Preparing for a Post JobKeeper Reality

Posted on 3/7/2020

Hospitality

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Overview:

Directors, Pat Hodby, Tom Paine and Elizabeth Elliot uncover the potential impacts to hospitality businesses post JobKeeper and how strong bookkeeping can help you forecast into the future. As published in the AHA|SA's July edition of Hotel SA.
Worried Hotel Owners

Many publicans have been rightly focusing their attention on navigating the significant challenges presented by COVID-19 and the subsequent gradual easing of restrictions that have filtered through since late May. Unfortunately, there are still turbulent times ahead and the next wave on the horizon is the ending of the Federal Government’s Stimulus Package, and in particular what impacts the end of JobKeeper, will mean for many hotel businesses.

The keys to preparing for this next phase is:

  • analysing which areas of your business might be bolstered by JobKeeper
  • the minimum gross profit you are willing to accept from the various areas of your business
  • moving your operations into a pre-JobKeeper-end mindset

 

Use a Strong Base to Project into the Future

In order to accurately analyse which areas of your business may be most heavily propped up by the JobKeeper subsidies, you’ll need to rely on your (hopefully) robust bookkeeping to provide an accurate read. Remember, your read on your operations will only be as accurate as the data feeding into it.

The two of the key fundamentals of bookkeeping that you should be continuing to maintain, regardless of the economic climate, are
accuracy of information and timeliness of data. Elizabeth Elliot, our Director of Bookkeeping at Perks, highlights the importance of
having a clear picture of inflows and outflows.

“This ensures that you know where you’ve come from, where you are right now and where you’re going in the future. Access to real-time data ensures that you have all the right information at hand that enables you to optimise opportunity and minimise risks.”
When you can see how staff costs are presently being offset in the various areas of your business, you will be able to calculate
the financial impact of bringing them back on to payroll once JobKeeper runs out.

EXAMPLE:

  • Your kitchen currently operates 6 days a week (for lunch and dinner).
  • Currently, your kitchen area averages 60 meals per day Monday-Thursday and 110 meals per day on Friday and Saturday – a total of 460 weekly meals
  • On average, each person will spend $25 per head (ex-GST).
  • Your kitchen currently operates on a weekly Gross Profit of 65% before wages
  • So, 460 meals * $25 = $11,500 weekly revenue
  • $11,500 revenue * 65% Gross Profit Margin = $7,475 Gross Profit before Jobkeeper.

If, however, JobKeeper is currently subsidising the wages of the 6 people rotating through the kitchen and 4 people on the floor, your Gross Profit will be eroded by $7,500 per week (10 staff * $750 weekly JobKeeper payment).

So, in this scenario, you would be running your kitchen and dining areas at a loss of $25 per week when JobKeeper runs out. 

If we work the above calculations in the reverse, with a minimum 10 staff required to run the kitchen and dining areas, you need to make $7,500 in weekly Gross Profit to break-even.

So, $7,500 / 65% Gross Profit Margin = $11,538 in revenues needed.
$11,538 / $25 spend per head = 462 weekly patrons needed

In the above calculation, until operating conditions allow you to serve 462 patrons a week in your dining areas, post-JobKeeper you may want to consider further reducing employee hours if losses in your dining area cannot be offset by other areas of the business in the short term.

Of course, the above example ignores other potential considerations like:

  • Some of the $25 revenue would be earned by bar staff not included in the kitchen gross profit
  • Wages that are subsidised by Jobkeeper are not subject to payroll tax or Workcover
  • If there are going to be increased costs of being compliant to post-COVID-19 operating requirements
  • If increasing your turnover affects any COVID-19 rent holiday or deferment agreement you have with your landlord
  • The need to re-invigorate ties with patrons, the community at large through opening your doors

Regardless of your circumstances, the key point here is to illustrate how critical it is to maintain a live, timely read on your operation and the various areas that it operates.

JobKeeper, much like any government intervention, is always a temporary measure that intended to help bridge short-term gaps in the economy.

In order to put your business in the best position possible when you come to the other side of the stimulus bridge, it’s never too early to start projecting into the future. 

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