{"id":12822,"date":"2022-04-28T14:53:15","date_gmt":"2022-04-28T14:53:15","guid":{"rendered":"https:\/\/jboitnott.com\/?p=12822"},"modified":"2022-04-28T15:05:30","modified_gmt":"2022-04-28T15:05:30","slug":"tactics-to-help-your-small-restaurant-in-turbulent-times","status":"publish","type":"post","link":"https:\/\/jboitnott.com\/zh\/tactics-to-help-your-small-restaurant-in-turbulent-times\/","title":{"rendered":"Tactics to Help Your Small Restaurant in Turbulent Times"},"content":{"rendered":"

Whether you’re opening a restaurant this year or you’ve been in the business for a long time, any operator can heed the advice of longtime industry experts. It\u2019s hugely important for getting a leg up on the competition and preparing for battle armed and educated.\u00a0<\/span><\/p>\n

The last few years in the industry have been nothing short of turbulent. Operators are now finding their way back to steady ground, discovering the game has changed entirely. While some obstacles remain the same, others are a new challenge. From COVID impacting supply-chain disruptions to unprecedented labor shortages, and the constant burden of inflation, even the most seasoned operators have their work cut out for them this year and beyond.<\/span><\/p>\n

Know Your Key Restaurant Accounting Metrics<\/strong><\/h2>\n

Before an operator can determine how best to mitigate unforeseen obstacles that arise throughout the year, they must first have knowledge of the key performance indicators that ensure their restaurant runs smoothly in the first place. These KPIs are a critical roadmap for an operator.\u00a0<\/span><\/p>\n

We\u2019ve outlined a few basic metrics below that are essential to the success of any restaurant operation.<\/span><\/p>\n

1. Restaurant Profit Margin<\/strong><\/h3>\n

Average profits across the restaurant industry differ from restaurant type, but the typical range is 2%-6%. There are two ways to classify profit margin. The first is gross profit. This subtracts only your COGS (cost of goods sold). The second is net profit, which removes all your expenses.\u00a0<\/span><\/p>\n

The standard formula to calculate your restaurant profit margin as a percentage of sales is:\u00a0<\/span><\/p>\n

[(Revenue \u2013 Expenses) \/ Sales] x 100\u00a0<\/b><\/p>\n

This metric is vital for operators to both understand and track. Knowing\u00a0how much money flows to the bottom line\u00a0helps inform operators of their progress and guides them in better decision-making.<\/span><\/p>\n

2. Restaurant Break-Even Points<\/strong><\/h3>\n

Break-evens are one of the most sound principles in guiding profit margin. They indicate the amount of sales required from your business to meet your fixed and variable costs. Moreover, break-evens help operators create more accurate budgets (operators cannot survive without a solid budget to which they closely adhere) and sales forecasts, ultimately improving the bottom line.<\/span><\/p>\n

There are two categories of break-evens. A cash flow break-even and an operational break-even. A cash flow break-even factors in your restaurant profitability plus your debt servicing, government assistance, and anything else that does not show up on your P&L but should still be considered in your cash management strategy. An operational break-even assists in determining at what point your sales meet your complete operational expenses. This type of break-even assists in determining budgets, goals, and operational directives.<\/span><\/p>\n

3. Overhead Costs<\/strong><\/h3>\n

Your overhead is the ongoing business expenses you incur each period that do not significantly change in terms of cost. Your overhead expenditures include rent, salaries, utilities, and advertising. It\u2019s essential to understand your overhead rate because\u00a0the lower your overhead, the greater your profit margin.\u00a0<\/span><\/p>\n

The following formula calculates overhead rate for a given period:\u00a0<\/span><\/p>\n

Total Fixed Costs \/ Total Operating Hours.\u00a0\u00a0<\/b><\/p>\n

4. Labor Costs<\/strong><\/h3>\n

As the most significant expense to your restaurant, and one of your Prime Costs, it\u2019s evident why you must monitor this labor metric closely. Labor Expenses are broken into operational payroll costs (FOH\/BOH hourly wages), and your remainder payroll costs (salaries, payroll taxes, employee benefits, and employee discounts).\u00a0<\/span><\/p>\n

To calculate your Labor Cost Percentage, you take your Labor Dollars \/ Sales. Reviewing labor data consistently lets operators view business trends and schedule their staff more efficiently. Operators can also control their labor costs through reporting with overtime warnings, time and attendance details, server productivity, and more!\u00a0<\/span><\/p>\n

5. Cost of Goods Sold (COGS)\u00a0<\/strong><\/h3>\n

Your COGS is the first Prime Cost area on your P&L. Like labor, it takes up a significant amount of a restaurant\u2019s overall expense and is vital to manage closely. The formula to determine your COGS is as follows:\u00a0<\/span><\/p>\n

(Opening Inventory + Purchases \u2013 Credits \u2013 Ending Inventory) \/ Sales.\u00a0<\/b><\/p>\n

Commodity prices will always fluctuate, therefore, it\u2019s essential to nail down proper strategies to control COGS, such as, inventory tracking, W.E.P.T tracking (waste, error, portioning, theft), and actual product usage.\u00a0 \u00a0<\/span><\/p>\n

6. Prime Costs<\/strong><\/h3>\n

It\u2019s crucial that operators tightly control their principal cost drivers, i.e., Prime Costs: labor and COGS. Operators who consistently evaluate their Prime Cost KPIs make better business decisions based on data.\u00a0<\/span><\/p>\n

Beyond the individual Labor and COGS cost control strategies mentioned above, operators should pay close attention to the following: payroll compliance (to avoid costly fees), menu engineering (to optimize your menu from a financial perspective for more profitable dishes \u2013 this is also a great way to improve restaurant sales) and leveraging vendor relationships to ensure they’re getting the best deals on all products (including food, disposables, linens, chemicals, etc.).<\/span><\/p>\n

7. Financial Statements\u00a0\u00a0<\/strong><\/h3>\n

While not technically a single metric, understanding each of your\u00a0<\/span>restaurant’s financial statements<\/span><\/a>\u00a0contributes to the overall larger picture of success. Every operator must consistently review their Profit and Loss Statement, Balance Sheet, and Cash Flow Statement. While each statement measures a different aspect of the restaurant, all of them combine to highlight the overall health of your restaurant.\u00a0<\/span><\/p>\n

Frequent reviews provide operators with the leverage needed to make educated business decisions. They can track departmental performance relative to budgeted goals, assess sales trends and forecasting accuracy, and evaluate their primary cost directives. Ultimately, timely and accurate financials empower operators to drive positive, consistent financial results.<\/span><\/p>\n

Mitigate These Restaurant Industry Trends With Expert Tactics<\/strong><\/h2>\n

1. Supply-Chain Disruptions<\/b><\/h3>\n

It\u2019s no secret that disruptions in the supply chain have affected practically every industry. It\u2019s also no secret that restaurant operators heavily rely upon their vendors to ensure their day-to-day operations can proceed without a hitch and they can turn a profit. Unfortunately, these two facts have made for a challenging obstacle that all operators are trying to overcome. Luckily there are still a few strategies that operators can follow to alleviate the pains of supply chain kinks.\u00a0<\/span><\/p>\n