The Bar Business Podcast: Smart Hospitality & Marketing Secrets For Bar & Pub Owners
Welcome to the Bar Business Podcast, where we help bar owners increase profits, attract loyal guests, and simplify operations without burnout so you can finally enjoy life outside the bar. Our host, Chris Schneider, draws on his over twenty years of experience in the industry to bring you valuable insights and practical advice every week. From creating a winning menu and designing a stylish bar, to effective marketing strategies and HR best practices, we've got you covered. Join us on the journey to bar business success and take the first step towards a brighter future for your establishment.
The Bar Business Podcast: Smart Hospitality & Marketing Secrets For Bar & Pub Owners
Navigating the No Tax on Tips Policy: Impacts on Labor Costs and Strategic Financial Metrics
Can the proposed "no tax on tips" policy revolutionize the bar and restaurant industry? This week on the Bar Business Podcast, we dissect the potential ramifications of this policy, supported by both major political parties. We explore how it could reshape labor costs, affect tax liabilities for staff, and what specific taxes—federal income or FICA—would be impacted.
Unravel the complexities of financial management with our deep dive into front and back-of-house costs. Discover why breaking down labor and cost of goods sold (COGS) into detailed categories is crucial for identifying profitable areas within your establishment. We'll introduce you to the concept of Revenue Per Available Seat Hour (RevPASH), a powerful metric adapted from the hotel industry, designed to help you maximize revenue efficiency based on seating capacity and operating hours.
Plus, we share practical tips on using advanced financial metrics for effective forecasting and optimizing space utilization. Learn the importance of detailed financials and how to set up meaningful Key Performance Indicators (KPIs) tailored to your business needs. Stay tuned as we also provide updates on our podcast format and answer a listener's question, offering actionable strategies to help you gain a competitive edge in managing your bar business.
Welcome to the Bar Business Podcast, where we help bar owners increase profits, attract loyal guests, and simplify operations without burnout so you can finally enjoy life outside the bar. Our podcast is packed with valuable insights, expert advice, and inspiring stories from successful bar owners and industry professionals.
Thank you to our show sponsor, SpotOn. SpotOn's modern, cloud-based POS system allows bars to increase team productivity and provides the reporting you need to make smart financial decisions.
**We are a SpotOn affiliate and earn commissions from the link above.
Thank you to our benchmarking data partner Starfish. Starfish works with your bookkeeping software using AI to help you make data-driven decisions and maximize your profits while giving you benchmarking data to understand how you compare to the industry at large.
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You're listening to the Bar Business Podcast where every week, your host, chris Schneider, brings you information, strategies and news on the bar industry, giving you the competitive edge you need to start working on your bar rather than in your bar.
Chris Schneider:Hello and welcome to this week's edition of the Bar Business Podcast, your ultimate resource for bar owners. I'm your host, chris Schneider, and this week we're going to talk through a few different things. We'll talk a little bit about a new sponsor we have. Then I'm going to dive into and I was in a meeting the other week and they said there are three things you should never talk about in polite company religion, politics and Taylor Swift. Well, we're going to break that today and we're not going to talk politics per se, but I think everyone is aware now both major parties have been saying no tax on tips. So I want to dive into that a little bit, because I know from the finance end there are a lot of questions that I have on what exactly they mean by that, because there are multiple ways. No tax on tips could be understood and it could be a really good thing for the industry, could be a really bad thing for the industry, or it could just be a bunch of political pandering. So I want to dive into that a little bit and have some conversation about not the politics behind it, but what that policy could mean. Then I want to talk a little bit about financial analysis, some of the stuff that I do and help you guys with some tips and tricks when it comes to analyzing your own financials. Then we're going to have a little update on the podcast and some changes we're making to the format and then we will dive in to a listener question. All right, so to start with, we have a new sponsor for the podcast and that is spot on.
