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7 Financial red flags for hospitality businesses

While each hospitality business is unique, there are some key red flags that owners should monitor which may signal impending money troubles.

Catching these early allows you to correct them before they escalate.

Here are our 7 important financial red flags to be aware of:

  1. Declining sales – It’s obvious, but worth tracking closely. Look at sales trends over prior months and years. Rapid or prolonged dips may indicate an underlying issue.

  2. Rising cost of goods sold - If this is creeping above 30-35% of total revenue, it means you’re losing more money on ingredients and inventory.

  3. Employee turnover - High staff turnover rates can impact both customer service and operational efficiency. Consistent departures may signal internal issues, affecting your business's overall health and financial stability.

  4. Lower average guest spending - Guests spending less per visit can significantly impact your bottom line over time.

  5. Excessive waste - Inventory and food waste above 2-4% of total sales inflates costs unnecessarily.

  6. Paying bills late - Consistently paying vendors and suppliers late risks relationships and your ability to secure future credit.

  7. Cash flow shortfalls - Running out of operating cash before the next income hits means your budgeting and cash management needs reworking and you may need to trim unnecessary expenditures.

We recommend you choose 2-3 red flags to monitor closely each month.

Consistently tracking and analysing key data points will help you identify patterns and avoid potential financial problems.

We work with hospitality businesses across London and advise them on how to structure their finances.

Get in contact today to discuss your business.


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