It has been a good year for your establishment and perhaps, a celebration to cap it off. As you look ahead to continue the streak, where can you make adjustments to be on par with the projected economic climate? We ought to come to realisation that economy everywhere is not as rosy as before but on a positive note, the food and hospitality industry will thrive. As restaurant owners, what are some of the areas you can look into to keep a good profit margin in a tougher financial environment and still provide the same satisfaction to consumers; who will also be watching their pockets?
THE ALL-IMPORTANT BUDGET
This cannot be neglected and if you can draw out a financial plan on a monthly basis, it will further help in anticipating those expenses and you will be more aware to stay within it. You may have future plans for the year and you need to factor that into the budget. Here is a suggestion to get you started:
1. EXPENDITURE PROJECTIONS AND BREAKING EVEN
Cost and income is a balancing act. The recommended division of your budget can look something like this:
30% on food1 or Costs of Goods Sold (COGS) is the money for inventory. Purchase just enough to serve customers within a timeframe so that goods are fully utilised before its “use by” date. Or get creative as many ingredients are versatile. By designing the menu to use more of the same ingredients, inventory is better controlled compared to one stocked with items that are rarely used and eventually goes to waste. If you get produce from various sources, downsizing the store will help reduce delivery costs as well.
25% on labour1 which can be variable as owners are at a liberty to determine the work arrangements such as hiring on a part-time or ad-hoc basis that pays by the hour. Number of workers per shift can also be made flexible as long as staffing is adequate to meet customers’ satisfaction.
10% on rent1 or usually referred as occupancy costs, this includes paying for property taxes, insurance and utilities which are monthly fixed expenses.
A certain % to maintenance, marketing strategies, taxes, operational expenses such as replacing dinnerware, cutleries and such and setting aside funds for unexpected events.1
1 John Foley, “How to Establish a Restaurant Budget,” Video, AllBusiness. com. Extracted from http://www.foodservicewarehouse.com/education/restaurant-management-and-operations/tips-for-creating-and-using-anannual-budget/c28019.aspx
Breaking even involves making enough sales to cover all expenses without the bonus of profits and is the minimum needed for any establishment to survive. By calculating your breakeven point, you can identify possibilities to bring up the profits and enable you to make future financial decisions.
And on breaking even, it includes determining the projected sales which provides a rough estimate on how much sales your restaurant will likely make in a certain period. This can be done by observing the daily customer traffic and correlating it with the resulting sales.
2. PERIODICAL FINANCIAL ANALYSIS
Are your budgeted operating expenses and actual expenses equal? And did your net profit meet the anticipated amount based on the gross income of the restaurant? Rapidly watching the profit and loss (P&L) on a weekly and monthly basis is beneficial in helping you keep tabs of your expenses and income. There will be a shorter list and minimises missing out on data. Also, you can easily make notes on the areas where expenses exceeded the budgeted amount.
Now that you have a budget plan in hand, you can look into other areas to make your business more profitable to better coast the economic tide.
1. GOING OFF-THE-COURSE
Perhaps it is not the best time to execute the plans you initially had (adding design elements, buying equipment, expansions etc). By putting bigger plans on hold, you give yourself a better chance to continue operating, even if profit margins could be lower, but improves the possibilities to bring those plans into reality at a later time instead of going all-in and only holding on to hope.
2. REV UP THE MARKETING ARM
Promotions are attractive and most customers tend to view it a value proposition and this is where the restaurant, while gaining a lesser profit from one customer, earns more with customer volume. Every establishment is looking to capture attention and you need to use your unique selling point (USP). For example, if you have observed that the crowd around your restaurant is seeking healthy and value-for-money deals, you can consider creating a special menu for that. What items are frequently ordered in your restaurant? Offering it as a value set is one of the most common marketing gimmicks and it works. This goes for loyalty cards as well.
Another method is to get customers involved. Think about the cause you wish to support; it could be going green, helping the needy, and partnering a non-profit organisation. The society is generally receptive to doing good, but most of the time it falls into a category of “only when and if I can”, thus you are opening opportunities for them to influence other people. This marketing idea does not cost much but customers get to enjoy their food, feel good and will remember you due to their involvement. Marketing also involves customer service. A good dining memory for a diner includes delicious food, an appropriate ambience and excellent service. Invest in training the staff and do trial runs internally before they face customers. When the going gets a little tough, and other outlets offer similar options like yours, the service factor will get you the nod. This can also mean adding extra amenities such as free Wi-Fi. Even giving water for free would be appreciated.
Also, look at what’s trending in customer demands and food tastes. Challenge your team to come up with new food concepts. It could be necessary if you are fairly new in the industry and competition is stiff. By not being stuck in your ways, you can increase the visibility of your establishment. Plus, if you did not try, would you ever know if your new item is better than your neighbour’s?
3. THE PRICE IS RIGHT
In our daily life, sometimes a couple of cents or even a dollar might not matter but in business, it makes a difference. The price of a dish is hugely dependent on the cost of ingredients and when you establish a solid relationship with your vendors, they might give you better prices. Also, do some shopping around to find other vendors but bear in mind whether the cost of delivery or your cost to collect items will end up more than ordering from your usual guy. Check if you are serving appropriate portion sizes – is the customer paying for what he gets and are you making enough profit from that amount of ingredients and portion? It is important to analyse the menu and discontinue items that are rarely ordered so that you can reduce costs of raw produce. Make inventory counting a habit as being meticulous helps to ensure that you know exactly when to purchase items and how much is required to avoid going above the budget.
As one of the most profitable businesses in the world, the food business will always have a role in growing the economy but staying afloat has proven to be the turning point for many. The New Year brings upon further challenges and by taking up certain steps, you can give your restaurant a head start in navigating the everchanging industry.