Chris Schneider:They obviously they have a POS system, they do credit card processing, but you don't have to use them for your credit card processing if you use their POS. And they offer a very competitive, really a best-in-class suite of tools that you can use with their POS system to really drive your business forward. And there are a lot of options for POS systems out there. And there are a lot of options for POS systems out there. And it would be disingenuous of me to say that everyone should always use SpotOn, but I will tell you, I have spent quite a bit of time talking with their tech and development folks, and some of their marketing folks as well, obviously. But the tech and development folks, my conversations with them, make me comfortable, very comfortable in saying that if you're looking for a new POS system, you should definitely consider buying theirs, and again, it may or may not work for your exact situation, but I think overall they're a very strong contender in the POS market and particularly when it comes to credit card processing fees, they do do their own processing so you can use them as your credit card processor. You can also use a different credit card processor. It changes what you pay a little bit, but their credit card processing fees, if you use them, are very competitive and the ability to not have to use them as a credit card processor is something I really like. Not always, but a lot of times I find POS companies that tie you in only to their credit card processing. Sometimes the POS system is more reasonably priced, but what you're paying in processing more than makes up for the lower price you're getting on the POS. So something to keep in mind. And again, there are links in the show notes. Those are affiliate links, full disclosure. But if you're looking at POS systems, you're going to be opening a bar. You're thinking about changing your POS system. I would just encourage you to give Spot on a look. And again I have to say thank you to Spot On for being the new sponsor for the podcast.
Chris Schneider:Now I want to dive into this whole conversation of no tax on tips and I will tell you the first time I heard a politician say no tax on tips, I thought, well, that's some interesting, maybe pandering, maybe not, but that's just an interesting thing to say. When you go to Las Vegas, where I think it's something like 20% of voters in Nevada are in the hospitality industry, I thought, well, okay, maybe it'll happen, maybe it won't, we'll wait till we see a policy paper figure out what this actually means Was many of you were probably aware. Over the weekend the other major political candidate said no tax on tips and that sounds great Like I like the idea of no tax on tips as a talking point. I like it as a theoretical thing. I think there are benefits for our industry, it could make labor easier for us. But also I wonder what the heck no tax on tips means. Because as far as I can find and it's very plausible that I didn't research enough, but as far as I can find both major parties have said no tax on tips. But that's it Like one sentence of policy, and the questions I have are A which taxes? And B what else comes along with that. So when I say which taxes?
Chris Schneider:If you think about payroll for your bar, on all the money you pay your employees and their tips, you're paying, or they are paying, income tax, federal income tax, and then they are paying the employee side of FICA, so Medicare and social security, that sort of stuff, and then you're paying, as the employer, the employer side of FICA. So if we take no tax on tips, at face value, that would almost imply that there's no FICA taxes on tips and there's no income taxes on tips. I don't know that that's the case. I think what they're actually talking about is just no income taxes on tips and FICA would stay there. But it's an interesting scenario either way.
Chris Schneider:So if what no tax on tips means is it's just eliminating the federal income tax, generally speaking, you have servers that and bartenders on the lower end of the income spectrum that don't have much of a tax liability. You have some on the higher end of the income spectrum that do have quite a tax liability, but in the United States and I forget the exact number, but it's something like almost 50, I want to say it's 47% of people do not actually have a federal income tax obligation. So for those servers that are not making as much money, they may not be paying federal income taxes now on their tips, so I'm not sure that changes anything For those that make a little bit more money. Obviously, the more taxes, the more federal income tax you're paying, and for most folks in the United States the tips make up the majority of their pay. That could be a large benefit. Again, for those on the lower end of the income spectrum in hospitality, no tax on tips if we're just talking income tax probably is not bringing them as much benefit as the politicians in both parties in this case would like us to believe.
