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The Necessity of Financial Control in Modern Bars

by Beer & Bar Magazine
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The Coronavirus pandemic has brought changes in everyday life throughout the world. Despite the sanitary issues that have risen with the spread of the deadly virus like the continuous use of a mask and gloves, the constant hand washing and sanitizing and so many others, the hospitality industry had taken quite a blow. It’s important to note that in my native Greece, the industry had remained relatively stable through the last 10 years of crisis offering relatively high income jobs to young people. In spite of all the difficulties they had to face, bars, hotels and restaurants managed to evolve, offering high quality services to their guests and financial security to their staff.

The pandemic had applied an ever increasing pressure to such businesses both in their internal and external environments which include and are not limited to the fear that the public has had which leads to reducing the number of nights people went out, limiting consumption and therefore minimizing income for the business. All of the above are occurring whilst expenses remain at the same high levels as before the quarantine. The external environment issues are very important however small businesses usually lack the capacity to affect them in any meaningful way to bring about change. However, the internal environment is something that the business has full control over meaning that owners or managers (with the help of consultants in certain cases) can examine and assess the financial aspect rendering business management application and decision making easier.

Business management applications are numerous and complex, can be applied in almost all types of businesses and, when none are applied, even a small number can have high quality effects giving a competitive advantage over other corporations. Let’s use two very important aspects of business that of costing and pricing a product or a service. From my experience, a large number of bars do not know the exact cost of the products they produce and sell. Moreover, their pricing is not based on a specific strategy but is rather set by the competition. When asked why drinks have specific prices, the answers range from “that is how much the across the street is selling it…” to “that is the market price…”, both equally vague. The outcome of such poor decisions is usually the failure to appreciate the income influx and profitability, failure to properly organize it and finally inability to make financially informed decisions.

The major issues are the ability to extract and process important data from the business that can aid in the overall profitability especially when it comes to the effectiveness of the menu design. Such data could rise from questions such as: How well do menu items sell? Are the item sales figures high enough to justify its presence in the menu? The subjective and prejudiced perspective of a member of staff –it doesn’t matter whether it is the bartender, head bartender, floor staff or the bar manager– is not valid for effective decision making and therefore usually leads to missing income not being recognized.

I know I am painting a dystopian image of a whole industry that operates self-destructively on borrowed time however there is a metaphorical light at the end of the tunnel. In spite of all the hardships the pandemic has brought, there are also huge opportunities created. What can an owner or manager do in order to further the internal understanding of the business, organize its financials and make informed decisions?

The answer lies in mining and organizing measurable data that can aid decision making and lead to an increase in income that might exceed 20%! Such data include the exact cost of goods sold (meaning the sum of all raw materials used for an item’s production), their contribution margin, the sales mix of each item (their contribution in sales) and their interpretation under the Menu Engineering philosophy in order to achieve the maximization of what guests spend in the business.

Applying computerized business management tools –industry specific programs or excel like applications– will lead to better cost control, measurable fiscal income, optimum product portioning, safe projected profits calculation, budgeting for equipment replacement, promotion or advertising. All of the above fall under the umbrella of “Project Management” and not “Crisis Management”. The outcome would be the reduction of insecurity that the Coronavirus has brought and to ensure, even partially, the viability of the business.

Author

  • A greek beer, spirits and relevant to the industry magazine, founded in 2016. Part of BeerBartender.

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