The Dog Days of Summer
How to Manage During a Downturn in Business
Summer in the NY Metro Region is often a slow period for area restaurants – as the temperature and humidity rise while kids are out of school, customers escape the heat to take vacations and many leave for weekends. Being able to nimbly anticipate these slow weeks and make changes to your operation will allow you to survive the dog days of summer without taking a financial hit.
As we discussed in our last blog, The Value of A Good Business Plan, a restaurant is a living breathing entity that requires constant reevaluation. Now restaurateurs must understand the value of being flexible when the thermostat rises and business levels fall off as people escape the heat.
Here are four key things to help manage your restaurant in a short downturn:
Adjust Your Cash Flow Management – Many restaurants fail not because they are unprofitable, but because they ultimately become insolvent. The single most important step for survival of your restaurant when business slows is to rigorously manage your cash. Calculate what your cash flow needs will be based on both your estimated fixed and variable expenses. Know what your break-even point is, as sometimes a viable cash management strategy is to close the business for the slowest portion of the slower season. And lastly, adjust the way you operate to further reduce your variable expenses.
Adjust Your Variable Expenses – Variable expenses are those expenses that change based on your level of business – the largest controllable categories being food and labor costs. From Where Oh Where Has My Margin Gone?, we know that labor is a restaurant’s largest variable expense and is only becoming more costly. Planning for this fall-off in business is key in being able to scale back schedules in advance, rotate out vacations among the staff and utilize staff that has been cross-trained – increasing productivity per work hour. If you have staff standing around staring at the walls, you have too much staff on hand. Lowering total payroll also lowers payroll taxes and payroll processing fees. Other controllable variable expenses can include paper goods, any merchandise, some utilities and maintenance.
Adjust Your Menu Offerings – Changing your menu can also impact food, beverage and labor costs. Consider replacing some menu offerings with less expensive items using seasonal and local ingredients. Consider lightening your menu to offer more salads and refreshing cold options. You don’t want potential customers not to consider coming to your restaurant on a hot, sticky day because your menu is too heavy. Furthermore, less labor-intensive preparations allow you to work with less staff. Guests, by nature, tend to eat less and lighter fare when the thermostat rises. Cooking with what is locally in season is always less costly than using out-of-season imported items.
Adjust Your Purchasing and Inventory Management – When items are not flying out of your walk-in or your stock room, you should look at what you are buying and how you are buying it. Intelligently reducing the overall number of offerings on your menu can increase your product cross-utilization allowing you to carry a smaller inventory – both in number of inventory items and quantity of each item you stock. Analyze what is selling, at the best profit margin, and either remove the non-selling items or find creative ways to reinvent them. By sitting on non-moving inventory, especially alcoholic beverages, you are just tying up your cash flow.
Being aware and flexible about managing your business in the Dog Days of Summer can help keep your bottom line from melting away.
Email us today for a free business consultation at www.4qconsult.com. We help restaurants be profitable, from Start-ups to existing restaurants looking for a fresh set of eyes. 4Q Consulting, LLC can develop customized plans and operational guidelines to survive a slow period of business!
All original content copyright Noelle E. Ifshin, 2016-2017.
Noelle E. Ifshin, President, 4Q Consulting, LLC
244 5th Avenue, Suite 1430, NY, NY 10001