It’s a statement that’s thrown around, but unfortunately, it’s true: most (or definitely many) startups fail. And when it comes to the rough and tumble of the highly competitive and even more demanding world of hospitality, the stats are even direr.
Whether the pile of failures stands at 50%, 70% or 90% is the subject of much debate, but what’s undeniable is that restaurant owners and managers need to be on red alert to make sure they’re in the happy minority that survives and thrives.
If you surveyed those whose hospitality establishments didn’t make it, you might get a veritable menu of reasons why. The location was bad. The staff didn’t work hard enough. The food and the service didn’t cut the mustard. The marketing fell short.
But as always, the truth can often be obscured by the nose on your face. Too many restaurant managers simply don’t run their businesses well… as businesses.
That’s right: you may be putting delicious meals on plates and have a passion for the restaurant business, but if the numbers don’t stack up, you’re not going to have those doors open for long.
So here are the 6 ‘must knows’ for every number-crunching restaurant manager:
- Be passionate… about profits
It’s not enough to love serving great food to people — you actually need to be passionate about running a profitable business that will serve great food to people.
They may seem like one and the same, but they’re really not. That’s because it’s one thing to be passionate about food and restaurants, and quite another to be motivated to run that business really well.
So even if you know the food business well, ask yourself this question: Could you successfully run a business that sells paper clips? If not, you have some thinking to do before entering the piranha-infested waters of the food trade.
- Know Your Numbers
As suggested above, it’s not enough to love the food business — you need to love business as well. That’s because how those worlds of food and business coincide is complex — and a solid grasp of the numbers is the key that unlocks success.
For instance, as you design the perfect menu, you should also be getting your head around the economic and industry trends that could be make or break for your establishment. Knowing that restaurant price increases track closely with the Consumer Price Index, for example, affects the markup you can get away with.
So no matter the quality of your entree and dessert, skipping the details when it comes to the numbers can be the difference between success and failure.
- Make a Business Plan
Failing to plan is planning to fail. It sounds like a cute mantra, but it’s absolutely true for restaurants — in part because of the sheer numbers of passionate foodies who are absolutely convinced that their establishment will be the most delicious destination in town.
Unfortunately, it is these people who can be hit the hardest by the harsh realities of getting into the restaurant business — such as the big upfront and ongoing costs.
Food costs fluctuate, a huge number of overheads keep hitting you, and the speed of restaurant life can make retrospective or ‘panic’ planning more and more difficult.
The only antidote is a paper business plan, outlining costs, budgets and sales — and a solid structure that you can then perfect on the fly.
- Get the Structure Right
With a detailed business plan in motion, setting up the right business structure for your restaurant is a whole lot easier.
Yes, you’re putting meals on plates, but that doesn’t mean your restaurant isn’t a complex business whose organisational dominoes have to all be well aligned.
Your business structure — sole trader, partnership, company or trust — determines crucial factors such as liability, tax, control and legal compliance. Then there’s business and name registration, trademarks, and the obtaining and maintenance of licenses. That’s not to mention all the regulations, qualifications and permits to take care of, or the thorny world of tax.
- Crunch the Numbers Well
As we’ve been hinting at, running a restaurant is pretty much 20% food, and 80% business.
So leave the garnish on the main meals for a little later and focus for a while on restaurant profit and losses, smart hospitality accounting, and that business magic wand — cash flow.
It’s the basics of restaurant accounting that will be the bedrock of your successful business. And profit & loss statements are like a stethoscope, monitoring the heart of your revenue and expenses.
But they do even more than that. They break down your prime costs versus your variable costs. They crunch through the numbers to give you a gross margin figure — which is a prime indicator of how efficient your restaurant is. And they lead all the way down to that net profit — and hopefully a chunk of positive cash flow that means all the bills are paid and you have some left over for play or re-investment.
- Get the Right Support
To do all that number-crunching well, you need good number crunchers. And as committed as you are to running a healthy business both in the kitchen, the dining room and the office, you may not be best equipped to handle the calculator yourself.
So if you’re going to delegate a task, trust us: delegate your restaurant bookkeeping. It might cost you a bit, but it could save you a whole lot more — including the survival of your very business itself.
Many restaurants find that outsourcing their accountancy functions is actually a better option than getting someone in-house. Because instead of having someone stuck in the tiny back office with a calculator, you’re buying into a specialist accounting structure that is constantly updating its skills, knowledge, technology and equipment — while you’re focusing on what you do best.
The Final Word: Never Forget Your Numbers
Too many restaurant managers put huge amounts of effort into creating the perfect menu, ambiance, staff and service — and good on them! But they should never forget that turning a profit should always be priority number one.
Some restaurants fail because their location and food are bad, but others fail because of basic bookkeeping errors and cash flow problems. So keep a keen eye on those all-important numbers, dive deep into the world of restaurant accounting so you always know your stuff… and bon appetit!