Chris Schneider:Now, the other thing there is what could happen and this is a fear for me and something that if no tax on tips happens and if it is just federal income tax, it's a point that we need to communicate to our teams, because what could easily happen in this case is you have someone that has basically no federal tax liability but throughout the year they have withholding like they do, and then when they go file their taxes, their credits, their deductions, wipe out what they owe and they get a refund check. Well, if there's no income tax on tips and tips make up the majority of someone's compensation, that probably would mean that most of those individuals will have a higher paycheck week to week but won't be getting that refund at the end of the year because they didn't overpay on taxes, because they never owed any on the tips. So it may cause some issues with our teams because they're expecting refunds that no longer exist, because there's no tax, there's no withholding and therefore there's nothing to refile. Now the other part there is when they say no tax on tips, does that mean FICA? And I'm going to guess it doesn't. So I'm going to guess that no tax on tips is a little bit of a exaggerated statement or a statement to gain votes, let's say, because if FICA is included, that makes me wonder about feasibility of Social Security, Medicare, medicaid, because that's what that's going to.
Chris Schneider:But it also presents some potential issues on the employer side and, honestly, if it's just income tax, it could present some issues on the employer side, depending upon what other policy surrounds it. So, for example, if tips were not subject to FICA tax, will the FICA tip credit exist for employers? Well, probably not, because the credit's based upon taxes paid for FICA tip credit exist for employers. Well, probably not, because the credit's based upon taxes paid for FICA on tips. If tips are not being taxed for FICA, how can there be a credit for the employers for that tax? And in a lot of cases this won't be a huge difference.
Chris Schneider:But for a lot of folks that are in the bar industry and kind of on the margins that have bars that are doing well, they have a decent life. But we're not talking anything gangbusters here, we're kind of talking your average neighborhood bar, your average uh kind of rural community bar, not some big glitzy outlier bar, because they have plenty of money floating around. But for a lot of those really small operators, the FICA tip credit reduces the owner's tax burden in a way that allows them to provide for their family. And if that credit went away I'm not sure they would be able to provide for their family as well. And so it's a question in my mind does the FICA tip credit say? The other question in my mind is if we aren't calling tips income for tax purposes, do we call tips income for wage purposes? Now, in seven states in the United States there is no difference between tipped and minimum wage. But in 13 states in the United States they follow the federal minimum wage law. And if you got rid of tip minimum wage and the federal minimum wage in those 13 states, they could see their front of house labor because of the difference between tipped minimum and non-tipped minimum. They could see their front of house labor go up as much as actually, I should say, slightly over 300%, which would be a huge hit again, especially for those businesses that are struggling a little bit.
Chris Schneider:So I'm going to keep watching this. I will talk about this more as we get information on what the heck no tax on tips means. But I'm worried for our industry. I'm concerned that there may be more policy here than just saying we're eliminating a tax because it's politicians I don't know that any of them can write a law to say a stop sign should go somewhere and do it in less than 200 pages. So I'm a bit worried that the no tax on tips sounds great but there might be some bad ramifications in there for the industry, or that for a lot of people on our teams it just reduces their refund and doesn't really provide them any real benefits. So we will see as information comes out, and I'll you know what I'm actually going to go and contact the major political party campaigns and see if we can get an answer, because that policy, I think, as folks in the the industry, especially owners, or, if you're a manager, the answers to that question of what does no tax on tips mean could be exceedingly important for strategizing how to run your business next year and moving forward. So hopefully we can get one of the parties or both of them moving forward. So hopefully we can get one of the parties or both of them. I'd love to get both major political party candidates to actually define that so that we can then have a conversation about what does this actually look like functionally for our industry, and if I do get those answers, I will 100% let you know.
Chris Schneider:Now, moving on a bit, I want to talk for a little bit about kind of what I do in financial analysis in some ways that you can look at your books and start to really figure out where can I make data-driven decisions and one of the things that I see a lot that is not good. There are a few things here I want to point out that you need to do to be able to make data-driven. First and foremost, you need to make sure that you have the right chart of accounts and if you're not sure if your chart of accounts works or not. Schedule a strategy session. Let's have a chat. I do crazy chart of account stuff all the time, but the thing is that you need your data broken down enough that you can make decisions from it, but not broken down so much that it is difficult to wade through. So, for example, anyone that's my client and really to have the data you need to be to do good financial analysis and really to have the data you need to do good financial analysis, I tell them you need to break down your salary labor from your hourly labor and you need to break down your front of house from your back of house.
