Anyone who has ever owned a restaurant will tell you it’s a tricky business to crack. People get into this sector for a variety of reasons. It could be that you love cooking, or you are an entrepreneur and understand the financial and social rewards, or you just happened to fall into this sector by sheer luck. Whatever your reason, one thing that every restaurant owner wants to see is ques of people salivating outside the restaurant waiting to get their mitts on the food, without a worry in the world of how much it would actually cost.
Like any other business, a restaurant requires perseverance, creativity, and an undying passion for taking you over the line when things look rather grim. There are various aspects to running a successful restaurant; however, having your finances in control is front and center of it all. Suppose you have this aspect of your business in check. In that case, everything reveals itself in spectacular colors, allowing you to steer your restaurant in the right direction without having to shout MAYDAY three times rather painfully!
Before I spring into action with my top tips, it is worth pointing out that no one restaurant is the same, and no one day in that restaurant will be the same! All restaurants face altering challenges regularly. Today it may be that some of your staff called in sick, or on the other, you ran out of some key ingredients, causing you to sprint faster than Usain Bolt down the nearest Tesco Express to get through the day.
Even though all this seems rather exciting, it is absolutely essential to have a systematic approach. Having a series of analytical reports will help keep in check every aspect of your restaurant and ensure profit makers and profit suckers are in clear sight.
So without further ado, let’s look at the top finance tips to boost your restaurant profits.
What are your sales figures telling you?
Ensuring you know exactly which item you have sold daily will give you insights into which item is most popular and which isn’t doing so great. Further, comparing the same results to last year’s figure will reveal some fantastic insights. For example, the item that didn’t do well this year was doing well last year, so maybe the trend has changed.
Understanding your sales figures is crucial, and that’s why it’s number one on my list. It is always recommended to get yourself a POS system that will record your sales regularly. If you cannot do so, making a record of them in a spreadsheet would be ideal; however, this can prove to be highly time-consuming, so investing in a POS system would always be the first choice.
Do you know your cost per plate?
It’s always tempting to serve your customers the best quality of food, which looks and tastes the best. However, it would help if you made sure what you are serving aligns with your target market and the amount you’re charging your customer. For example, you can serve your customers gold-coated chicken wings with white truffle sauce, but if you do not know how much it costs, you may well be just scraping your expenses.
There are few ways you can keep on top of your costs per plate:
- Profitable items in each menu category (Starters, Mains, Deserts). Making sure each category has a profitable item will improve your overall revenue. By doing this, you will understand items which not necessarily make much money but are popular with your customers. Having few profitable items will balance this out. There are lots of suppliers who will help you with your menu costing. Equally, if you prefer to do this yourself, you can find some excellent software to help you cost each ingredient to the tee.
- Mixing it up. Specific cuisines cost very low but have a huge demand and therefore can fetch some excellent margins. Pizzas are a great example of low-cost food items with high-profit margins. While, Steak and specialty seafood would prove quite the contrary. Mixing cuisines will keep your menu exciting and profitable.
- Incentivise staff to promote high-profit items. Once you have a good grasp of your cost per plate, it’s time to promote these high ticket items. Giving your staff financial rewards will help encourage and recommend the most profitable items from the menu. You can also achieve this by creating healthy competition between staff members. Whichever method you take, promoting your most profitable dishes will most certainly help boost those profits.
Low food cost = Low profits?
Many restauranteurs have a general misconception that the most expensive menu items will always be the most profitable. This is far from the truth. As seen previously, low-cost items such as pizzas, pasta, chicken wings are low-cost items. However, they prove to have the highest profit percentage; then, let’s say a beef ragu with about 40% cost per plate.
Once you have your cost per plate, it’s good to list all items from highest to lowest based on the food cost (plate cost/menu price) and profit (menu price – plate cost/menu price) percentage.
If this looks complicated, then some softwares can help. This software is an overall ePos system that will also help you understand your financial data with ease.
References to a product mix have been given previously in this article thus far. However, for clarity purposes, a product mix refers to all the menu items with varying profit percentages.
It would be ideal to have all the items on the menu to be of a high-profit percentage. However, this is far from practical. To have a balanced product mix is crucial for the restaurant’s success.
How do you find out if your product mix is optimum? Well, you would be pleased to know there are some powerful softwares out there from which you can download a complete report. It will highlight the price charged for each item, how much was paid by the customer, how many units were sold, etc. It would also help give comparative information, such as how many pizzas were sold compared to pasta.
By knowing how much and for how much each product is sold and compare it to previous periods, you can create an understanding of which item is worth keeping and which one needs to go.
It will further help highlight if there were any thefts. As items sold would not agree with items available in stock.
Compare Supplier Prices
After a few months of running a restaurant, you will realise that a few key B2B food suppliers are running the show. The three biggest ones I know of in the UK are Booker, Bidfood Uk, JJ food services. To avoid the hassle of creating accounts, credit checks, etc., it’s always tempting to set up with one key supplier. However, every supplier has got its prices and discounts running at different times.
It would be good practice to make a list of your most used items and compare them regularly. This will help keep your costs down always to a minimum and avoid having one supplier gain the upper hand over your business.
Taking control of your inventory
Your ePos will generally hold all of your inventory data. Especially when you place an order, and as long as all the sales and purchases are recorded accurately, your inventory should show an accurate picture. However, in reality, this doesn’t exist. There are staff thefts, chefs trying to double count expensive items to keep their costs low, and a whole lot of other reasons your inventory may not show an accurate picture on the epos system.
The best way to keep on top of your inventory would be to physically count them and reconcile them with your epos system. If there are any discrepancies, it would be ideal to have it done by two members of staff every week till everything is in line, and then switch to monthly.
Staying on top of your Labour Costs
Labour is undoubtedly one of the highest costs for a restaurant. Having it in check would help keep overall costs down. Ensuring there is the perfect amount of staff throughout the day only comes through experience. Having an operating history helps understand which days or times of the week are busy, and so labor hours can be predicted with accuracy. If you are just starting, I would suggest getting a consultant on board who can help you understand the perfect ratio of labor hours.
As a rule of thumb, your labour hours should be somewhere in the region of 20-24% (total wages per hour/Total Sales). It would be good practice to compare labour hours to previous periods’ labor hours to see any improvements.
If you find significant variances in your comparative analysis, it would be a good idea to dig in deeper and find out exactly how many hours each role performed compared to the previous period. This action will help iron out any differences and keep them at bay in the future.
Best Tip for Last
Understanding if you are profitable is probably the most critical thing that a restaurant owner would want to know. These kinds of analyses are performed every week for busy restaurants due to the fast nature of the industry.
One method you can use to ensure your restaurant’s profitability would be running a ‘Break-even analysis report. At the end of the month, go through the following steps:
Step 1 – Make a list of all your fixed (Rent, Mortgage payments, Insurance, etc.) and variable (Fuel, Electricity, bank fees, etc.) costs (This can be extracted from your P&L report)
Step 2 – Once listed down on excel, divide each item by 30 days.
Step 3 – Add each column by using the ‘sum if’ function on the excel sheet.
Step 4 – Now, add both fixed costs and variable costs columns.
The total figure will show you exactly how much you require each day to ‘Break even’ or, in other words, to reach your total expenses. Anything over that will give you your profit.
This is a helpful method of understanding which days are slow and coming up with creative ways to fill up the restaurant.
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