OK, you have smiling faces in your restaurant, kitchen is clean and everybody are in good movement, your waiters having good tips and they are satisfied too, but is that the real picture of your restaurant business?Why you may think you get sense of how you are doing by the atmosphere.
If you really want to know what is going on with your key margins profitability and financial condition, you have got to look at your numbers. And if you want to be one of those who has been on highly successful operators possess, you need to understand and pay attention to key or critical numbers.
Key or critical numbers gives a sense of how profitable is your restaurant before your accountant tells you that. This way you are on track, and you can be more proactive when managing your business, and able to identify potential problems on time and solve it.
Smart restaurateurs always start with good defined annual plan and operating budget. After this they separate it into periods and make a reasonable revenue goals. And when you convert revenue and operative objectives into effective daily numbers, they becomes realistic revenue goals for a certain time period. There are three stages of examination of key numbers. What numbers should be checked daily, weekly and monthly?
Numbers which has to be examined daily – Daily reports
Daily reports means using important daily information which helps that you operate each shift more efficiently. This reports helps managers to manage restaurant inventory, labor cost and meet their shift sales goal. Numbers which has to be examined daily are: Daily sales report, Menu item sales report and Hourly staff labor report.
Daily sales report is not just recording of information for bookkeeping and it is used for weekly revenue tracking and revenue monthly projection. This report provides valuable information for measuring daily activities to meet weekly goals. At first it is valuable planning tool.
Menu item sales report tells you more what your customers like. It is daily record what your customers prefers. This is very useful planning tool for chefs and kitchen managers. Menu item sales report gives them more detail and allows them to plan better daily specials and preparation of favorite and best-selling dishes and their recipes. It also help to management to decide what items to place on which menu to increase sales. Once placed in the guest’s hand, menu can directly influence not only what they will order, but ultimately how much they will spend. Properly design menu directly influences sales revenue. An example of it might be a popular steakhouse that was also known for very good hamburger offer. They separate hamburgers from their steak offerings at dinner until they reviewed the daily item sales report and found that the majority of hamburgers were sold between 11 a.m. and 3 p.m. by working days. They created hamburger steak for the dinner menu and offering the hamburgers at lunch time only. The hamburger steak sold at higher price point with great gross profit than the burgers, creating a small sales increase in dinner sales without increasing guest counts.
The hourly stuff labor report give you information which can be used for help to maintain labor cost. With this tool your staff scheduling can be improved. And your labor is the greatest cost you have in operating your restaurant, right?It allow you to track total hours worked by person, category and part of the day. That gives you opportunity to know when you will go over restaurant budget of hours as well as staff member may go over his scheduled hours creating overtime hours.
The fact of understanding daily reports is very important because it is much easier to successfully menage smaller numbers then the large one. If we make more our period goals for revenue and expenses into weekly goals and check our daily numbers against them, we have more chance to hit the target.
Prime Cost Calculation Should Be Done Weekly
Prime cost is the best indicator of profit potential and how well your costs are being managed. Caterers who do not have control over prime costs often has very poor restaurant management system. It is one of main indicators how well has been one business managed.
Those caterers who want to maximize their profit want to know their costs at the end of every week. So how to calculate Prime Costs? Actually, it is very easy.
Calculating prime cost once a month is not enough. When you calculate your prime cost weekly, your manager or you do not have to wait your monthly profit and loss statement to find out what happened in important cost areas. And if there is some problem weekly prime cost control get you information in time and you can react quickly. There is no space for lost of money.
Weekly prime cost reporting also makes managers more cognizant of the effect of their labor scheduling. Connection between labor cost and the weekly schedule is highlighted and makes more obvious to managers. In this manner managers can be much more diligent in modifying schedule which make more business activity. This is also very important for team building in your restaurant.
Also weekly prime cost reporting changing way of work in your kitchen. If you tell your kitchen manager or chef just a monthly costs of food, this numbers become abstract to him. But when you say that their food costs has this week increased for 500 $ then usual there is a very good chance to get more attention and that your chef or kitchen manager will think about possible reason for this changes. What s going on in the kitchen? It is very possible that the problem will be solved by the following weekly costs calculations. It s all about the time of respond.
When the prime cost is calculated at the end of every week the numbers become much more believable and when something is out of line you are in much better position to investigate it quickly, cut your losses and get the problem resolved.
Most important and revealing numbers in any restaurant or bar is a Prime Cost. You got better understanding of your cost structure, potential profit and how well your restaurants key cost area has been managed.
Restaurants often end their week on Sunday night and have the report prepared by Monday noon.
In some restaurants managers prepare this entire report while in others restaurant owner have a bookkeeper or clerical person who assist in some way in bookkeeping and making weekly reports.
Restaurants Prime Cost Should not Run No More Then 60%
Generally accepted rule for table-service restaurants is that prime cost should run no more than 65 percent of total sales. Larger chains of restaurants are able to keep their prime cost 60 percent or less but for most achieving a prime cost of 60 – 65 percent of sales still provides the opportunity to get healthy net income.
When prime cost exceeds 65 percent of sales and gets closer to 70 percents of sales profitability issues generally arise. And when this happens, it s very difficult for any restaurant to make adequate profit and investment return. In quick –service restaurants
the goal is to keep prime cost at 60 percent of total sales or less.
The Profit and Loss (P&L account)
The most important objectives of every business is to make a profit. The Profit and Loss account shows the extent to which it has been successful in achieving this objective. Companies are expected to keep their P&L accounts in certain formats. Typically the P&L account will show the revenues received by a business and the costs involved in generating that revenue. In simple terms:
Revenues – Costs = Profits
Monthly Profit and Loss Analysis
The daily and weekly numbers are an integral part of management which gives predisposition to successful business restaurant or bar operation and profitability. Complete financial statement package that includes an income statement and balance sheet should be prepared and reviewed monthly. Many caterers prefer to receive a summary version of their profit and loss analysis so they can quickly scan the key numbers and get a sense of how the restaurant or bar is performing. Some of them only delve into the more detailed reports if something appears to be out of line or does not make sense.
When you make profit and loss analysis you have to highlight following key numbers: Prime Cost, Other controllable expenses, Controllable income, Non-controllable expenses and Restaurant operating income.
Prime cost include cost of sales and payroll. It is recommended to calculate prime cost weekly, but prime cost should also be included in the profit and loss analysis.
Other controllable expenses
Other controllable expenses are manageable in some way by management. These expanses can be grouped into categories like direct operating expenses, marketing expenses, utilities etc. On profit and loss analysis should be clearly showed monthly and year – to date amounts in the individual accounts that are included in these summary categories.
If you separate controllable expenses from non-controllable expenses it is possible to calculate one of the most important margins on any restaurant profit and loss analysis, „Controllable income“. It is a key indicator of management effectiveness in driving sales and cost and expenses controlling. Those numbers reflects only those line items over which they exert any influence or control.
Those expenses include occupancy cost such as property taxes, building insurance, rent and other expenses. Over this expenses managers have a very little control or influence.
Restaurant operating income
Restaurant operating income is generated by restaurant without regard to corporate overhead, financing costs, nonrecurring income and expenses and income taxes. It is good for comparison with other restaurants or bars and operating results of restaurant industry averages.
Restaurant income are enhanced through the use of comparison with budgets, prior periods and trend analysis over several periods.
Business accounts packages automatically produce profit and loss accounts. Problem may occur if wrong data has been entered, some data has been lost or corrupted.