Restaurant Consulting NYC | Where Oh Where Has My Margin Gone? The Changing Labor Environment and How It Affects Restaurants | 4Q Consulting, LLC

Where Oh Where Has My Margin Gone?

The Changing Labor Environment and How It Affects Restaurants 

People outside the restaurant industry are often surprised by how small restaurant profit margins actually are.  To say margins are razor-thin would be an understatement, as the average profit margin of a restaurant is 3-5% of total revenue.  Labor expenses are a restaurant’s largest expense and the external forces on labor are keeping many restaurateurs up at night.  

Labor-related issues will be the biggest challenges facing the restaurant industry in 2016 and beyond. Restaurants will need to rethink their business models to handle the changes that are coming.  Here are four items that we are advising our clients to watch carefully:

Tightening of the Job Market - Finding top talent is becoming increasingly difficult for restaurant operators.  With the improved economy, the growth of the restaurant industry and the continued low labor participation rate, finding quality staff is challenging.  According to federal data, the restaurant industry alone added 40,000 jobs, or 16% of all workers to the US economy in February 2016.  With increased competition for talent, the cost of recruiting and hiring new employees has become more and more expensive. Moving forward, employee retention will be a cost saving imperative and restaurants must work to slow the revolving door of employee turnover. Conversely, working short staffed has its own costs associated with overtime pay, poor product quality and customer service.

Higher Minimum Wages – Minimum wage increases disproportionately affect restaurants as the food service industry employs close to half of all the people in minimum wage jobs.  It is therefore no wonder that operators are worried about where the minimum wage issue is going.  Many states and municipalities – such as California, Seattle and most recently New York City and New York State – have passed accelerated, higher minimum wage laws that are forcing operators to rethink their labor and compensation models. 

New Regulations Governing Hourly Employees – Paid sick leave, spread-of-hours rules and healthcare insurance are additional changes to the landscape that operators must prepare for now and in the near future.  Ensure that you are fully versed in all the laws and regulations that affect your restaurant, so you can plan for any economic impact of these in advance.  If you need help in understanding these very important rules, get it. Not planning can put your restaurant at risk for a lawsuit.

Changes to the Federal Overtime Laws – The U.S. Department of Labor is working towards changes in defining who is an “exempt” vs. “non-exempt” employee. This will have a major impact throughout the restaurant industry.  Traditionally, salaried employees - such as restaurant and bar managers, chefs and sous chefs - perform manual tasks throughout their day while managing their staff.  New regulations may re-categorize these positions as “non-exempt” based on the job functions and entitle them to overtime pay if their salaries are below a certain amount.  Should this happen, operators will be required to rewrite their manager job functions and descriptions due to the potential economic impact of these changes.

With these big labor challenges, it will be crucial for operators to become more and more efficient to preserve their bottom lines – especially for smaller mom & pop operators.  As discussed in Between the Lines - Operational Challenges That Can Make or Break Your Restaurant:

         “Restaurant success depends on many things, but it can all boil down to 
          one question:  Where does the money go? Having a handle on your 
          operations is a key to answering this question. Have processes and 
          procedures to reduce economic drains, train your staff to follow them and 
          hold them accountable.” 

Not adapting and hiding your head in the sand will lead to poor management and poor fiscal controls – which can make those margins evaporate faster than a sauté pan of boiling water. 

Don’t know where to begin?  Do you know how to put policies 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, President, 4Q Consulting, LLC 
noelle@4qconsult.com  www.4qconsult.com 
244 5th Avenue, Suite 1430, NY, NY 10001  
(212) 340-1137

Restaurant Consulting NYC | You and Me and Restaurant Makes Three | 4Q Consulting, LLC

You and Me and Restaurant Makes Three

Husband and Wife Restaurant Owners

As discussed in The Family Owned Restaurant, family business are the bedrock of the U.S. economy. Family businesses often start with a husband and wife team trying to make a better life for their families.  In many cases, the marriages and the businesses become so intertwined that it becomes hard to tell where one ends and the other begins.  Starting and running a successful restaurant can be more demanding than having a baby, and often couples do not survive the birth of a restaurant.  