Chris Schneider:And not a lot of people go that extra step of breaking out front and back of house. But it's important because that lets us understand what money we're spending where in a business and do things like determining departmental P&Ls for front of back and house and trying to allocate expenses to do departmental analysis and say, okay, are you making more money on your beverage program than your food program? You know a lot of cases. You can run across bars where they make great money on booze. They lose money on food. That may be okay if that's your business model. But you need to break apart front and back of house labor to have any data. That means anything, obviously every revenue line that you have. So if you have liquor sales, you need liquor cost.
Chris Schneider:Cost of goods sold. Food, food Now, a lot of people, particularly when it comes to food, they like to break up their cost of goods sold into a bunch of categories and have chicken and protein or just protein. But some people do chicken, pork, beef. I've seen people line item vegetables. That can be important in periods of inflation if you're worried about specific things going up. But in general, just having food cost is good enough. But make sure that your cost of goods sold is broken down. Make sure you're breaking down that labor. Those two things alone allow you to do much more complex analysis and to really understand where your business is.
Chris Schneider:If you lump all your labor is, if you lump all your labor together, if you lump all your costs together, there's no way to identify where trends are happening. Because maybe you didn't hit prime cost because your labor went up. Well, did it happen in your management? Your front of house hourly or your back of house hourly? Oh, it happened in the front of house hourly. Well, now we can just isolate that and dive in there and say why did it go up? And that's really key to financial analysis. Now, when I work with clients, I go way, way, way beyond that and look at all sorts of different metrics.
Chris Schneider:But what I really want to hone in on today, and what I really want you guys to take away from this part of the conversation, is that if you're not defining your P&L in a way that gives you data that you can use, it's never going to work. And there are a lot of consultants out there and some of them actually, I'll be honest, kind of piss me off because they say don't use your P&L as a source of truth. Well, if your P&L is not set up well and your P&L you're getting four weeks, six weeks after the close of the month, it's a backward looking, worthless document. But if your P&L is set up properly, it is a great document to use. So make sure you have it set up well, make sure you're getting your month closed out within a week or two so that you can actually look back and understand and make changes before the next month is over, and make sure that your numbers are accurate and usable. Now, with that data. Obviously, there's a lot of different directions you can go, but I want to focus on one metric that I really like and it's one that a lot of people don't necessarily use in our industry, but that is RevPash Revenue Per Available Seat Hour. Now, for any of you that are familiar with the hotel industry, this will probably seem pretty familiar, because you have Rev par revenue per available room and in a hotel you would calculate rev par by saying okay, our hotel has 500 rooms. There were three of them closed with maintenance, so we have 497 rooms and we're booked at 100% and the average on those rooms was a $200 rate. So your revenue per available room is $200. Now, if they had 50% occupancy, then it wouldn't be $200, it would be $100.
Chris Schneider:When we're looking at revenue per available seat hour in the barber industry available seat hour in the barber industry you're taking the total number of seats. You have times, the total number of hours you're open in whatever period you're looking at. So if you were looking at it for a day and you're open from 11 am to midnight, that's 13 hours. You have 100 seats, that's 1300 seat hours. Obviously, it can be more or less. If you're looking at a week and you were open 13 hours every day, it would be seven times that amount. If you were looking at a month, at 30 months, it would be 30 times that amount. And then you're taking that number, whatever your total seat hours is for your store, and you're dividing it by or, I'm sorry, you're taking your revenue and dividing it by the number of seat hours. So total revenue for the period you're measuring divided by total number of seat hours for the period Now you have revenue per available seat hour and there's a few reasons why I like this metric.
