The single biggest mistake cafe owners make

The single biggest mistake

Nadi finds that because hospitality is an industry that attracts passionate people, sometimes people aren’t pragmatic about the numbers - and this is the single biggest mistake many venues make. 

“It’s important for venues to have an accurate, updated P & L that allows them to understand their business at a glance…but unfortunately, a lot of people aren’t able to do that.” This lack of understanding stems from the fact that many businesses run their own books. There’s nothing inherently wrong with that, but it can be rushed through as another admin task, rather than one the most important parts of running a business. 

The solution is to outsource, and while there are costs involved, Nadi says it’s a key prioritisation for any venue. “If you’re doing your books every three months just to prepare your BAS (Business Activity Statement), you’re not really understanding your business.” 

That’s because being truly across your numbers allows you to forecast and budget, something that many business owners avoid because they think the numbers have to be perfect. In fact, says Nadi, mostly there is good enough. “You can make a really good informed decision just by being 80% right. Nearly there is much better than no numbers at all.” 

Forecasting properly (but not perfectly) means you’ll be able to understand the periods of the year where you’ll make more money than others, down to granular details like days and hours where your revenue will be highest. 

What does it mean to know your numbers?

“I think a lot of business owners fail to realize that it's not all just about sales - although that's a really good starting point. What you’ve really got to know is your COGs or cost of sales.” 

Once you know and understand your COGs, then there are wages, which can eat up 40% to 50% of your sales, and rent is always a factor as one of the biggest fixed costs. 

“You can't go into managing efficiency and loss, stop loss and all that sort of stuff and wastage without really understanding those initial numbers,” says Nadi. 

Knowing these numbers means you can start to manage efficiency and loss, stop loss and wastage. And while we’re always taught to look at profit, Nadi says in today’s world, where many hospitality businesses are struggling, venues should start with what financial success looks like. 

“Look forward and be honest if this business will be able to give you what you want, whether you can pay our staff properly, and whether you can maintain good relationships with good suppliers because they're in business too.”

What are the steps?

1. Get an accountant 

There’s no easy way around it: you’ve got to look at the numbers weekly. And if you can look at them daily, even better. However, the issue remains that so many businesses are simply not resourced enough to do this, and that’s where you’ll need to consider investing in an accountant - even on an ad-hoc basis. 

“You need someone that really understands and can explain things in a simple way. They need to be able to drill down into your P&L and really work with you to understand your goals and help you plan.” 

2. Use the right technology - and integrate it

That’s where technology comes in. “There’s technology that’s expensive, but there are actually so many solutions that are off the shelf. This could be accounting software like Dext. Then there’s Xero to capture all your invoices, and things like Deputy or Tandem for your rostering.” 

But it doesn’t just stop there. To get the most of out of your tech, it has to be integrated. At the most basic level, proper integration starts with your ordering and payments software integrating with your accounting system. 

>> See how easy it is to integrate Xero with Ordermentum 

3. Use people as well as tools

Most people got into the hospitality industry to connect with people - but when it comes to their business they stay within a silo. 

“Venue operators and owners have to wear so many hats, but they really shouldn’t be trying to figure out everything out on their own…It’s really important to try and engage some outside help.” 

Your book-keeper or accountant is usually a great source of information and wisdom, even if they’re external to your business. Seek out a mentor if you’re new to the game. And, don’t forget one of your most untapped resources: your suppliers. 

“Talk to your suppliers. If you run a cafe for example, your coffee roaster is probably your number one supplier, and a lot of those guys have come through the ranks of running espresso bars themselves. You’d be surprised at how much knowledge they’ll be willing to share.” 

At the end of the day, it’s all about knowing your numbers - and having the right relationships to help you understand those numbers. 

From there, you’ve got the building blocks for a successful venue.