How to Manage a Restaurant Finance Effectively
Table of Contents
To create a restaurant finance management strategy and start generating profits you have to define each cost to determine which items are a must-have and which are nice-to-haves. Then, you can include these costs in your budget. This will make it easier to identify the costs that are out of your control.
In addition to keeping track of yearly expenses, restaurant owners must plan for variable costs. If you can’t predict yearly expenses, you risk overspending. If you underestimate sales, you may end up disappointing investors and creating a panicky work environment. To avoid this, set a realistic sales goal and plan for it. Communicate this budget to manage and hire the right people. Make sure your budget reflects realistic trends, but it’s not a secret.
One of the first things to look at is your prime cost. This is the highest expense in a restaurant and represents the areas of profit that you control. In other words, if your sales exceed your costs, you are in the black. Otherwise, your profits will be significantly lower than your costs. Therefore, it’s important to keep these costs under control. You should also plan for growth and consider boosting your sales volume if you’re not making enough money to cover costs.
When preparing your Pro-forma P & L, it’s important to understand what each line item will cost. It’s best to forecast the key line items in three ways: conservative, expected, and aggressive. The conservative forecast, for example, assumes that the restaurant didn’t attract enough customers. While the aggressive forecast assumes the opposite, it will give you the highest return on investment. When calculating your sales, make sure to take into consideration the number of employees you plan to hire.
A restaurant’s budget will also help it evaluate its operations and investments. By establishing a budget, restaurant owners will have a clearer picture of what they need to change for long-term growth. COVID-19 has caused the restaurant industry to pivot quickly, changing staffing, food, and marketing budgets. Restaurant owners also need to plan for unexpected expenses, like the COVID virus or a new business model that uses digital marketing. Additionally, the restaurant’s cleaning and to-go containers will likely be different from the ones they used before.
Managing cash flow in a restaurant is essential for success. The key to restaurant finance management is a successful cash flow management strategy that includes forecasting sales and sticking to a budget. This helps restaurant operators to set goals and plan for minor adjustments. It is also important to know how much money you can spend on certain types of expenses. For example, a restaurant’s cash flow should remain at a steady level if you are preparing for a snowstorm on Tuesday. A declining budget may result from increased food costs on Wednesday and vice versa.
To manage restaurant cash flow, you can consider assessing your expenses and your potential investments. Consider whether it’s worth investing in new technology or hiring a new employee. A new hire or investment may take a while to pay off. You should think carefully about any expenditure or investment that is not immediately necessary to run your business. By taking your time and thinking through the investment, you can prevent cash flow problems. This will allow you to invest in the right things to improve your business.
In addition to tracking your income and expenses, you should also monitor your inventory. Don’t keep unused inventory sitting in the stockroom or under the sink. Try offering “Get it while it’s on sale” promotions to get your customers to spend more money. In addition, you should pay your vendors promptly, as late payments can incur additional charges. To avoid these pitfalls, avoid using credit cards to pay invoices – these are not reconciled by your accounting team and may result in bills being paid twice.
In addition to keeping an eye on overhead costs, restaurant owners should also pay close attention to menu items that don’t sell and over-ordering food. Payroll errors can also negatively impact cash flow. Many restaurants automate payroll processes to improve efficiency and profitability. Restaurants have seasonal slumps and peak times, but their cash flow tends to remain relatively stable. By carefully analyzing their cash flow, restaurant owners can identify draining processes and invest in them.
Controllable versus Uncontrollable Costs
While some expenses are beyond your control, there are still many ways to reduce these expenses. By using analysis, strategic thinking, and a proactive approach, you can cut the costs of the uncontrollable parts of your business. To reduce restaurant expenses, you must maximize the cost savings from the things you can control. Make sure you understand the differences between controllable and uncontrollable costs.
When you carry out restaurant finance management of your restaurant, you must understand the differences between fixed and uncontrollable costs. Non-fixed costs vary from month to month and are not guaranteed whilst fixed costs are in essence fixed and they have to be paid monthly whether you make sales or not.
To achieve your restaurant finance management goals you have to start by looking at your financial statements, controllable costs are expenses that you can directly control. This includes direct labour, material costs, advertising, and labour. Other costs you can’t control include organization-wide advertising, mortgage, real estate taxes, and insurance. Luckily, you can reduce controllable costs by focusing on the ones you can manage. For example, you can cut the travel costs of employees. Keeping costs low is essential for any restaurant’s financial health.
Another way to reduce uncontrollable costs is to hire a qualified manager. If you’re not a management professional, it will be tough to hire a manager who has experience in running a restaurant. While you may be tempted to hire a family member or friend to manage your business, you must remember that the costs of running a restaurant can mount. The solution is to get a qualified manager and reward your stars.
