Are You Being Penny Wise and Pound Foolish?
How to Consider Managing Your Restaurant’s Big Purchases
Before “cutting off your nose to spite your face”, analyze how you can monetize a capital investment by growing your sales, cutting your costs and delivering a consistent, quality product.
The purchase price might be a big number, but if you use the 4Q Approach, it shouldn’t be that scary:
Quantify Your Purchase. To quantify this big spend, you need to fully understand your business and the economies of the purchase. If you are buying a rotisserie for your restaurant, do you buy the small manual unit or the larger capacity, automated unit? To answer this, you need to calculate how many more chickens you need to sell to recoup the cost of the larger unit. If you can increase output – to sell more, and create a more consistent (better) product with little added labor - the increase in cost from one unit to another is easy to overcome. Additionally, you can profit by the flexibility a larger unit affords, offering a wider range of rotisserie menu items.
Qualify Your Purchase. Very often restaurants put off installing new or upgraded equipment due to sticker shock. Upgraded equipment can often lower your ever-increasing variable costs, optimize work flow, or offer up solutions to operational challenges. This can lead to improved product quality and, in turn, repeat business. More efficient equipment can possibly replace part or all of your labor cost by lowering the number of man hours needed to monitor product produced on old, inefficient equipment. Think about an older rotisserie that most be continuously monitored to prevent burnt or unevenly cooked chickens – in this example both your labor and food costs can be impacted. Additionally, modern equipment can lower energy costs and replace the cost of constantly repairing older units.
Quantitative Analysis of Your Purchase. Most large equipment or software expenditures can be financed in some way, so you don't have to lay out a large chunk of money all at once. When investing in your business, don’t go part way: buy the equipment you need to improve efficiency, and grow your business. When you decide to buy a new car, to replace the Junker that is constantly in for repairs, you buy the entire car - you wouldn’t buy the tires one month, the engine the following month and the chassis the third month. Instead, you would finance your large expenditure to make the price palatable. You must analyze the impact buying new equipment has on your restaurant operations. What you can potentially save in your cash flow, by being more efficient, can be used to finance your new purchase. Sometimes, new equipment “pays for itself”.
Query about Your Purchase – Before making a large capital expenditure is it always a good idea to speak to your accountant or financial adviser. Make sure you understand the depreciation and tax benefit implications of a capital investment in advance. Additionally, there are often state rebates and incentives for installing new, more energy efficient kitchen equipment that can help offset the purchase price.
Making smart, planned decisions on your large capital expenditures can often help you grow, and streamline your business for the long term.
Don’t know where to begin? Do you know how to and procedures in place to be as successful as possible? www.4qconsult.com can develop customized operational guidelines to meet your needs.
All original content copyright Noelle E. Ifshin, 2016-2017.
Noelle E. Ifshin
4Q Consulting, LLC
244 5th Avenue, Suite 1430, NY, NY 10001