It’s all your accountant’s fault . . .

The issue of staff training has come to the forefront in the minds of many industry decision makers over the recent past. We know this because acute staff shortages right across Australia were creating havoc in most of the hospitality businesses we deal with. People are starting to realise that staffing is not going to get any easier in the future. New restaurants, hotels and other large hospitality businesses are being opened an alarming rate and creating a powerful supply problem in specialist hospitality roles such as Restaurant Managers, Chefs, Pastrycooks, Headwaiters, Sommeliers, etc.

I lay part of the blame for the problem getting to this point squarely on the doorstep of the accounting profession. It’s because of modern accounting practice that I think we’re in this situation. Fighting words? Maybe . . . I guess I should explain.

Research tells us that 40% of a customers’ perception of a hospitality business comes from service. I define service as ‘a perception of human interaction’. If customer perception was the only factor driving this industry then I would bet that most business operators would clearly see the need to train their staff properly.

Unfortunately, there are other factors driving the industry, and the most important of them is the need to remain profitable. Pretty basic, really — but this is where accounting practice causes a problem which results in a shortage of trained staff. The way we normally establish profitability and keep our accounts works against our best interests.

If I buy new tables and chairs, or renovate the kitchen, my accountant would classify these things as ‘capital expenditure’ and show them as an asset on my company balance sheet. The value of these purchases would then be depreciated over subsequent years according to the projected life of whatever it was that I purchased. The more I spent this way the better my balance sheet would look, in principle.

Interestingly, the physical side of our businesses only delivers 20% of customer perception, half as much as service does. If I’m purely interested in happy customers, then I’d be much better putting money into staff training than new tables and chairs.

If I decided that I would rather spend the money on developing my staff because that offered me more potential long term gain, and allocated $50,000 towards a training budget, guess where that money would end-up in the accounts? Not on the balance sheet adding value to the business — it is not shown as an asset, but it appears on the profit and loss statement as an operating cost of the business. Sensible accounting, but not too smart if we look at the issue from a management point of view.

Training is one of those things that is regarded as an intangible benefit to your business by the accounting profession. Because it has no firm value, and it may or may not contribute to the overall result of the business, it is lumped in with such other vital costs as rubbish removal and floral supplies — the ‘can do without’ things.

To be fair, if the training is applied properly and followed-up (like they do at McDonald’s), it should yield an increase in the top line of the profit and loss statement (revenue) that has been delivered by more customers spending more money. But this presents us with another slight problem. How do we know what part of the top line was delivered by training, or anything else we do, like advertising or price increases?

Those businesses with sophisticated POS systems and the skills to use the information that comes out of them can measure the benefit of training. Let’s say you trained all your front of house staff in service and sales techniques, then measured each staff members’ customer average sales results, you’d then be able to work-out the cost-effectiveness of the training.

Those businesses we work with that do measure customer average sales results usually end-up allocating more money towards this type of training because they come to understand that it yields a very good return and is well worth doing.

It gets really difficult when we try to measure the benefit of supervisory and management training. If we have the luxury of training the whole team then we usually measure the results in an increasing bottom line. It is not unheard of to double the profit of a business over a twelve month period. If we get odd people to train the results are almost impossible to quantify, because they’re returning to a system they do not control, in which there is usually no measurement system.

We are in a privileged position. We see enough different businesses each year to know that measurement system or not, there is a direct relationship between staff training, business growth and quality of life for the business owners. I just wish we could convince most of the industry that this is so. I have a feeling that circumstances over the next few years may just force the issue without my influence.

The nett result of our current practices is that we are now facing an acute skilled staff shortage in all our specialist supervisory and management roles. Everybody needs these people, but very few businesses are putting any structured training into them, and their accountant would probably have a fit if they did. Meanwhile the good ones get poached around and around in a circle with their salary escalating each time.