Why are so many businesses in Australia, especially in the hospitality sector, going broke, while some just ‘keep on keeping on’. David Kenney founder and CEO of StartGrowth shares some practical tips to help your hospitality business keep insolvency at bay and the wolf from the door.

It’s easy to list five reasons hospitality companies go broke, but that would be a disservice. Instead, I want to share the practical strategies I’ve helped leading hospitality sector participants adopt in their businesses. These strategies, applicable to any company in what I call ‘the gathering economy’, can transform your business, just as they have transformed restaurants, nightclubs, pubs, and the entertainment industry, including the humble Big Mac.

The current situation in Australia is that opening a restaurant or a company, getting a business loan, and hiring staff is deceptively simple. There should be more of a hurdle, not because I advocate for red tape, but because I see the value of education. You need a licence to drive a car, get married, or even own certain pets, but opening your restaurant requires almost nothing. Sure, you will need a licence to supply alcohol and ensure your kitchen is safe, but the bar for education is set too low.

Unfortunately, there is no substitute for learning some critical principles in the field at university, postgraduate studies, or any academic institution. 

I wanted this to be firmly strategic, tactical, and execution-based, as well as directly from a real-life conversation I had with a client. The advice ranges from theory to practical application to best serve a wide range of businesses in its applicability. 

Know and love your customers – be customer obsessed

Recognise who your crowd is. Are you in a built-up area? Will people have to go there, or is it a pop-in thing or part of a broader destination? With this in mind, cook and serve for the precise avatars you attract. It’s not about you and what you want to eat.

Don’t reflect on how cool owning a bar or restaurant would be. Focus and refocus on creating more customer-centric vibes. Recognise who your people are and how you want to attract more of them. The product is not just the food. The ‘surface area’ of your product is the entrance, menus, chairs, music levels, and processes, sometimes referred to as the last five yards’ where you allocate capital and do everything right until the staff greets or fails to make adequate suggestions to your clientele or you deliver something weird or not focused on your ideal customer.

Cost of food and fit-out, consistency across every area

Overspending on lavish fit-outs and excessive rents can kill a restaurant, nightclub, or live entertainment venue. You can match the repayments of the investment, but creating something special on a budget is the art. You should think about other strategies if you have already overspent. Still, there is always time to renegotiate with a landlord to extend, refinance the fit-out, or even sell down some of the facilities. The financial footprint here is critical to be fit for the space, the customer and the length of the lease.

It’s the same with food. You have to work backwards from your customers and understand their desired experience. Are they foodies? How will you promote the product? Do they want organic? Are they DINKs (Double income, no kids) and will pay for whatever they love, recognise the space and form a connection with the venue and the staff?

Hence, the provedore, food suppliers and costs must fit into the financial tetris and still deliver a gross profit of over 70%. Supply chain, reliability and relationships are invaluable here to get the best produce and value.

The layout of the venue. Create a space where people want to linger on wines; the process is a joy

I have walked into bars, restaurants, and nightclubs and asked this question: How many staff do you have on a Friday night, both back and front of house?

Where the shape of a venue is long or unwieldy because of over-cramming, the staff ratio to service customers is lacking, hammering your margin and redlining the customer experience. Go back to who your customer is and how good your other factors are, but almost always, the shape of the venue should be a deal breaker or modified to allow flow for staff and create a space where people want to linger so you can even make more than two sittings in one evening or sell more alcohol because people want to linger and enjoy the vibe. You lose, if people bump into you or staff service could be faster or more efficient.

Chef/publican having equity in the business.

This one frustrates me. I can’t tell you how many arguments I have had with client’s lawyers or partners about giving equity away. When you open a restaurant, you are full of optimism and dreams. The best operators realise their company will be unsuccessful without the right cofounder. That co-founder should be a high-quality chef. This could be a Publican attaching to the venue, whether a pub or nightclub. You need to consider how you will get longevity and how much value there is in making a star chef less mobile. Getting them to feel like shareholders, where problems are shared and expenses are coming out of their pockets, is a game changer. Get it out of your head that this is going to be a Google, Atlassian or Canva-style valuation in the future. To turn up every day and solve problems, you need to have people with enough skin in the game and that you being diluted in terms of equity is intelligent, as it is better to have 70% of a successful venture than 100% of a company that goes out of business.

Staff training and the direct link to success.

Everything comes back to your team. If your team is engaged, enjoys the culture, is treated with respect, and, most importantly, is trained, this builds confidence. Getting business owners to see training as an INVESTMENT rather than a COST is half the battle. People feel valued and part of a high-performing culture, and they see how it’s not just a ‘holding pattern’ until they find something better. Explain to them what they will learn and how this training gives them life skills, and they will stay longer, look after your customers and behave like they own the company rather than watching the clock doing the least possible they can. Understanding the drivers of the ‘thing’ that makes it ‘the thing’ that brings people through the door takes real insight and isn’t always obvious. This takes knowledge and a systematic plan, but it is worth every cent.

Other income – Ambassadors.

I’ve worked with television chefs, entertainers, hotel groups, and world-class entertainment venues, and having a secondary source of income is a bonus. It can provide leverage but can also be a double-edged sword if bad publicity ensues. One piece of advice is that you consider bringing in a partner who can add value or even an audience to your business. Do your due diligence and take your time. Work out whether this person is in it for the goal or themselves. It’s okay either way, but work that out, understand, and respond accordingly.

The last word.

I reflected on some of the ‘advice’ other accountants or lawyers gave my clients and wanted to call out some of the worst advice I heard.

1. Own the shares in your business via a trust. My thoughts are, find yourself someone who can ask you the right questions, not just focus on the tax outcome, assuming you are fortunate enough to make a profit or in the tiny percentage of businesses that sell and make a capital gain.
2. Have a non-compete clause with your business partners or chef. My thoughts are, work on creating a good relationship and focus on something other than the downside.
3. Ensure the POS software is so good that people can’t steal from you. My thoughts are, how about knowing your margins and helping your team succeed by spending more time on the hiring process and explaining your training and culture?

Business is simple or should be kept as simple as possible, but most importantly, generic advice is useless. An entrepreneur needs to experiment and ask the right questions.

This is one of the reasons I started StartGrowth.com.au, to mentor the next wave of entrepreneurs, guiding them through the intricacies of sales, product development, joint ventures, leadership training, hiring, developing culture, and mastering capital allocation. Our vision is to help build companies that reach significant financial milestones and leave a lasting impact on the industry and society, thereby de-risking entrepreneurship.

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Now read this

https://www.kochiesbusinessbuilders.com.au/how-to-find-the-best-talent-for-your-hospitality-business/