Reduce your inventory appropriately and watch your food costs drop along with. Follow the same procedure for your alcoholic beverage inventories and use the following as guidelines: Liquor : 15 days (bars and clubs will carry more inventory than restaurants). Beer : 7-10 days, wine : 15 days (more for restaurants that specialize in wine and/or carry many varieties). Daily weekly financial operating data not collected, reviewed or acted upon. If you want to be financially successful as an independent restaurant operator you need to be more like the chains when it comes to proactive management of your business. Every chain restaurant generates some type of daily and weekly report that summarizes, in a simple and easy to view format, all the key daily and weekly operating data including sales (by category labor (by department food and beverage purchases as well as beginning and.
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Once again, use a simple Excel spreadsheet to document, price, and proofreading total your food and beverage inventories, and then make sure to account for the changes between periods by making an appropriate accounting entry (read count and Account for your Month Ending food beverage Inventory. Food and beverage inventory levels too high relative to corresponding sales. This red flag is not as obvious as some of the others but can be just as serious an obstacle to your restaurants plan profitability. A restaurant that carries too much food inventory will inevitably have higher food costs than it would otherwise. Too much food sitting in your walk-in cooler, your freezer and your dry goods shelves will result in excess waste, over-portioning, reduced product utilization, theft and will also tie up your most valuable sh! But how do you determine how much inventory is too much or what the ideal amount of inventory is? A typical full service restaurant should have on average no more than 7 days of inventory (that number can be reduced by a few days for quick service restaurants). Follow this simple calculation to find out how many days of food inventory you have: Multiply your average monthly food sales by your food cost. Now divide that number (your average monthly food usage) by 30 (days/month) 50,000 food Sales/Month X 30 15,000 (Food Usage) 15,000 / 30 days 500/day of food usage. If your counted food inventory is 5,000 then divide that by your daily food usage to get the number of days of inventory on hand: 5,000/500 10 days.
Food beverage inventory levels not counted and costed at the end of biography each accounting period or recorded in your accounting software. Most independent restaurant operators confuse their monthly food and beverage purchases with their monthly usage. By this I mean that they review their monthly p l (Profit and Loss) and assume that the food purchased during the month divided by the food sales for the same period equals the cost of goods sold for food! Without knowledge of the beginning and ending inventories you can never calculate an accurate food cost. For a restaurant with food sales of 50,000/month, an inventory difference of 1000 between the beginning and end of the month, can translate into a variance. This disparity represents half the total annual profit of a typical full service restaurant! You simply cannot manage your food costs if you do not know what they are, and you cannot know what they are if you do not count and record you inventory variances.
The truth is that remote it takes a lot of discipline and time to carefully and accurately document and cost (and re-cost periodically as your vendor prices change) your menu items. Moreover, you need to be well organized, and have some reasonable math aptitude to deal with detail required to convert product prices from the way you purchase them to recipe units for costing purposes. But how can you possibly manage your restaurants food costs if you do mini not even know what each and every item is costing you? All you are left with is the lets raise the price mentality. And while that may work in the short run, there are unquestionably better ways to proactively manage your food costs than that! There are a variety of recipe costing software products on the market, but they are of no value if you are not committed to first learning how to use them and then to continue to maintain them day in and out. A simple Excel spreadsheet is often the best solution (a customized Excel workbook that includes links to your inventory items is available at ).
As a fixed expense the only way that you can reduce this ratio is to increase sales. When I see this number exceeding 8 of sales another red flag is raised. In this case i divide the restaurants annual occupancy cost by 6 to determine the sales level that will be required to keep occupancy expenses in line with industry norms. Menu items not accurately documented, costed and updated. The most common method of menu item pricing that I have observed over the years is what I will call the comparative approach. Simply check a few other restaurants that you compete with, find a similar item on their menu, and then price your item accordingly. Now its one thing to document and cost out all your menu items and then to determine what your selling price will be by taking into account that of your competitors, but its quite another to price solely off of them.
