Opening a restaurant is like laying a foundation for a building. You make plans for your food business and start executing them one by one. You rent premises, prepare a floor plan, arrange for finances, plan for marketing strategy , concept, menu, followed by launching your dream restaurant. While at the end of all the hard work, won’t you be expecting huge returns as a reward for your efforts? Well, not exactly.
By even a very radical estimate, a restaurant can’t achieve an operational break even point before six months. There are lots of hidden expenditures involved in the operation of the business, which will come into the picture once the food business is thrown open.
To understand which direction your business is heading, you need to analyse your restaurant finances. Financial reports are like a diagnosis report, identifying anything wrong in the restaurant’s financial health and laying the groundwork for corrective measures. However flattering the footfall in your restaurant may be, the accurate indicator of your business health is your restaurant sales reports.
Let’s analyse the numbers your business generates and the planning you need to take:-
Profit and Loss statement (P&L):-
A profit and Loss statement, also known as an income statement, is a financial report that gives an overview of the income, expenditure, and costs during a specific period. Numbers from your P&L statement throws light on the weak spots of your business if any. Based on P&L’s detailed analysis, you can take corrective measurements like cutting wasteful expenditure, optimising labour and pricing menu competitively. A restaurant profit and Loss can be reviewed weekly, monthly and yearly. While weekly P&L statements display the profit and cost for your business, monthly and yearly statements measure the business’s overall success.
Inventory report: –
Inventory reports show how well is your restaurant tracking, updating and monitoring the stocks. It helps in reducing wastage and finetune the best practices that are helping you grow your business. The main goal of the inventory report is to track the quantity of goods, price of each unit of goods and the current cost of inventory in your restaurant. Inventory reports can be generated by Point-of-sales (POS) or inventory management software. Once you start generating the weekly reports, you will observe gaps in demand and supply. For example, you over-ordered some inventory, leading to wastage.
Restaurant management should study the trends of the inventory report and take corrective measures to curtail inventory mismanagement.
Restaurant sales reports: –
Restaurant Sales reports are usually generated by POS software on a daily, weekly or monthly basis. This report represents the revenue part of the business and needs to be compared with the cost part to understand the restaurant’s profitability. Sales report needs to be comprehensive showing the number of bills generated, sales generated by food and beverages separately and the discounts offered.
If the food business has multiple branches, then the sales report of each outlet should be generated and compared centrally. This comparison can help us study the profit-making formula of the most revenue-generating business and implement it on other outlets.
Expense report: –
Expenses to the restaurant are the cost of goods sold (COGS) and the labour cost, utility bill, rent, and other overhead expenses. Simply put, COGS is the total cost of all the ingredients used to make menu items. An expenses report should give you an understanding of the short-term and the long-term expenditure your business incurs. The expenses report is essential as it gives you a perspective of business expenditure and ways you can control your cost.
Labour cost: –
Labour cost to the restaurant includes wages, bonuses, overtime etc. Ideally, the cost of labour to business should not exceed 20% to 30% of the total expenditure. Labour cost forms a considerable chunk of the expenses of running a restaurant, and hence it’s crucial to optimise the spending. Salary structures need to be finalised after much deliberation. Rather than making a rigid salary structure, performance-based incentives and a profit-sharing model will encourage the staff to put extra effort and reduce the burden of additional expenditure on the restaurant in case of low business.
We usually don’t see a constant footfall in a restaurant; some periods of the day or year see more customers than others. To deal with such a situation, hiring temporary/ contractual staff is advisable as it is cost-effective. Cross-training the restaurant team to handle multitasking and adopting digitisation to reduce human dependence is another way to manage your human resource efficiently.
Optimal use of resources: –
Having known the revenue and the cost streams of a restaurant business, let’s see how we can bring down the cost of goods sold (COGS). After going through the restaurant sales report, you will get an idea of the restaurants’ day to day ingredients needs. Only stock goods you know you will consume in a restaurant in the short term to avoid spoilage. Buying in bulk, especially non-perishables or ingredients that get consumed quickly, can get you a special offer price from vendors by reducing cost.
It’s advisable to get a quote from two or three vendors and make a price comparison before purchasing. In this way, you will get the best price for the ingredient you are buying. The above mentioned are some of the steps you take to cut down the cost without compromising the quality of the service provided.
The restaurant industry is lucrative but susceptible to external threats beyond one’s control; however, understanding your financial and restaurant sales reports and taking corrective measures helps protect the business against avoidable pitfalls