Chris Schneider:One is maybe you have a bar where you have an event space and that event space isn't open all the time, but the event space is open on Thursday, friday and Saturday night for overflow from the bar. Obviously, thursday, friday and Saturday night you're going to sell a lot more. You have a larger space open, but what taking it down to a seat hour does is that space on Monday would not count, but on Thursday it would. We can look at total revenue and say, okay, per seat, are you making more on Thursday than Monday? I hope to God you are, but maybe you're not. So it kind of level sets every day of the week every week to each other and allows you to understand how much revenue you make per seat. And that can be fantastic when it comes to forecasting, especially if you're at the point where you're starting to look at other stores, or if you have two or three stores and you're going to open a four. It's a great tool to take an average there and you know you might have to change some things on multiples with a new location and look at some different ways of looking at it, but it's a good way to forecast. So, revenue per available seat hour if you're not using that metric, I recommend that you do. But the bottom line here is get some good KPIs, measure them, but to do that you have to have financials set up in a way that is going to allow you to have results.
Chris Schneider:Another KPI example I'll give you real quick would be looking at labor cost versus sales in front and back of house. So I look to a lot of people look at labor as a percentage of sales, or labor sales per labor hour, which is a different way of looking at it. Essentially, you're getting in the same spot, it's just the metric looks different. But if we're say we're talking sales per labor hour. Almost everybody is looking at that and go this was my total sales, this is how many labor hours I had. This is my sales for labor. That's interesting. But what is more interesting is when you say these were my total bartender hours. This is my bar sales per bartender labor hour. This is my total back of house hours. These are my back of, these are my food sales per back of house labor hour. And then you would take your servers and look at server labor compared to probably all sales, because they're grabbing stuff from the bar and the back of the house to take it.
Chris Schneider:And by measuring those three metrics, if you do it over a period of time, because you have that labor broken out in your chart of accounts and on your P&L, you can really make some good decisions about where you need better efficiency and where you don't. Like I said again, if any of this is confusing which I'm sure some of it is because I'm kind of blasting through some high-level financial analysis here. Go on the show now, schedule a strategy session with me, let's talk and I will walk you all through it with your own numbers. But if you call me, make sure you've done what you can to set your P&L up, to have as much information as possible so that we can have a conversation that goes further than cool. You have problems, your P&L doesn't quite work. We need to adjust this and then figure out where we are.
Chris Schneider:One more thing I will say and this is just kind of a me thing when it comes to the consulting side of things, there are a lot of folks out there that are my peers that do great work but try to create a program and then force everyone into a program and for some things that works it really does. Leadership training is leadership training. How to write a schedule is how to write a schedule, I will grant all that being true, and there are a lot of courses out there that provide a whole lot of value for the money. But if I'm doing a project, I want to analyze your numbers and then figure out where we go, because while leadership or hospitality or HR or marketing, you can have these very nice, tight systems that are replicatable On the financial end of things. It's much more about detailed individual analysis. It's much more about detailed individual analysis and then figuring out, okay, based on your numbers, based on where the holes are in your business, where the opportunities are to improve your financial metrics. Here's where we should go. So yeah, just be aware of that If you talk with me, we're going to have to do some analysis before we figure out what we're actually doing with your bar.
Chris Schneider:Now I want to shift again we got a whole bunch of different things to cover this podcast and talk a little bit about the podcast itself and some different things we're going to be doing. I'm sure many of you have been listening to this podcast now. We've been on for about 16 months. We're up to 18 months year and a half and we started out it was just me talking. Then we started bringing in a bunch of guests. I'm going to kind of switch it up again on y'all and we're going to go to trying to have a guest every other week and then I talk every other week. But when I talk, I mean I hopefully you guys find me interesting just to listen to me talk, but I also want to work to better address your needs as a listener.
Chris Schneider:So when you look at the show notes for those of you that do look at the show notes on the very top it says text the show, I think, and that allows you to text us a question. I'll tell you right now I cannot reply to those questions. So if you text us, make sure, if you want me to respond directly to you, to include some contact information, because this all goes through my podcast host and it hides your information so that you can give basically feedback and I can't bother you if you say that I suck. Please don't say that I'm suck. What I really want you to do is ask good questions. I suck? Please don't say that I'm suck. What I really want you to do is ask good questions and then every other week, when we're not doing an interview show, I am going to take time at the end of the show to answer all of our listener questions, because I think it's important and I think it's a much easy. It's much better let's put it this way for you to ask me a question and then I can give you an answer on the show. Then for me to just think, oh, this is probably something they're questioning and just go off on it.
