10.1 Revenue
Revenue has to be broken down by type (food, beverage, etc.) but also by revenue centre: restaurant, brasserie, room service, rooms, bar, private dining room, retail, etc. (See Appendix 10.1 Income Statement). Revenue needs to be calculated according to capacity and also occupancy, then broken down by service and by days of the weeks, covering any variation and seasonality faced by the business (See Appendix 10.3 Occupancy Forecast and 10.4 Spending Forecast). All businesses are different and the student will have to do some research on similar business models to justify their figures.
10.2 Marginal Profit
Marginal profit is the balance after costs have been deducted from revenue from the sale of goods or services, and is expressed as a ratio or percentage. This section involves costing all types of products sold (food, beverages, retail sales, etc.) and also includes promotional considerations (i.e., complimentary glass of champagne with booking, special menu prices such as a three-‐course dinner for
£25, a bottle of wine or free breakfast included with the room booking, etc.).
As per Appendix 10.7 Menu Costing, students will be required to cost their menu items. This involves finding out the cost of the item, determining if they are top sellers, and also balancing the menu. The term balancing a menu means that if an item with a low margin is a top seller, another top seller with high margin has to be introduced. Once calculated, students can work out their margins per category per revenue centre (See Appendix 10.5 Margin Forecast).
10.3 Personnel cost
10.3.1 Employment law considerations for the business plan (for a UK business):
Hiring personnel is always made with a legally binding contract. The contract is subject to common English law and statutory employment protection. A company can either employ their own staff or, using a third party company, they can outsource the staff from an agency that holds the contract and obligations with the employee.
An employee can be employed on the following basis: (HMRC, 2013 a.)
• Full-‐time (40 hours a week, up to 48 hours paid overtime, and above if the employee agrees)
• Part-‐time (as stated in the contract)
• A casual worker (on-‐call basis)
Britain's HMRC digital guide (2013) states a list of employer’s obligation relevant to the financial planning of a company:
All employees must be paid at least the National minimum wage.
All employees have the right to be paid for statutory sick pay, maternity pay, redundancy pay, pension, holiday (statutory 28 days a year including bank holiday), etc.
All employers must comply with fire, health and safety requirements and are subject to annual audits.
All employers must subscribe to an Employer liability insurance to cover at least up to £5 million.
All employers are subject to Employee National Insurance.
All other obligations can be found on the following Web sites:
HMRC (http://www.hmrc.gov.uk/),
Health and Safety Executive (http://www.hse.gov.uk/) and the British government Web site on Employing People (https://www.gov.uk/browse/employing-‐people)
10.3.2 HR employment considerations:
10.3.21 Ratios are important to consider when managing the workforce:
Cost / Turnover
The HR manager will have to control staff cost and make sure it remains reasonable. He can use industry averages using the ratio: staff cost / turnover, expressed in percentage. However, the industry average is difficult to find as that ratio varies depending on the type of business. A hotel, for example, is less labour intensive than a restaurant (comparatively, expressed as percentage of
turnover). A two-‐star hotel is less labour intensive than a five-‐star hotel due to the minimum service level required by the grading. Likewise, a five-‐star hotel will also charge more for rooms, rendering them incomparable. It is important that the company being benchmarked be very similar to the business in question.
This ratio is also dependant on turnover, which may be seasonal, depending on the business.
In order to maintain this ratio in the desired range, the company may call on the help of casual contracts or outsourcing to manage variations in business activity.
Nevertheless, consideration has to be given to the risk of poor reliability of people on casual contracts (people prefer fixed sources of income) and the poor standards of service (training and unfamiliarity with the business on both types of employee is always an issue).
Full Time Employee (FTE)
Another ratio is the Full Time Employee (FTE), which means the average number of people over a period of time divided by the profit made. This ratio evaluates the productivity of people and uses data that is publicly available in the UK for all incorporated companies. This will enable students to benchmark their business against others.
Staff Turnover
HR managers will have to monitor their staff turnover. (Note that the word
"turnover" can mean several things: revenue, stock turnover, asset turnover, customer turnover as well as staff turnover, so it is important to clearly specify
"staff turnover" at least the first time you use this expression.) This is calculated as the number of employees who leave during a given period divided by the average number of employees during that period. The British hospitality industry turnover is 31% (UKCES, 2012).
Staff turnover has an impact on recruitment cost and training costs. The issue may be mitigated by: hiring apprentices; offering competitive salaries, above-‐
average benefits and good working conditions. Applied to Financial Planning, all the above have to be considered in order to make the company attractive.
Ratios used in France
The following are benchmark (comparison) guidelines used in France, which should help you make your business plans more realistic. For further
information, you can consult the L'Hotellerie-‐restauration Web site at http://www.lhotellerie-‐restauration.fr/blogs-‐des-‐experts/Gestion/
Source: L'Hotellerie Restauration -‐ Les Blogs des Experts par Jean-‐Claude Oulé at lhotellerie-‐restauration.fr
Hotels
Indicator Average Values Commentary
Staff ratio 30 -‐ 35% of turnover
before tax 42% including social
contributions Chamber maids per room 2* = 0,20 -‐ 0,30 -‐ 3* = 0,30 -‐ 0,40 -‐ 4* = 0,50 -‐ 0,70 Turnover per employee 2* = 80 -‐ 90 KE -‐ 3* = 85 -‐ 90 KE -‐ 4* = 100 -‐ 110 KE
Administrative costs 20% -‐ 27%
Gross profit (margin) 60% -‐ 65%
Gross operating income 30% -‐ 35 %
Profit before taxes 30% -‐ 35%
Restaurants
Indicator Average Values Commentary Material Consumption 24% -‐ 35%
Staff Costs (depends on
the type of restaurant) 30% -‐ 35% 37% -‐ 50% (including social contributions)
Prime cost 52% -‐ 76% (source CCIP)
Administrative Costs 10% -‐ 15%
Gross profit (margin) 67% -‐ 77% depends on the type of restaurant
R.B.E. 15% -‐ 25%
Rent 8% -‐ 12%
Profit before taxes 8% -‐ 10%
Figure 60 Ratios in France, (Oulé, J.C., LHR blog, 2010)
10.3.22 Hierarchy and Structure
Hierarchy is very important within the business as it drives the line of reporting and responsibility. Just as importantly, it drives the rate of pay. The HR manager will have to make sure all positions are paid consistently and that every level of management is compensated more than the personnel reporting to them.
10.3.23 Service charge and tips
The "service charge" is a fixed, obligatory charge added to a bill; it is collected by the employer and redistributed to the employees. The employer has no right over the service charge but can charge an administration fee, to distribute it. The service charge can’t form part of the minimum wage rate and is also exempt of National insurance but subject to PAYE. Tips are gratuities that are offered on a voluntary basis by the customer either left in cash, by cheque or added to the credit card charge.
A detailed guide on service charges and tips is available on HMRC (2010).