Are you looking to launch a new restaurant business? Check out the list below for tips on how you can set your company up for success!
A good restaurant business plan includes specific, measurable goals related to benchmarks. To create those parameters a restaurant manager or owner must know the industry standards and to base sales on the number of tables and seats in your restaurant.
This planning will include knowing where you are going to market, determined by where you will get customers to come through the doors of your restaurant. Also, you’ll want to know how much to spend upfront, how much you’ll capitalize, and what sort of operational cash flow you have to make that happen.
Also, it’s important to know how much labor you will need to run your restaurant. Whether you are quick-service or fine dining, you’ll want to make sure your Prime costs align with the industry standards. The National Restaurant Association publishes the standard of what those figures should be for the most successful restaurant. Since the failure rate in restaurants is so high, we have found that it’s related to planning too late, or not at all.
When you have a turnover in managers and turnover in staff, the new folks might not cost out the expenses accurately. It’s an oversight, but it bleeds money. As an example, we have one client who opened a new restaurant, and they served tuna as an appetizer. The menu pricing was set based on the cost, at that time, of an ounce of tuna. Over time and with turnover, the portions increased. As their food margins started going up, primarily related to seafood, it was clear that all of a sudden that portion cost had more than tripled.
In that one area, they had to go through the planning exercise again of the pricing analysis and the portion analysis, so they know where food cost is over-running their sales. We have to make sure we re-price and reprint the menu and that the operations team is preparing the food according to the plan. That kind of quality control belongs in a restaurant business plan, and it’s how they know when they’re bleeding money.
The restaurants that fail are the ones who don’t do the planning that’s necessary to prevent failure. If you do that planning upfront and include it in your financial plan, in addition to your business plan, you are setting up your business on the path to success.
A successful restaurant business will give attention to and pay the taxes. There are many types of taxes for a restaurant business. A few include the corporate tax, sales tax, income tax, liquid tax, payroll taxes, and taxes related to tips. Knowing what taxes are relevant to restaurants and tax payment is a high priority.
Restaurants which are not doing well start struggling with cash. They don’t realize they’ve got too much inventory purchased, too many people on the floor, and that their sales do not support payroll. As a result, they forgo paying payroll, sales, liquor, or income taxes. This snowball becomes a nightmare no one wants to experience.
It’s one of those places where restaurant owners fail to look at their compliance when they’re in a dangerous situation. If they’re not paying attention and getting all those things done, then something’s not working right in the restaurant.
Know if your cash flow is coming from operations, loans, or if you consistently dig into your pocket to invest in your business. You should have this information at your fingertips every single month by having a proper cash flow statement. If your business operations are not supporting the level of capitalization you put into the business to pay the debt back, then something is not working right. It’s important to understand cash, and how your cash position is the most significant indicator of the value of the business.
The most common reasons a restaurant business is successful but is cash poor is timing. Let’s say a chef wants to stock the cooler on a Monday morning. He’s not responsible for making sure there’s enough cash in the bank to cover payroll on Friday. If the chef over-spends on inventory and sales aren’t there to support his purchases that week, it may cause payroll to bounce when coming out of the bank.
So, timing is an issue of how you run inventory and the labor that it takes to enforce that; that’s one of the most significant problems we see when businesses can’t make payroll or make their benefit payments. If this is the case, you’re not managing your cash well. Surprises like this can take a restaurant down.
Another common reason for cash flow shortages is when a restaurant spends $1,000,000 to get started, but their sales and the volume of traffic aren’t there, and they can’t pay it back. Loans come due for payment that can’t be supported by operations.
You have to know the process for how you generate cash and how to avoid those kinds of surprises.
Restaurants are a daily operation from Friday to Friday, and from Saturday to Saturday. Mondays and Tuesdays are not typically strong for restaurants. It’s important to review your books to know when the cash is coming into the business. It’s essential for understanding when to make your purchases. You have to be diligent about reviewing on a daily basis, compared to the previous year and month. The goal is to beat these margins.
We recommend having a cash reserve. It’s always good. We see many restaurants try to put cash reserves in a separate bank account and a savings account. Those restaurant businesses are the ones who survive surprises.
The busiest days for restaurants are almost always on the weekends. It’s important to make sure you’re staffing according to the demands, so you aren’t overpaying for staff. A lot of the Point of Sale systems that restaurants use help track some of that information. So, it’s crucial to get a good restaurant Point of Sale system that helps you with all the staffing issues. We recommend restaurant operation experts select the best system for their organization. Then, Trusted CFO Solutions pulls out the data to help analyze it.
When we extract that data, we use a few different connectors in the Sage Intacct Marketplace so we can select it based on the type of restaurant. Then, we load the data into Sage Intacct. We use whatever the best provider is for those situations.
There is a method for successful restaurants. The restaurants we see succeed meet industry standards. They are the ones that have a healthy cash flow, robust operations, and balance sheets because their profit and loss statement and their operations are generating enough cash.
Managing the margins related to making sure your protein is in line, making sure the mix of your menu and what you’re selling. All of that financial analysis that goes into the restaurant, managing it on a daily basis. These are where we recommend getting help and advice.
Restaurant owners and restaurant managers need to know about the “million dollar spatula.” This one tool can save the restaurant millions of dollars over time. It’s a rubber spatula. When you have this tool available in multiples and have it where it can be easily accessed when scooping portions you are effectively creating savings on costs. The last bits of food can be scooped with ease and measured for the correct portion by using this tool. We could relate it to the 2% Time Bomb.
You can easily overspend in a restaurant when buying things you don’t need or buying and it not being in line with the cash flow. You want to make sure your rent comes in under 5%, usually.
If you’re paying more than 5% for the occupancy and rent, you are overspending. Let’s say you had to add a valet and it goes up and up and up; your net income percentages don’t work anymore. If you have linen and uniform services and your sales aren’t supporting it, and it starts taking up over 2%, those expenditures are an area of waste that your organization cannot sustain.
Make sure that you know what those percentages are in the industry standards and make sure that you manage them well. Be in the industry standard.
Some owners or even chefs say they need X, Y, and Z, which are very expensive. Maybe it’s a particular type of oven or a specific kind of device that isn’t a true need, but they want it. When you make the purchase, you’ve stepped outside the percentages, and it can quickly become a ticking time bomb.
Accounting is where Trusted CFO Solutions can help you the most for a successful restaurant business. Our team is highly experienced with the restaurant accounting industry and knows all the compliance issues. Also, we understand how your business makes money. We can help you watch your margin, Prime costs, controllable costs, income, and assist you to manage the health of your balance sheet. Our expertise helps you see that you’re building a business that’s worth something. When you have cash flow, you’re able to pay back your lenders and investors, and that puts you in a position to support the long-term growth that the business plan would project.
Whether your source of financials for your business comes from outside loans, investors or your checkbook, knowing that you have the funds to pay it back is an indicator of a successful restaurant business.
Are you already a multi-unit restaurant business owner? Do you find your team is disconnected? Do you know your key performance indicators? We can help! Click here to explore how we can transform your restaurant business into effective well-oiled operations.
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