In order to ensure both the restaurant and your marriage survive, here are four important items to keep in mind when opening or running a restaurant with your spouse:

Treat the business like a business, not an extension of the home.  Draw a distinction and leave work in the business. If both husband and wife are to be partners in the restaurant, having a written partnership agreement is recommended – especially if you plan on having additional business partners. By the time you realize you need an agreement, due to a dispute, it is often too late.  You should have a written agreement that includes: the division of ownership; an outline of the amount of, and stipulations for, taking salaries; and how to handle any profits or losses.

Don't assume that the role in the personal relationship translates to the roles in a work relationship. Just as you want to define the partnership agreement, it is advised that couples decide in advance the work roles within the business – which spouse is going to do what.  For example, the person who balances your personal checkbook at home might not be the best one to reconcile purchase orders and inventory.  And, when defining job roles, if there’s something neither is good at, delegate it to someone else!

Couples we work with find that the key to their success as both a married couple and business partners is to continually communicate their roles and how they can help each other in those roles.  In that regard:  

Standard operating procedures (SOP’S) should be agreed upon, set and followed. Understanding the task expectations of each role and adhering to the agreed upon SOP’S that meet them, removes the possibility of misunderstandings with couple business owners.  Even the small tasks matter: agreeing upon how receipts are filed and the books are balanced; when cash is taken to the bank and who does it; who orders food and beverages and what levels of inventory you plan to keep; and who handles staff scheduling and how are changes to the schedule made are all examples of key items to agree upon in advance.

Support each other and be unified.  Present a united front to your employees at all times.  As basic as it sounds, do not bicker, fight or have large disagreements in front of your staff.  Like another other business partner relationships, you will have disagreements on how to run the business. Remain professional at all times and take those arguments off-site or behind closed doors.

Even though you are spending a lot of time together in the restaurant, you still need to make time for each other.  Find a way to have a night together away from the restaurant – even if you end up discussing restaurant business, being in a different environment changes the conversation.  And most importantly, try not to go to bed angry.  Fighting couples don’t work well together and can have a huge impact on how the business functions.

Remember why you decided to open a restaurant in the first place.  You want to plan ahead to be as successful as possible, while ensuring that demands of the restaurant don’t pull apart your marriage!

Don’t know where to begin?  Do you know how to put policies 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, 2015-2016. 

Noelle E. Ifshin
President
4Q Consulting, LLC 
244 5th Avenue, Suite 1430, NY, NY 10001  
(212) 340-1137

Restaurant Consulting NYC | Seven Deadly Restaurant Sins | 4Q Consulting, LLC

Seven Deadly Restaurant Sins

Owning and running a successful, profitable restaurant is never easy.  When you break down restaurant business concepts into their lowest common denominator, you are left with the “3 P’s” - Product, People, and Process.  What is served, who serves it and how it is served should tell the customer the story of who you are and what your brand is.

The Seven Deadly Restaurant Sins are behaviors that get in the way or prevent you from properly executing the “3 P’s”.  The sins, if ingrained in your restaurant, can become barriers to change, growth and success.  

Think of the sins as “land mines” which must be avoided in order to be successful:

Greed – Greed can often get you into trouble as a business operator.  In a free market economy an operator wants to be as profitable as possible.  However, operators must also financially take care of their employees by offering them a fair wage, and their customers by providing excellent customer service and a product at a price the market will bear.  We have all read about famous restauranteurs who are sued for various reasons:  violating wage and hour laws; not distributing tips properly; underpaying illegal immigrant staff; price gouging tourists; adding gratuities to checks subjectively.  The cost of this greed, in the form of PR headaches, legal fees and loss of business is almost always greater than the few extra dollars you can collect. 

Gluttony – Gluttony is nearly synonymous with greed and is defined as “one given habitually to greedy and voracious [behaviors]; withholding from the needy”.  In business, gluttony can be very destructive; it is not knowing when enough is enough and profiting to the detriment of others.  Your business is a citizen of the community in which is exists; it is important to have a program that gives back to the community or to your employees. In larger companies, these types of programs can help attract top employee talent.  For small businesses, an out-reach program does not have to be expensive - simple, easy and workable are often best.  Try donating leftover food to community kitchens, or left over raw scraps to a company that makes mulch for a community garden; volunteer time for a local cause; sponsor the local little league team.  Involve your employees and get ideas from them about what is important them.  You will be seen as a good corporate citizen, which will pay you back in positive PR.

