Restaurant Consulting NYC | The Financial Health of Your Restaurant | 4Q Consulting, LLC

The Financial Health of Your Restaurant

Is your restaurant in need of a financial check-up?  Many restaurant owners we work with are not aware of the financial health of their own restaurants, or know they are in trouble but cannot explain why.  Having great food and service is not enough to be a good business and many restaurants struggle financially.  As a restaurant owner, assessing the health of your business is an essential part of your responsibility and can often be overwhelming.

Conducting regular financial check-ups of your restaurant does not need to be difficult and can be broken down in to smaller steps. In order to give your restaurant a financial check-up, you need to do the following:

Keep Clean Books - Studies find that restaurants that incorporate accounting best practices are more likely to be profitable than those that do not.  Keeping an organized accounting system is the only way to have a clear idea of how cash is flowing through your business. The key elements are to know 1) where in the business your revenue is coming from 2) where you are spending your money, 3) how much you are spending, and 4) how much you need to earn to make a profit. It doesn’t matter whether you use high tech software, a bookkeeper or an old fashion ledger book, you need some kind of system for timely recording of revenue and expenditure to allow you to make business decisions and plan for the future. 

Compile A Monthly P&L – As we discussed in, Does Your Restaurant Compile a Monthly P&L Statement?, a profit and loss statement, or P&L, is a basic financial statement that serves as a report card for your business.  A crucial part to creating a useful P&L statement is monitoring your food and beverage inventory; this step will allow you to spot food waste in handling and storage, possible theft and proper ordering levels and frequency. Tracking fixed and variable costs, such as payroll, operating expenses and occupancy costs can highlight wasted resources and where you can tighten your belt.

Know Your Prime Costs Inside and Out – Prime costs are the total of food, beverage and all payroll expenses including taxes and benefits, and are the most important numbers a restaurant owner should know.  Once you’ve compiled your P&L, prime costs should be what you examine first, as they offer the most accurate depiction of your restaurant’s health, showing how well your business is managed day-to-day.  Frequent review of food, beverage and labor costs holds your chefs and managers accountable for their work.

Adjust to Changes in Your Business Cycle - Since prime costs are variable, they can and should be adjusted when your restaurant experiences changes in business levels, as we illustrated in The Dog Days of Summer: How to Manage During a Downturn in Business. Planning for or being acutely aware of a fall-off in business, enables you to scale back labor schedules properly, rotate out vacations among the staff and utilize staff that has been cross-trained – increasing productivity per work hour.  Making changes to your menu can also impact food, beverage and labor costs by offering a smaller menu, consolidating the number of items on your menu and decreasing the number of steps of production.

Just like an annual physical with your doctor can lead to healthy changes in lifestyle, keeping your finger on the financial pulse of your restaurant can highlight areas of weakness. With this information you can make appropriate and timely changes to have a financially healthy restaurant. 

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 
noelle@4qconsult.com  
www.4qconsult.com 
244 5th Avenue, Suite 1430, NY, NY 10001  
(212) 340-1137

Restaurant Consulting NYC | The Dog Days of Summer How to Manage During a Downturn in Business | 4Q Consulting, LLC

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 

noelle@4qconsult.com  

www.4qconsult.com 

244 5th Avenue, Suite 1430, NY, NY 10001  

(212) 340-1137

Restaurant Consulting NYC | The Value of A Good Business Plan Your Restaurant’s GPS - Gastronomic Positioning System | 4Q Consulting, LLC

The Value of A Good Business Plan

Your Restaurant’s GPS - Gastronomic Positioning System

For many, opening a restaurant is often a romantic idea, until reality sets in of just how difficult it actually is.  We advise clients that developing a detailed business plan is the first step.  A great business plan becomes your navigation system (your GPS) for everything from raising funds, to fleshing out a concept, to getting open.   In its simplest form a business plan is a guide for your business that outlines your goals and details how to achieve them.

A good business plan should include: a summary of your concept, mission and company goals; a market analysis of where you plan to open – including a competitive analysis; a detailed description of your product and how you plan to execute that product; a labor model; several sets of financial models and an exit strategy – in the event that your concept doesn’t work.

Before and after opening your restaurant, a business plan can:

Be a pre-investment gut check - Investing in the development of a business plan before doing anything else can save you money, time and often heartbreak. The plan gives you an opportunity to flesh out your concept and to investigate whether it can be profitable in the marketplace.  You might just discover that what you thought was a great idea won’t work:  the demographics of the area may be wrong; the rents may be too high or the financial models don’t work for your concept.  Better to know in advance than risk losing many thousands of dollars after the fact.

Help you source start-up capital and financing – Many independent restaurants that try to self fund their start-up, are often under capitalized and fail within the first year.  A detailed plan, with several detailed sets of financial models, allows restaurateurs to secure outside monies with various types of lenders and/or through alternative sources.  Your plan must be able to answer the following questions for lenders and investors: 1) how and how soon do you plan to have a positive cash flow in order to be able to repay a loan or pay out investors? And 2) what is the unique selling proposition for your restaurant – for example, why will customers come to your restaurant versus the others in the neighborhood?

Help you manage cash flow- Careful management of cash flow is a fundamental requirement for all restaurants. The reason is quite simple: many restaurants fail not because they are unprofitable, but because they ultimately become insolvent.  Most restaurants' cash flow can fluctuate dramatically from week to week primarily because of the timing of payments like payroll, sales tax, and rent combined with on-going operating expenses. Unexpected costs, such as emergency repairs, only amplify this fluctuation. Knowing your business cycle (e.g. busy season/ slow season) will help you be proactive in your cash flow management. The only thing worse than having a cash shortage, is having a cash shortage that was a total surprise.

Be used as an on-going road map to your success and should be updated often.  By continuing to review and update your plan, you can understand and develop changes to, and the growth strategy for, your business. Regularly checking your planned performance versus your actual results allows you to make the necessary changes to get you back on track.  This is a living breathing document, not a book that is thrown in a drawer and never looked at again.

We see restaurants that did not start with a formal business plan struggle to be successful - they figured their passion and optimism were enough to build a successful company. Operating without a plan can prove to be more time-consuming and costly in the long run – like driving somewhere without directions and just hoping you get there.

Don’t know where to begin?  Do you know how to write a great  business plan with appropriate financial models? www.4qconsult.com can develop business plans to meet your needs. 

All original content copyright Noelle E. Ifshin, 2016-2017. 
President
4Q Consulting, LLC 
noelle@4qconsult.com  www.4qconsult.com 
244 5th Avenue, Suite 1430, NY, NY 10001  
(212) 340-1137