started.


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