This blog was written by a friend of ours. At BlueCart, we love restaurants. We also know how competitive this industry can be, so we asked a specialist to offer a few business ideas to help you increase your profits.
OK, you have tables full of happy customers, the kitchen is clean and your staff is satisfied too, but is that the real picture of your restaurant business? Your restaurant's atmosphere is not the only indicator of how your business is doing.
If you really want to know what is going on with your key margins profitability and financial condition, you have got to look at your numbers. And if you want to be one of those who has been on highly successful operators possess, you need to understand and pay attention to key or critical numbers. Key or critical numbers gives a sense of how profitable is your restaurant before your accountant tells you that. This way you are on track, and you can be more proactive when managing your business, and able to identify potential problems on time and solve it.
Smart restaurateurs always start with good defined annual plan and operating budget. After this step, they separate it into periods and make reasonable revenue goals. When you convert revenue and operative objectives into effective daily numbers, they becomes realistic revenue goals for a certain time period. There are three stages of examination for key numbers. What numbers should be checked daily, weekly and monthly?
Numbers which have to be examined daily – Daily reports
Daily reports means using important daily information which helps you operate each shift more efficiently. This report helps managers to manage restaurant inventory, labor costs and meet their shift sales goal. Numbers which have to be examined daily are: Daily sales report, Menu item sales report and Hourly staff labor report.
Daily sales report is not just recording of information for bookkeeping. It's used for weekly revenue tracking and revenue monthly projection. This report provides valuable information for measuring daily activities to meet weekly goals, a valuable planning tool.
Menu item sales report tells you which items your customers like the most. It is daily record of what your customers prefer. This is a very useful planning tool for chefs and kitchen managers. Menu item sales reports give managers more details and allows them to plan better daily specials. It also helps management decide what items to place on which menu to increase sales. Once placed in the guest’s hand, your menu can directly influence not only what they will order, but ultimately how much they will spend.
Properly designed menus directly influences sales revenue. An example of this might be a popular steakhouse that was also known for very good hamburger offer. They separate hamburgers from their steak offerings at dinner until they reviewed the daily item sales report and found that the majority of hamburgers were sold between 11 a.m. and 3 p.m. on working days. They created a hamburger steak item for the dinner menu and only offer the hamburgers at lunch time . The hamburger steak sold at higher price point with a greater gross profit than the burgers, creating a small sales increase in dinner sales without increasing guest counts.
The hourly stuff labor report gives you information which can be used to help to maintain labor cost. With this tool your staff scheduling can be improved, and after all your labor is the greatest cost you have in operating your restaurant, right? It allows you to track total hours worked by your employees. This gives you an opportunity to know when you will go over restaurant budget of hours in addition to staff members going over their scheduled hours, which creates overtime hours.
Understanding daily reports is very important because it is much easier to successfully manage smaller numbers than larger ones. If you change period goals for revenue and expenses into weekly goals and check our daily numbers against them, you have a greater chance to hit your goals.
Prime Cost Calculation Should Be Done Weekly
Prime cost is the best indicator of your profit potential and how well your costs are being managed. Restaurants who do not have control over prime costs often have a very poor restaurant management system. It is one of main indicators of how well your business is managed.
Those restaurants who want to maximize their profit want to know their costs at the end of every week. So how do you calculate prime costs? Actually, it is very easy.
Weekly prime cost reporting also makes managers more cognizant of the effect of their labor scheduling. Connections between labor cost and the weekly schedule is highlighted and this information more available to managers. In this manner managers can be much more diligent in modifying their restaurant's schedule which creates more business activity. This is also very important for team building in your restaurant.
Also, weekly prime cost reporting changes the way you work in your kitchen. If you just tell your kitchen manager or chef the monthly cost of food, this number becomes abstract to him or her. But when you say that their food costs has increased by $500 this week, then there is a very good chance your chef or kitchen manager will think about possible reasons for these changes. What is going on in the kitchen? It is very possible that the problem will be solved by the following weekly costs calculations. It s all about the quickness of response.
When the prime cost is calculated at the end of every week the numbers become much more believable and when something is out of line you are in much better position to investigate it quickly, cut your losses, and get the problem resolved.
Most importantly, revealing numbers in any restaurant or bar is a prime cost. You get a better understanding of your cost structure, potential profit, and how well your restaurants key cost area is being managed.
Restaurants often end their week on Sunday night and have the report prepared by Monday at noon. In some restaurants managers prepare this entire report while in others restaurant owner have a bookkeeper or clerical employee who assists in some way in bookkeeping and making weekly reports.
Restaurants Prime Cost Should not Run No More Than 60%
A generally accepted rule for table-service restaurants is that prime cost should run no more than 65% of total sales. Larger restaurant chains are able to keep their prime cost at 60% or less but for most achieving a prime cost of 60% – 65% of sales still provides the opportunity to get a healthy net income.
When prime costs exceed 65% of sales and gets closer to 70% of sales profitability issues generally arise. When this happens, it's very difficult for any restaurant to make adequate profit and investment return. In quick –service restaurants, the goal is to keep prime cost at 60% of total sales or less.
The Profit and Loss (P&L account)
The most important objective of every business is to make a profit. The Profit and Loss account shows the extent to which it has been successful in achieving this objective. Companies are expected to keep their P&L accounts in certain formats. Typically the P&L account will show the revenues received by a business and the costs involved in generating that revenue. In simple terms:
Revenues - Costs = Profits
Monthly Profit and Loss Analysis
The daily and weekly numbers are an integral part of management which gives predisposition to successful business restaurant or bar operation and profitability. Complete financial statement packages that includes an income statement and balance sheet should be prepared and reviewed monthly. Many caterers prefer to receive a summary version of their profit and loss analysis so they can quickly scan the key numbers and get a sense of how the restaurant or bar is performing. Some of them only delve into the more detailed reports if something appears to be out of line or it does not make sense.
When you make a profit and loss analysis you have to highlight following key numbers: prime cost, other controllable expenses, controllable income, non-controllable expenses and restaurant operating income.
Prime cost includes the cost of sales and payroll. It is recommended to calculate prime cost weekly, but prime cost should also be included in the profit and loss analysis.
Other controllable expenses
Other controllable expenses are manageable in some way by management. These expanses can be grouped into categories like direct operating expenses, marketing expenses, utilities etc. Monthly and year should be clearly showed profit and loss analysis to date amounts in the individual accounts that are included in these summary categories.
If you separate controllable expenses from non-controllable expenses it is possible to calculate one of the most important margins on any restaurant profit and loss analysis, "controllable income“. It is a key indicator of management effectiveness in driving sales and cost and expenses controlling. Those numbers reflects only those line items over which they exert any influence or control.
Those expenses include occupancy costs such as property taxes, building insurance, rent, and other expenses. Over these expenses managers have very little control or influence.
Restaurant operating income
Restaurant operating income is generated by restaurants without regard to corporate overhead, financing costs, nonrecurring income, expenses, and income taxes. It is good for comparison with other restaurants or bars and operating results of restaurant industry averages.
Restaurant income is enhanced through the use of comparison with budgets, prior periods, and trend analysis over several periods.
Business account packages automatically produce profit and loss accounts. Problems may occur if wrong data has been entered or some data has been lost or corrupted.
This article is by Aida from possector.com.
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