Chris Schneider:So again in the show notes, top of the notes, it says text us or something along those lines. Click that, shoot us a message and every other show when we don't have a guest, I will be answering the listener questions now. Obviously, I should also say if you do want to talk to me directly, that's not the way to do it schedule a strategy session. Shoot me an email, give me a phone call. Um, it's been a while since I've told you all my phone number. It is 812-994-2202. I can say I had a guy call last week just randomly and was really surprised that that's actually my phone number and I just give it out. But if you want to talk to me, give me a call. That is a landline phone number though, because I live in the middle of nowhere, so don't text that number. But if you want to give me a call, it's 812-994-2202. Shoot me an email, chris, at barbusinesscoachcom. Schedule a strategy session. All of those are ways that we can interact person to person, but the text of the show is there for listener questions so that I can get questions from you guys and then we'll just answer them on the show and that way everyone can learn from them, and so far we've gotten one. So I want to talk about this listener question real quick, and this is from Conroe Texas. It says hello, I heard your podcast. I loved it. I have a question.
Chris Schneider:On the bar menu, we currently have classic cocktails, signature handcrafted cocktails and wine. Would you keep classics on the menu? And I'm going to answer this in the probably give the worst answer possible, which is maybe and here's my thought process on it. It's maybe because nine times out of 10, or eight times out of 10, I don't think there's any reason to have classic cocktails on the menu. And the reason is is because, if we're talking Texas, people drink a lot of Palomas. I want a Paloma. I walk into your bar, I'm going to order a Paloma. I don't need to see it on a menu, but there are a few caveats to that. I'm going to order a Paloma. I don't need to see it on a menu, but there are a few caveats to that. One caveat is you're a bar, say, in Texas, that has a lot of tourist visits. Now, I'm from Indiana and the folks around me most of them, I don't know that they know what a Paloma is. It's not a popular drink in Southern Indiana. So if you have a lot of tourists, it's not a bad idea to include classic cocktails or more common cocktails that are more regionally specific, because those tourists don't know that those exist. They don't necessarily know what those are, they're not necessarily familiar with them.
Chris Schneider:The other time that you might include classic cocktails on your menu is if you just need some filler. Right, if you're like I see this and I've recommended this for before for an opening we know we're opening we want to have a six item or 10 item cocktail list to make it easier on the bartenders when we're training them. We pick three signature cocktails, we train those, so we put those on our cocktail list, but so we have a cocktail list of more than three items. We include four, five, six classic cocktails that everyone should know who we've hired as a bartender. That way they're only really learning and focused on three brand new drinks, but we have what looks to be a full list. So in that case including classic cocktails can be great.
Chris Schneider:But if you just have a normal cocktail menu or in this case we have classic cocktails, signature handcrafted cocktails and wine, I don't know that the classic cocktails are really necessary Because, again, most people that want an old fashioned or want a Manhattan or want a Paloma or want a martini, they already know that they want that and we don't necessarily have to show them that option. In a way, we're using valuable real estate for sales and for our team to use to sell items, to point out an option that people already assume exists. Now, if you're going to include classic cocktails on your menu, I would encourage you to put a twist on them. Do something a little bit different. Have an old-fashioned that's very normal, but then you smoke it. Do something that's going to make it more interesting, more intriguing to your guests.
Chris Schneider:So that's today's listener question. If you guys have questions again, go in the show notes text the show, or whatever it says, I forget, is right there at the top of the show notes. Click that ask a question. Two weeks from now we'll be doing another episode that will end in listener questions. So every other week we're going to have an interview and then on the weeks we don't have interviews, we'll cover topics related to finances in the bar business, but what I really hope to cover more and more is listener questions. With that, everyone, I hope you have a great week and we will talk again later.
announcer:Thanks for listening to the Bar Business Podcast. You have a great week and we will talk again later.
