There are many factors that go into the successful management of a restaurant. While service and operations are the primary factor to your success, restaurant finances are another area that cannot be ignored!
Along with the other consulting services we offer, we are more than happy to provide you the very best consulting in the realm of restaurant financial management.
Financial Analytics That Matter For Your Restaurant
There are two main cost areas you cannot ignore when running your restaurant. These are cost of goods sold (COGS) and overhead. Understanding these metrics, and making the decisions necessary to minimize costs and improve your bottom line, is key to building a prosperous restaurant.
While you can manually compile and analyze this data, using a restaurant management platform is your best choice for efficient and accurate decision making.
Gone are the days where information had to be accessing directly through the POS system-with cloud and app based restaurant financial management platforms, you can access your financial data anyplace, anytime.
Optimizing Cost of Goods Sold
The first step to managing your restaurant finances is to compile and analyze data related to your cost of goods sold (COGS).
Cost of goods sold is the total amount you spend on the food and beverage you in turn sold to your diners. For simplicity’s sake, it may be preferable to use the following formula to determine your cost of goods sold:
Starting inventory plus purchases, minus ending inventory. This will be give you the total “raw material” cost of running your restaurant.
A good rule of thumb is to keep cost of goods sold under one third of your revenues. This will better ensure you can generate a profit after your operating expensive, most of which will be fixed.
Figuring Out Your Operating Expenses
Operating expenses can make or break a restaurant. While the cost of your inventory (food and beverage) is variable, your operating expenses are mostly fixed. From the rent you pay for a popular location, to the wages you pay for competent and service oriented staff, to the laundry list of other costs you are all too familiar with (utilities, insurance, cleaning services/supplies, advertising). These quickly add up, and come out of your pocket even before the first diner steps through the door.
Rationalizing your operating expenses to guarantee your success as a restaurateur requires a professional method of compiling and analyzing your finances. Working with us, we can help you create an effective solution that helps you meet your goals.
Reason #1: Avoid waste and costly mistakes
Reason #2: Improve cash-flow and financial planning
Reason #3: Raise the profit ceiling of your restaurant
Determining Your Profit Margin
To determine your profit margin, we must first determine your gross profit. Gross profit is simply your revenues minus cost of goods sold.
Having a gross profit figure helps us (and you) determine whether your operating costs can be covered. Subtracting operating costs from gross profit gives us your operating profit margin.
It is important for an owner-operator to keep in mind the importance of a operating margin that not only justifies your financial investment, but your time investment as well. There is an opportunity cost to pass up a guaranteed salary from an employer to operate a business on your own, and the profits you generate from your restaurant must exceed any income you could generate from a salaried restaurant management salary.
After creating an allowance for an equivalent salary you would generate as a salaried restaurant manager, you are left with a pretax profit. This pretax profit should be compared against the amount of equity you (or your partners) may have invested in your business. If your return on investment (ROI) is lower than rates typically offered from the market, you may still not be operating at peak financial efficiency.
Using our services, we can determine whether or not you are operating at peak financial performance, and whether or not there options left on the table to further improve your operating profit.
Maximizing Your Restaurant’s Profits
The restaurant business may be the toughest one out there. Everybody needs to eat, but they are under no obligation to pick your restaurant. Add in fickle customer tastes, economic downturns that keep diners eating at home, and the rising cost of prime retail space to set up shop, it takes more than a passion for food to success in the restaurant space.
This is where we come into play-our expertise for the restaurant business does not end at operation. We are highly confident we can help you develop and execute an effective restaurant financial management plan.
It’s not enough just to eke out a small profit-with the amount of sweat equity you are putting into your restaurant, you need and deserve an annual profit that justifies your effort.
While not every restaurant can succeed, choosing us to overhaul and optimize your restaurant finances can strengthen your chances to not only survive-but thrive!