Managing Finances

Financial mismanagement will quickly cause a restaurant to fail. Cutting corners is not the answer.  Following are a few concepts that every restaurant needs to know from the beginning.

Taking Average Profits

You’d be surprised to know that on average a restaurant makes 5 cents on every dollar spent. So if it made sales of $50 in an hour, it means the profit is just $2.50, now that doesn’t sound much does it? And if you add the daily minute mishaps to these calculations, the profits would drastically decrease. A broken salt shaker or pouring out the wrong drink or the most common glass breakage might seem insignificant, but let’s see it from a different perspective. To make up for the loss of a salt shaker worth $5, the restaurant needs to make sales worth $100. Isn’t so insignificant after all is it?

The Tale of Expenses, Sales and Profit

In the simplest terms, profit is what you make when you minus the expenses from the sales. And if for whatever reasons, the expenses are more than sales, there is only so long that a restaurant can stay in business.

Fixed and Variable Expenses

Insurance and rent are fixed expenses whereas the labor and raw materials are the variable expenses. So the sales a restaurant makes after investing in variables need to pay for the fixed costs before profits are extracted.

Your Inventory

Liquor and food stock is like cash too, a restaurant only need so much in hand. Ideally there should be a week’s supply of food and a couple of weeks of liquor in store. Any more than that and the restaurant owner is simply overstocking.

Concentrate on Boosting Sales rather than Cutting Costs

Cost cutting is very important to help make more profits, but boosting sales is far more profitable. Many restaurant owners spend so much time concentrating on cutting down costs that they don’t think much about growth.

Cents Make Dollars

Regardless of how you do your math, there will only remain 100 cents in a dollar. Take 100 coins and let the staff divide them for wages, rent and other expenses. You’d be surprised on how they make the assessments.

Staff Expenses

Staff is most commonly the biggest expense in restaurants and so it is important that they are productive enough to make it worth the investment. Any rise in wages should be matched with productivity.

Additional Costs of Staff

Uniforms, training, meals, leaves need so be added in to total staff costs. They also need to be adjusted into the accounts.

Profits Pay For Equipment

Any investments made in equipment cannot be adjusted in the restaurant’s expenses and need to be paid for from the profits, so owner’s need to make sure that they are well worth the money. A good idea to judge if the equipment is worth the investment is by seeing if it will have a fast return on investment by either cutting down on overall costs like ingredients or labor or by boosting sales.

The Costs of Small Things

By working out the exact costs of small things restaurateurs can better evaluate the profits and sales. They need to know how much each napkin, glass or even a tomato, cucumber or scoop of red chilies costs, then check how much of it is wasted every week and how much it truly costs.