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Make sure to have the support of an accountant or restaurant financial consultant before you open to insure that you give yourself a chance to succeed. If you are already open and suspect that your accounting system is in need of first aid, then do yourself a favor and get some help as soon as possible. As I said earlier, i have rarely seen a financially successful restaurant that did not have its accounting and financial controls in order. Key operating expenses too high relative to gross sales. Restaurant food beverage purchases plus labor expenses (wages plus employer paid taxes and benefits) account for 65 to 70 cents of every dollar in restaurant sales. The combined total of these two cost categories, referred to as your restaurants Prime cost, are where the battle for restaurant profitability is truly waged. This is not simply because they represent the largest percentage of your total expenses, but also because you have the ability to control them.
Unlike utility and insurance expenses that are relatively fixed, you can directly impact your food cost percentage by more effective purchasing, product handling and menu pricing. Similarly, hiring practices, scheduling, and even the layout of your kitchen and the way your menu items are selected can favorably impact labor costs. The bottom line is this, when I see a restaurants Prime cost percentage exceed 70, a red flag is raised. Unless the restaurant can compensate for these higher costs by having, for example, a very favorable rent expense (e.g. Less than 4 of sales) it is very difficult, and perhaps impossible, to be profitable. While we are on the subject of rent expense it is useful to point out that on a national basis a restaurants occupancy expense (this deadline includes not only rent but also real estate taxes, property insurance and common area charges) is the single highest expense.
It also allows me to implement a plan so that I can quickly offer the kind of support that will give them the best chance to survive and hopefully thrive well into the future. One thing needs to be made clear at the outset. No amount of consulting support or improved financial skills and procedures can solve a restaurants financial problems if they result from inadequate sales. Many of your restaurants fixed expenses cannot be brought into line (as a reasonable percentage of sales, that is) if your gross revenues are too low. Moreover, all of your efforts to maintain an accurate accounting system with well prepared financial reports which permit proactive day-to-day management, will be for naught if your revenues are not sufficient for the business to be profitable. Therefore, we will focus on those red flags that hopefully can be corrected by the improved procedures or management of your existing revenues, or at worst, by helping to quantify the additional revenues that will be required.
Absence of a well organized and implemented accounting system. The first and most important piece of information that I request when evaluating the financial health of a restaurant is a copy of its accounting software file (most typically a quickbooks backup file). Printed copies of basic financial statements (Profit loss and Balance Sheet) are not adequate for this task because they do not verify the accuracy of the numbers presented. Only by reviewing how all the financial transactions are actually posted to the general Ledger can I determine the degree of accuracy of the numbers produced. Since you cannot manage what you cannot count, a restaurant whos accounting system (or lack thereof) is not properly setup and/or implemented most often results in the restaurant owner flying blind. While i have dealt with a few restaurants that are profitable in spite of having a poorly implemented accounting system, my experience is that the degree that the business is being proactively managed is directly correlated to how well the owner is managing his books. The most common problem I see is a chart of Accounts that does not reflect industry standards, and whose operating results cannot be compared to others (learn more about the Uniform System of Accounts for Restaurants and compare your financial results against industry averages. Since all the other Red Flags discussed in this article cannot be accurately identified or evaluated if the accounting system is not setup and implemented properly this task should be the restaurant owners primary concern if he or she desires to create a viable business.
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As all restaurant veterans already know, this is a business that is very unforgiving when it comes to achieving bottom line profits. Based on the 2004 Restaurant Industry Operations Report published by deloitte touche llp, average pre-tax profit margins range from 4-7 (4 for Full Service and 7 for Limited Service restaurants). Not only is there little room for financial fuller management missteps, the problem is compounded by the lack of business experience and basic resumes financial skills that most startup restaurateurs bring to the table. Unlike many other small business that employ full or part time financial personnel, most restaurant owners cannot afford that luxury, and spend their days jumping from one operational task (or crisis) to another with the financial management of the restaurant not receiving the attention that. In my role as a consultant I have developed an informal punch list of basic financial information that I request from new clients as well as a review of their basic financial procedures prior to getting started. This information usually provides me with what I need to assess the current financial health, and often the future prospects of the business. It does so in part by raising a number of Red Flags or indicators that point to where the current problems are and where future problems are likely to emerge.