Pride – Pride is a double edged sword in the restaurant business.  Pride in your product and staff can be very useful to help you stand out in a crowded field, however pride can also act as a hindrance to improving your business.   Pride can prevent you from being able to: recognize when you are on the wrong track; change course in time to prevent a financial downfall; react to factors in the economy – such as rising food and commodity prices.  If you always look with a critical eye, you will always find ways to improve.

Sloth – Sloth is defined in Merriam-Webster’s dictionary as “reluctance to work or make an effort; laziness”.  Laziness in any business is the kiss of death, but especially in the restaurant industry.  Once laziness sets in, standards start to slip, corners get cut and consistency of product and service becomes non-existent.  The antidote to sloth is vigilance of even the smallest details.  It’s the little things you decide to ignore that add up, causing your standards to decline.  As we discussed in Consistency is King, “Customers should not have to spin the roulette wheel each time they visit your restaurant; they should experience the same quality of food and service every time.”

Wrath – Wrath is great anger that expresses itself in a desire to punish someone. Operators who yell, belittle and antagonize employees or customers won’t be open very long.  In today’s world where anything can be posted on line and go ‘viral’ overnight, an operator must be the utmost professional and lead by example at all times.  Once you have a reputation as being wrathful towards your employees, it will be very hard to recruit and keep top talent.  Customers will avoid restaurants where the owner or manager has a reputation for yelling at guests.  Your restaurant wouldn’t exist if not for the employees and customers, who should be treated as the valuable components of your business that they are.  If something is wrong with your business, look at yourself first.  The old proverb rings true here – “A fish rots from the head”.

Envy – Envy is a feeling of discontent or covetousness with regard to another's advantages, successes, and or possessions. The sin of envy in a restaurant is to covet other restaurants, to worry about what others are doing and not to focus on running your own business.  It makes you take your eye off the ball in your own operation, which in turn, can cause your downfall.  Owners must focus on making their restaurants the best they can be, whatever they are – if you own a hot dog stand, make it the best hot dog stand you can without being distracted by what the owner of a five star restaurant across the street is doing (or wearing, or driving).  With focus, you will be much more successful.

Lust – Lust in business is often seen in conjunction with envy.  To lust is to crave or desire something, often what others have.  It can be a lust for power, money, or material objects and, like envy, can lead to unscrupulous behaviors.  Lust can lead to not reporting all your cash income, taking kickbacks from vendors, ordering personal items through the business, and not being honest with your partners and investors about the business’s finances. Besides some of these actions being illegal, these behaviors drain resources and break the trust of those who count on you, putting obstacles in the way of building the business to the level of success it could achieve.

What all these sins have in common is that falling prey to them is shortsighted and they get in the way of flawlessly executing the “3 P’s” - People, Product and Process.  The restaurant business is not brain surgery!  At a basic level, restaurants should be able to provide an excellent product at a fair price through superior customer service.  Avoiding the Seven Deadly Restaurant Sins puts you on the path to building a sustainable, profitable, long-term business.

Don’t know where to begin?  Ask yourself, do you have the proper procedures and operational guidelines in place to help you be as successful as possible?  4Q Consulting can develop customized operational guidelines and training programs to meet your needs. Email us today for a free business consultation at www.4qconsult.com.


All original content copyright Noelle E. Ifshin, 2015.
Noelle E. Ifshin, President
4Q Consulting, LLC
244 5th Avenue, Suite 1430, NY, NY 10001  
www.4qconsult.com

Restaurant Consulting NYC | Between the Lines - Operational Challenges That Can Make or Break Your Restaurant | 4Q Consulting, LLC

Between the Lines - Operational Challenges 

That Can Make or Break Your Restaurant

Today’s restaurants face many challenges: intense competition; rising cost of goods and real estate; and the slow U.S. economy - just to name a few. Restaurants average profit rates of 3-5% of sales* - thin margins by any measure. However, poor management can make those margins evaporate faster than a sauté pan of boiling water. It is no wonder that 60% of all restaurants fail within the first three years **

As a restaurant owner, you oversee all areas of your business.  These can be separated into three basics: Finance, Sales and Marketing, and Operations. Yet with only so many hours in a day, many owners neglect the breadth of their responsibilities, and only watch their revenue.  Sales and marketing is important in getting customers into your restaurant, and we covered this at length in Attracting Customers.  However, it is what happens within your operation, between top-line sales and bottom-line profits, which makes or breaks your business.

