Restaurant Finance: Advice for Avoiding Disasters
Industry experts suggest that the ferocity of the F&B landscape is due to a mix of circumstances, not excluding intense over-saturation of the market. Rapid expansion may cause a rush of adrenaline, but one must accept the consequence of this gamble— potentially growing too soon and reaching a point where supply defeats demand. In addition to rising food prices, labour shortages, and high turnover rates, to see how restaurants often struggle financially isn’t exactly rocket science.
Don't Grow Faster Than Your Cashflow
Developing and expanding a new restaurant concept, or starting an existing one in a new location, is truly an exciting time. However, growth really should be approached with caution.
Setting up new outlets needs to happen in a structured manner so that every outlet is monitored and regulated. Controlling which suppliers can be ordered from, deciding who can make the orders (and what they order), reviewing all spending and tracking budgets closely— these are all areas of business which require immense attention to detail.
Once a new location is up and running, it is vital to properly analyze and understand customer demographics and purchase behaviour for the site. Commonly, the central kitchen or the head office is far too isolated from the daily issues at each specific area, especially when menus, information, and promotions are shared.
This can be a challenging task— especially when the central office needs to ensure control over portions, recipes, specs, and purchases of every outlet.
Having fully automated ordering to suppliers and invoice management that is linked to your live supplier pricing, such as offered by FoodRazor, is a great way to manage the task, and comes with the added benefit of providing complete transparency across the business.
Manage Supplier Payment
Make sure that you always negotiate with your suppliers to agree upon better payment terms for your business. Better payment terms can include having a longer duration to make money on the goods before having to pay for them. 15 or 30 days would be a good default reference to follow and duration to start with if you don’t have any previous data to forecast the health of your restaurant and when you are able to cover the costs of goods.
Have a Profit Account
Open a separate bank account just to put in your profit margins. Decide on the amount that you're gonna take as your profit margin every month (5-10%) and put that amount into the separate account. It’s old news that restaurants always tend to spend all the possible money they have since operational costs are extremely high in this industry. With the funds you’ve put aside in another account, you can use them to pay dividends and there won’t come a day where you completely run out of money. It’s a good way to ensure that you always have cash reserve.
Don’t Do Ad-hoc Payments
Pay up every once/twice a month because that helps to build up the cash and give you a clear view of how much cash you have. It’s also easier to identify where your payments are going and exactly who you're paying. Keeping track of this is important to make sure that your money is well accounted for.
Have a Salary Cap
Restaurants’ second biggest expense is spent on staffing. Sit down and decide on and amount that you're comfortable spending on staffing but still allows you to have a profit margin. Say, you set your salary cap at $10,000, you’ll have to stick to that amount and not exceed it. This forces you to optimise your staff by mixing senior members with junior members. Remember, your restaurant doesn't require you to hire a whole crew of senior staff if you can't afford it. Don't ever cross the line and this can effectively help to contain costs and help to improve your overall profit margin.
Retrieve Control of Restaurant Finance
It is easy to get tied down to admin, allowing food costs to spiral out of control. To regain control of your restaurant finance, you need to be constantly aware of sales data, be able to track prices and really know what is working on a menu and what isn’t. You need to set prices correctly and to see which recipes are performing the best, which need adapting, and which should be dropped.
Constant fluctuations in food prices mean that even standardized menus need to be regularly reviewed. This also applies to small cafes to restaurant chains alike. Just because you have a fixed menu, it doesn’t mean that you should simply cost once and rely on margins. By having live pricing links to all ingredients purchased, it becomes possible to make small tweaks and adjustments without having to take on massive sweeping changes regarding menu pricing.
Many businesses struggle with maintaining margins and delivering good profits. And, with rising costs, they turn to add $ 0.50-1.00 on every main course or starter. This is definitely not the answer when you are looking to increase customer loyalty and grow. Many customers will just walk away, to a competitor that charges less or doesn’t raise prices on their favourite items.
At FoodRazor, we believe in a more structured and sensible approach to managing costs and price variations. We believe in helping you to work in partnership with your suppliers: agreeing on a rational plan to deal with price increases, finding alternative products/cuts, and negotiating better prices for bulk purchasing.
Instead of having three produce suppliers fight every week for your business, use 1/2/3 vegetable suppliers, but give all of them a decent share of your orders. In return, they may provide you with better, more competitive prices. From their point of view, having to provide and deliver two separate orders of chives isn’t optimising their operations. In this scenario, no one is a winner.
In these difficult and financially challenging times, you need more than just luck and a few spreadsheets to ensure that you are generating significant profits. With our platform, merchants can customize a scalable variance of their product price increase and receive daily price notifications emails. This data is crucial for you to make decisions immediately, whether to continue with a supplier or to switch. Regardless of whether you are a single outlet or have multiple locations, FoodRazor can greatly reduce the costs incurred.
A good reference to increase profits: Profit First by Mike Michalowicz
More tips: Know when and how to exit your F&B business.