In addition, with all the emphasis on diet, nutrition, and physical appearance, the massive entrees that come pre-packaged from the restaurant supplier and contain more than 2,000 calories plus more than a days worth of sodium. This kind of flavor fluffing simply doesnt appeal to many consumers, regardless of the convenience or the price. A societal Shift in Dining, the fitness and social media factors are a big reason why millennials have spearheaded a renaissance of people cooking their meals at home. As a result, this has led to the rise of meal-kit delivery services like blue apron, hello Fresh, and Plated. They want to know what theyre eating is healthy, and they want to share the fact that they cooked their own healthy meal at home. This trend of cooking at home and enjoying iraq the convenience of receiving their groceries right at their doorstep, has been a one-two punch delivered squarely to the jaw of many restaurants. In reality, millennials may simply be the scapegoat for some parts of the restaurant industry not being a viable business model in todays world. . The question for those restaurants now is whether theyll be able to fully adapt to the current socio-economic marketplace they find themselves within, or risk extinction). After 20 years in the restaurant industry, fifteen as an independent owner/operator and the last five as a consultant, i have experienced and observed just about every type of financial problem imaginable.
order through an app or at the counter, pick up their freshly cooked order, and sit with a tightly-knit group of friends, if not by themselves alone with a smartphone, tablet,. No truth in Advertising, however, the casual dining and fast food restaurants themselves are not without their blame, either. . For decades, they were perfectly content to take food that was pre-made at a mass production facility where minimum-wage employees toiled for a pittance to reheat pre-made food, and serve it to a customers or as they have come to call them, guests. . The corporations that owned these restaurants enticed customers through the door with the carefully created food art portrayed in carefully crafted commercials, only to serve them a product that doesnt look anything close to what they saw on television. Dining on Mass feedback. Packaged advertising may have worked in the past, but just because something worked yesterday doesnt mean it will continue to fool this new generation of oversharing online eaters. For one thing, millennials love to take pictures of their food and share it on social media. Nobody is going to want to share a photo of a fast food cheeseburger comprised of mystery meat and genetically engineered produce toppings, haphazardly assembled and looking like it was run over by a bus when served.
As a golf baseline, the ingenuity of millennials is directly responsible for what we refer to as the interruption model, where they take common societal norms and turn them on their head by eliminating the so-called middle man and replacing them with technology. to explain, take a look at the sharing economy, where companies like uber and Lyft are destroying the taxi industry. Similarly, how Airbnb has become one of the largest rising threats to the hotel and hospitality industry. Digesting Their Impact on Dining, how does that apply to food? Take a look at the fast-casual industry, which is booming in comparison to the rest of the industry. At establishments like panera, chipotle mexican Grill, or Shake shack, you place an order, someone provides you a service (cooking the food after which you consume it and presumably leave. Theres no need to wait for a waiter to come talk to you about the specials, then ask you what you want to drink, and then discuss what you want to eat 10 to 15 minutes after youve been in the restaurant. Considering how job-focused many millennials tend to be, they also want a meal thats served and consumed as fast as possible. Essentially, millenials have neither the time nor the patience to wait for what they see as a frivolous service.
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Millenials are becoming famous for the societal staples they can live without. Notably, eat-in restaurants are quickly becoming the biggest casualty. While economic factors, including unemployment rates, are certainly a factor in the decline, industry experts are laying the drop in casual dining on this increasingly powerful economic demographic. In a june 2017 essay report, data analytics firm TDn2K found that the restaurant industry suffered negative sales in 150 of 195 markets researched. In detail, some restaurants reported year-after-year deficits in up to 3 of customer traffic and revenue. This group of consumers, classified as individuals born anytime between the early 1980s and the late 1990s, has been blamed for many societal changes and trends recently. Especially, those shifts that have come about due to the proliferation of wireless technology. . Simply put, they are the first generation to grow up with the internet as a regular and indispensable part of their lives. As a result, their overall behaviors and consumption habits are greatly influenced by online research and feedback.