by Andrew Morgan - QTHB
26th August, 2020
Part 2: No better time than now
Last issue, we considered how day-to-day operations engulf every business owner’s time.
When things are good, operating costs are not an issue. However, when activity decreases, the opportunity to look closely at excessive operating costs and how they can be reduced is available. It is only when a business operator drills down on specific expense items that they realise costs have blown out without being detected earlier.
Considering some of those expenses we touched on last issue included interest on finance, cost of sales (stock), advertising, pay TV, bank and merchant fees, commission, electricity and gas. Let us now continue with the following that will eat into revenue if not kept to a minimum:
There are always differing opinions within the industry as to what is the most cost-effective, onsite or offsite? Offsite involves the cost paid to the laundry for pick up and replacement. Onsite involves the cost of wages, electricity/gas, linen purchase, water, and chemicals. If offsite, then shopping around (if options are available) is a possibility, if onsite, then looking into reducing the costs of chemicals, power and labour. Power was covered off previously with solar or wholesale options as a possibility.
Always an issue, it seems. Especially over the last 10 years. The rising costs of insurance have been a problem for everyone from small business owners to homeowners to multi-national companies. The absolute best thing to do in this respect is shop around. Do not accept the renewal that is emailed on the day the policy is due. Seek alternatives if you are not happy with the offering. Consider what the premium was the previous year and what is being offered now and why. Look at the sums insured and the excess. Really pull it apart and determine if you are over- or under-insured.
If operating a leasehold motel this is relevant. Is the rent an acceptable market rent, not too high or too low? Rent evolves over time, as does the market. They can become too high or low: open communication and understanding between the relevant parties works both ways.
Repair, maintenance, renovation
I include renovation here, although it is thought of as a capitalised item, however with changing taxation opportunities, some of these costs can be expensed immediately rather than being depreciated over time. Maintaining the required standard of presentation means constant repairs or upgrades. Completing this efficiently and cost-effectively as one can requires time and consideration. Seeking cost-effective replacement items, etc., and quotes to ensure the required job is completed as opposed to something that may be excessive or more cost-effectively rectified.
What industry or non-industry bodies is the business subscribed to? Often businesses sign up to various groups that seemed like a good idea at the time but when you drill down on what and who you are paying to be a part of each month, a lot of these are no longer relevant or of interest. Cut what is no longer beneficial.
Telecommunications (telephone and internet)
Making sure one is on the best and most relevant deal available can save dollars. How many phone lines are required? Is the data plan the best for the individual business? Is there a better option available with your current provider or with another? There are a lot of questions that need to be answered here and discussions with the provider (which can be long winded and require time) can be productive.
One of the biggest expense items of any business needs careful consideration. It is not easy getting the required hours and what is needed versus excessive correct. Constant monitoring can only assist as far as areas such as cleaning goes. The amount of time required to clean a unit correctly without being excessive depends on many factors, such as unit size, whether it is self-contained, floor coverings, number of beds, etc. Deep cleaning is now a ‘buzz’ term for many businesses, which may really just be an extension of the ‘spring clean’ that was conducted regularly anyway. Consider wages in all areas of the accommodation business - units, reception, kitchen/restaurant, yard/maintenance. Are these areas operating as efficiently as possible?
All the above items are easily put to one side when occupancy rates are high. The opportunity to streamline them comes when things may not be as busy.