Optimizing Hospitality Operations: Cost Accounting Strategies in UAE Hotels
Explore the effective cost accounting techniques employed by UAE hotels to enhance their financial efficiency and deliver exceptional hospitality experiences. Discover insights into smart cost control practices in the hospitality industry.
The main reason most UAE hotels are not able to handle their finances and suffer losses is that they are not able to keep their hotel costs in check. An inability to keep costs in check can result in huge losses and the eventual shutdown of the hotel business. Hotel cost control is essential as it lets you identify the area of your expenses and take the right and preventive measures to keep a good ratio between your expenses and finances.
What is Cost control?
Hotel accounting is a key part of your business. It is the analysis of your hotel business’s financial performance. It consists of maximizing profits by aiming for achievable and realistic financial benchmarks. This entire process is done by setting projections. You can compare these projections to the hotel’s actual performance and then work on improvement factors that lead to a variation between the said measurements.
The costs themselves can be in the form of food, liquor, other kitchen equipment, or other things that are usually one-time purchases.
Understanding a UAE hotel’s cost accounting can help you maximize the profitability of your hotel. It will also aid you in recognizing all the expenditures and focusing on areas that skip attention. This can help save both money and effort, which you can dedicate to other highly demanding responsibilities in your UAE hotel.
What Isn’t Cost Control?
Cost accounting is often misrepresented and misunderstood in the hotel business. People often confuse cost control measures with cost cutting. When any hotel business faces a sudden drop in revenue, the initial attempt is to slash things and reduce product quality; advertising outlays, and maintenance. On the face of it, these moves can maintain the profits initially but end up diminishing customer experience, leading to fewer customers and diminishing the bottom line.
Cost accounting is a more thoughtful and planned-out thing. One whose goal is to maximize profits and look at current processes and their implementation cost. Also, how to optimize is best to provide the best-in-class experience.
What is hotel Food cost accounting?
Cost control is the ongoing process of taking steps to lower a business’s costs to generate more profits. It’s not something you do once and then forget about. Food cost control, in particular, means figuring out how much food and drinks cost at your UAE hotel and finding ways to cut back on them.
With accurate cost accounting, you can predict future profits, determine goals, and make growth plans. You can also find out what factors affect your food costs and how to assess your ideal food cost percentage. These are important initial steps that will help you price your menu better.
The goal of controlling food costs is to find a way to make as much money as possible. At the same time spending as little as possible.
How to Calculate Your Total Food Cost Percentage?
It can take a lot of time to figure out the cost of food in a UAE hotel. But staying on budget and figuring out your current costs could help you save time, cash, and groceries in the long run.
How to Calculate Your Desired Food Cost Percentage?
The actual food cost accounting formula takes into account theft and waste. This is done by looking at how much food you have at the beginning and end of the day. But in an ideal world, no one would steal, and no food would go to waste. Therefore, the ideal food cost only takes into account how much each menu item costs and how much it makes.
The less food is wasted and stolen, the closer your actual food cost percentage is to your ideal food cost percentage.
You can figure out what your ideal food cost percentage should be by dividing your total food cost. Doing so accounts for a specific period by the total amount of food sales for that period. For example, if you spend $5,000 on food and sell $10,000 worth of food, your ideal food cost accounting is 0.5, or 5%.
Highly Effective Hotel Cost Control Strategies That You Should Be Employing
FnB and worker salaries are the two major expenses in a UAE hotel. In this article, we discuss in depth how you can track, check, and control food and labor costs efficiently.
Tracking And Managing Inventory To Ensure hotel Food Cost accounting
The first step in hotel price control is monitoring and controlling your stock. It is essential to track the regular stock-in and stock-out and the actual use throughout the day. Monitoring the variance between the desired stock and actual real stock. This will help you identify if a lot of wastage is happening at a UAE hotel. A variance between 3-5% is standard; however, anything over this that implies that too much is being lost or even misappropriations may be happening at your hotel.
A smart stock management system comes in handy in this situation. The reason is that it helps you monitor the Variance. This gives you real-time feedback and also enables you to set re-order levels for individual inventory items. This way, you only order the things once they reach a particular re-order level and eliminate the risk of over-ordering or under-ordering.
The inventory management mechanism would also help you forecast your exact stock needs. These are based on the stock consumption patterns of your hotel. This way, you can cut any undue wastage because of over-ordering.
Purchasing Raw Materials On Credit To limit Costs
You can control your hotel costs by going for minimalist cash deals and conducting all the purchases through the hotel’s account on a credit basis. Often, the raw materials bought in cash are less in quantity and can turn out to be costly as compared to when you are buying them in bulk.
Purchasing the raw goods on credit is a good idea. The reason is it allows you to run your hotel, generate revenue, and then pay off the debt for the money made.
Consider the Credit Period before deciding on your hotel’s vendor. The Credit period is often around 15-20 days but differs from vendor to vendor. Remember to set the ground rules of payment, ordering, and receiving.
Join a ‘Purchasing Group’, if possible, to cut your hotel costs.
In a Purchasing Group, because of the total number of buyers, the suppliers often reduce prices.
It is also a good idea to have a yearly contract with the vendors. This would not only help you get a better price with the vendor but also help in maintaining standards in the quality of the raw materials.
The operations of the hotel and its service providers are critically dependent on one another. So it is imperative to maintain a good and healthy relationship with these partners. You must remember that applying a certain amount of pressure on the suppliers is necessary and inevitable. Your hotel cost control targets will fail at the expense of a healthy relationship that you may share with them.
Analyzing Stock Requirements Through Yield Management
You can implement hotel Cost Control and reduce your Food Costs greatly by merely giving attention to a minor detail that is often overlooked yet is just as important, namely Yield Management.
Yield management is a key part of food cost control. The reason is it gives you the idea of how much volume of raw materials would be used to prepare a given food item. The raw materials should be ordered and bought, keeping the yield of the items in mind.
Controlling Wastage Through Portion Control
Overproduction and big portions are signs of waste that lead to escalating food prices. You should have the tools to measure the portions and hard processes to control the size of the portion in order to manage the price. Right plating of the food is also a must as the over-serving of food. This can result in higher food prices and loss for your business.
We suggest making a tracking chart based on these parameters:-
- Food is given back by the Customer
- Things Burnt in the Kitchen
- Stuff Spilled in the Kitchen or Floor
- Extra Portions that are thrown away
Once you start measuring these things, you can take corrective actions based on the outcomes. For instance, if food is being returned by consumers, either you need to improve the taste and quality of the item or start cutting down the portion size served. If food is consistently being burned in the kitchen, you need to train your cooks better or might consider purchasing better kitchen equipment.
Controlling Labor Costs By Reducing Employee Turnover
Another tip for cutting your budget spent on labor and hotel cost control is lowering your employee turnover. The hotel industry witnesses one of the highest employee turnover rates, reaching as high as 80% in some cases.
Hiring a hotel staff member needs a lot of resources, starting from doing the interviews for recruiting them. Also, training them appropriately is important. Employees in your hotel. As a business owner, your primary focus should be on good hiring and on ensuring favorable conditions.