Here are the 4 biggest challenges that can make or break your restaurant:

Poor Financial Controls – Owners often watch their sales daily, while not watching their costs and expenses as diligently.  Common sense points out that if your profit margin is zero it will always be zero, regardless of sales level, unless you change something. Restaurants should measure costs in relation to sales on a weekly basis, as discussed in both Why a Weekly Food and Beverage Inventory is Crucial to your Small Business and Does your Restaurant Compile a Weekly P&L Statement.  Reviewing weekly statements allows you to spot problems and make operational adjustments much sooner than waiting until the full P&L at month’s end: improper product ordering and handling, waste, cash management and employee theft can be significant drains on your business, every day.  

As revealed in How Much of your Profits are Being Eaten by Employee Theft, many employees steal because they can get away with it, and few restaurants have the right controls in place to prevent it. Further, Measure by Measure and 4 Simple Ways Your Restaurant Employees Can Help You Be More Profitable showed how not controlling spoilage, waste and improper portioning can decimate your small margins. 

Poor Staff Training – As we stated in our Blog:  A Well Trained Staff is Your Secret Weapon, “People run your business and your business is only as good as your people. An effective training program is an owner’s key tool to ensure consistency in product and customer service, which is a basic tenet of running a restaurant.”  This is true for all staff, at all levels.  

With a properly trained staff you have less waste in your restaurant.  A short list of why this is includes: Training mangers on proper inventory and ordering avoids excess product; stewards on proper product storage and handling avoids spoilage; cooks and bartenders on proper recipe execution and production levels maintains portion controls; and servers on proper use of the POS system minimizes incorrect orders, misfires and voids.

Poor Quality Control – Quality Control is all about consistency. In our experience, consistency is best achieved by adhering to standard operating procedures that are codified in writing. As outlined in 4 Reasons Why Your Restaurant Needs an Employee Handbook, recipe books, job-specific handbooks, and training manuals standardize tasks and clearly communicate to employees your expectations and the standard to which they will be held. These procedures should cover, in detail, every process in your establishment, from purchasing guidelines to how to deal with an unhappy customer. As boring and unsexy as it sounds, excellence comes from consistency, which can only come from diligence and attention to detail. If customers know what to expect every time they walk in your door, they will keep coming back.

Poor Leadership – Whether it is you, as the owner, or an outside hire running your restaurant, there is a big difference between being a manager and being a leader. As discussed at length in Follow the Leader, “In order to lead rather than just manage, which is vital in today’s diverse, fast-paced world, one must be able to be more than a day-to-day task master. While a manager deals with the technical dimension in an organization or the job content, a leader marshals resources, human and otherwise, for the best possible results.”  Leaders communicate vision, build relationships and trust, train, coach and mentor, and encourage change and risk-taking.

Often, managers who come up through the ranks are not properly trained as managers and make common mistakes.  In the Top 4 Mistakes Managers Make in Managing People, we discuss how “Managers are the front line representation of your business and must effectively work with a diverse group of people. They must live and breathe your company core values and practices.”

Restaurant success depends on many things, but it can all boil down to one question: Where does the money go? Having a handle on your operations is a key to answering this question. Have processes and procedures to reduce economic drains, train your staff to follow them, hold them accountable and have trustworthy leaders in your organization. Additionally, you must be vigilant that your standards are upheld, and make changes as needed. It doesn’t hurt to get an outside, objective opinion from time to time as a gut check whether it is a consultant or mystery shopper

Don’t know where to begin?  4Q Consulting can develop customized business and operational guidelines to help you start and run your business.  Email us today for a free business consultation at www.4qconsult.com.

All original content copyright Noelle E. Ifshin, 2014-2015.