How vulnerable is your business?

Over the fifty years I’ve been a manager there have been several occasions where a large number of hospitality businesses have gone out of existence in a short period of time. The first occasion I can remember was were when the Federal Government removed tax deductibility for business entertainment in 1983 — with disastrous results for restaurants and hotels. Another was in 1990 when a recession hit, causing thirty percent of the industry to go out backwards in a twelve month period.

Locally, there are other examples I can point to — in the mid 1980’s the Victorian Government overhauled the liquor licensing laws and allowed restaurants to finally serve alcohol without meals. Over the next few years twenty five percent of Victorian pubs went under. in 1996 the Victorian Government introduced poker machines into the State and we received an alarming number of distress calls from businesses and clubs along the Murray River that used to cater for tourists wanting to gamble.

The calls from along the Murray got me thinking. The changes to Victorian gambling laws were announced in 1989; why did these people react so slowly, they had years notice of the changes? Why did they wait until they’re in trouble? Wasn’t it obvious that if every second pub in Victoria had pokies then Victorians wouldn’t need to go to New South Wales to gamble? Then I cast my mind back to 1990 and recalled a similar situation; most people only reacted to the recession when they couldn’t pay their bills. Then it was too late to do anything, even though they had known that things were not good for about a year.

Are you supervising or managing?

I believe this highlights one of the key shortcomings of many business owners and managers — they don’t look ahead and be prepare themselves to make radical changes to keep pace with a rapidly changing world. It seems obvious that this should be happening, but business failure statistics would indicate that it isn’t. Most managers seem to get so bogged down supervising their businesses, that they neglect to manage it. The role of a manager is to ensure the growth of the business into the future, not to run the business on a day to day basis — that’s the role of subordinate staff.

The need to think ahead

The manager’s main concern should be to address issues such as: Where is the market moving to? How do we have to change to stay ahead? What changes in legislation and regulation will affect us? Where are we going to get the finance to fund business development? How are we going to market our business over the next few years? Where are we going to get our staff; how are we going to train them? What new technology should we bring into our business?

I’d urge all managers to pay particular attention to Government activity on all three levels — Federal, State and Local. It occurred to me while writing this that Government policy changes have been one of the single biggest causes of hospitality business demise in the last fifty years. Watch ‘em like a hawk — if you ignore them, or become apathetic, it could be to your peril.

The hospitality industry is a target

I’m not suggesting some hidden Government agenda to hit on the industry, but we are mainly small and medium sized businesses — fragmented, poorly represented and a soft target (contrast our industry lobby power compared with the farmers, or the miners). We are also one of the first industries to be affected by Governments’ attempts to engineer social change — consider the effects of the Federal Government’s new Industrial Relations Laws as an example — if the public perceive that their income will be reduced as a result, restaurants and pubs will feel the pinch immediately.

Local Government can create just as much havoc. One of my clients has an established Bayside business that has done very well. Their local council has recently approved an increase of 4,000 new restaurant seats within one kilometre of them. A vigorous lobby campaign by the existing restaurateurs may have prevented this onslaught, but nobody seemed to grasp the significance of what was happening until it was too late.

It’s a jungle out there

In the country I see highways bypassing towns, I see some regions failing to support tourism development, I see ‘accommodation levies’ (local council bed taxes) proposed to prop-up ailing council revenues, and I see many other issues I think local operators should fight. In the cities I see increases in parking spaces required for hospitality operators, I see the cost of on street parking escalating rapidly, I see ‘user pays’ policies increasing the cost of a range of services such as rubbish removal and street cleaning, and I see the cost of a range of permits escalating rapidly.

Big, broad changes in policy can catch you unprepared; small changes can mount up and erode your profit over a period of time. I don’t think you can afford to ignore what happens outside your business, and I don’t think you can afford to remain uninvolved. I urge you to become active — join your local Chamber of Commerce and industry representative group. Stay informed and be prepared to fight for your interests. A good manager always looks down the track some distance, and takes steps to avoid obstacles before they become problems.