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CHANGES ARE AFOOT…

… and that’s going to mean LESS MONEY coming in. It’s a scary time, just when we’ve had almost exactly two years of scary times for this industry.

 

Hussein Ahmad, our resident hospitality finance expert from brilliant Viewpoint Accountants, talks us through what to expect.

Significant changes are coming into effect at the end of March, which will mean the profitability of your restaurant or bar will be negatively affected (if adjustments are not planned for and taken.)

The big 4 changes are:

 

  • VAT will increase from 12.5% to the standard rate of 20% on food and non-alcoholic drinks served in-premises and on hot takeaway food, from 1st April

  • Business rates relief ends on 31st March, so those who have been claiming it will now have to pay 66% more from 1st April

  • From 6th April National Insurance contributions will go up by 1.25%

  • Inflation is around 5.1% currently so the costs of raw materials, energy etc. are all increasing.

The VAT reduction to 5% between July 2020 and Sept 2021 was a lifeline in clawing back some lost profits in the height of the pandemic, the 12.5% rate since September has still made a huge difference. In order to maintain the same level of profitability from April, restaurants will need to decide whether to a) pass on the shortfall in profit onto the customer by raising prices or b) reduce costs, through changing suppliers, ingredients, cuts etc. The same principle applies to factoring in the extra costs of paying greater business rates.

 

The increase in National Insurance is particularly challenging in a staffing crisis for hospitality, where there is a lack of supply of staff employees.

 

Different restaurants are reacting in different ways. Thomas Tjong of Ekachai told Bloomberg recently that he has raised prices by 8% and will consider further increases. At the other end of the spectrum, McDonalds has reduced wage costs by replacing cashiers with screens. There are new apps being launched, such as payment app Sunday, that claims to reduce service time by 15 minutes and allow restaurants to turn tables quicker.

 

Whichever the methods pursued, smart business leaders will have worked out what effect the above changes will have on their profit margins and made plans to correct them where possible, so they are not panicking at the close of March.

5 actions to get ahead for Q2, now.

 

1. Work out how the 7.5% VAT increase will affect your current profits

 

2. Work out how a 7.5% price increase looks on all your menu items. Where these price increases look reasonable, keep them. Where they don’t, see if you can make substitutions to cut your costs

 

3. Work out what the increase will be to your business rates and see how it affects your bottom line by month and year. Again, see if you can increase prices or find ways of decreasing costs to counter the increase in rates

 

4. Work with your payroll provider to understand how the increase in National Insurance will affect your wage costs, so you can make informed decisions about staffing

 

5. Work out the changes to your energy prices and factor these costs in too

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