Another option is to keep track of the other costs in your restaurant. These expenses can affect your profit or reduce your profits. However, some of the expenses you can control are indirect costs, which you can’t directly influence. Restaurant labour, for example, can be more expensive than you think. However, you can control your labour costs and make them more profitable. Ultimately, your success depends on how well you control your restaurant’s expenses.
Managing Labour Costs
Restaurant operators need to monitor their costs to avoid the unnecessary expenses of paying overtime and understanding their kitchens. To make sure that their restaurant does not face this problem, they need to ensure that they schedule the least number of employees possible. Low staffing can lead to long lines, increased wait times, and customer attrition. A good balance between employee schedule and revenue data can help restaurant operators make sure that their labour costs are within 30% of the total gross revenue.
Managing labour costs in a restaurant should start with setting a goal. Usually, restaurant owners look at labour costs as a percentage of sales. However, if you have an average of 40% during January, you should look deeper into the reasons behind the spike. The average labour cost does not tell you about overstaffing, slow days, and special events that increase labour costs. As a result, setting a goal for a certain percentage will help you make adjustments and keep your restaurant profitable.
The key to managing labour costs in a restaurant is to identify high-value employees. This way, you can leverage the strengths of your entire team. If you can hire the most efficient staff members, you can cut others earlier. For example, you could schedule servers with the highest sales average so that they can increase revenue and decrease labour costs. By doing this, you will maximize the profits of your employees and the bottom line of your restaurant.
It is important to monitor labour metrics closely. Restaurant managers should make sure they understand their actual labour costs and schedule employees according to these. This will prevent costly overruns.
Smart employee scheduling based on sales Per Labour Hours (SPLH) goals can help restaurant managers optimize each part of the labour cost. This can lead to massive savings in your restaurant’s budget. If you do not have a good understanding of your labour costs, you can use a labour-cost calculator to find out how much you can cut from your expenses.
Managing payroll for restaurant finance management can be challenging. The process involves more than just calculating employees’ hourly wage; it also requires withholding taxes, paying into benefits and complying with restaurant labour laws. Restaurant owners must keep records of each employee’s pay, including receipts, bank statements, and tax forms. Additionally, collecting payroll documents is important for compliance and tax withholding. Most restaurants pay employees weekly or bi-weekly.
Restaurant owners shouldn’t underestimate the importance of payroll management, as it requires a variety of skills. From handling employee income taxes to handling child support wage garnishments, payroll management can make or break the success of a restaurant. Fortunately, there are several payroll systems that can make this job easier and can help avoid any fines or fees related to miscalculations. A payroll service can make calculating payroll much simpler, leaving the owner more time to manage the business.
Outsourcing payroll administration is another way to save money. Most restaurant owners outsource payroll tasks to an accountant or a payroll service. Hiring an accountant is a great idea if you are new to restaurant finance. A payroll service can make sure the payroll tax calculations are correct, and that you comply with labour laws and receive the correct tax credits. It also allows you to focus on managing your restaurant’s other vital areas, like marketing.
Using payroll software can help you track expenses in real-time. Using restaurant payroll software, restaurant owners can see the ratio between their daily profits and losses. Managing payroll for restaurant finance requires adequate time and resources, and it is essential that you use the gross pay of employees as a basis for calculations. In addition, federal, state, and local regulations govern overtime and tipping. These factors need to be calculated and monitored carefully.
How long does it take for a new restaurant to make a profit?
The time it takes for a new restaurant to turn a profit can vary greatly depending on a variety of factors such as restaurant type, location, competition, management, and overall business strategy.
Some restaurants may start making money within a few months, while others may take several years. A new restaurant typically takes 2-3 years to become profitable, according to a National Restaurant Association study.
However, depending on the factors mentioned above, it could be longer or shorter. Many new restaurants fail within the first year due to a lack of planning, undercapitalization, and poor management.
A realistic business plan and good financial management can be critical to success; they are required to determine the break-even point and keep the business on track to profitability.
Furthermore, careful financial management, as well as regular changes to pricing, menu items, and marketing strategies, can help accelerate the path to profitability.
Restaurant finance management is an essential component of running a successful restaurant business.
Restaurant owners and managers can identify areas for improvement and make informed decisions to increase profits by implementing effective cost-cutting measures, keeping accurate financial records, and regularly analysing financial performance.
Incorporating technology such as point-of-sale systems and online ordering can also help to streamline operations and increase efficiency.
Restaurant owners can begin generating profits and achieve long-term success in the industry by taking a strategic approach to financial management.
Overall, restaurant finance management is a complicated and ongoing process that necessitates commitment and attention to detail. Furthermore, if Restaurant managers can effectively manage their finances they would set their business on a path to profitability by adhering to these best practices.