Profit is in the DETAIL!

The Profit is in the Detail – The Cornerstones of a profitable Restaurant

Well too often we will see owners and managers look at the numbers in their restaurant with rose colored glasses. Not paying attention to the true value of their food cost and labor; instead they are looking at variations of that information.  There are large differences between food usage and purchases and the gap between the two. What is an acceptable variance and how can you trouble shoot costly issues?

Food Usage and Units per 1K in sales (UPK)

Do you know how much of each of your products you are using per $1000.00 in sales? If you don’t it’s not hard to figure out, but depending on the system you have for your point of sale (register if old school) you might have some work to do. But in the long run it will pay off dramatically.  I highly suggest reach out to us at our website www.bluerockconsultants.net if the information below on UPKs seems foreign to you.

How to calculate your UPK?

(Inventory Usage / by sales) x $1000

Inventory Usage is Starting Inventory + Purchases – Ending Inventory

The UPK is a great tool to help you audit inventory from week to week as well as placing truck orders. If you are aware of how much you use per $1000 in sales, you can adjust for slower or busier weeks that will be affected by holidays and large events.  The main reason to utilize UPKs is to ensure when auditing inventory usage, it gives you a way to compare apples to apples regardless of sales.  For example, if your usage per thousand of fries is 15-16lbs then regardless of overall sales you can see where your inventory should be. If you have a week where your usage increased to 25lbs and there are no large orders or specials to account for it you can audit and be certain either you were shorted from your truck, there was a theft issue or there is a large waste issue.

Being aware of what your usage counts are per thousand dollars allows you to better understand trends and better trouble shoot cost issues.  If you go through and have the UPKs for your entire inventory (at least your top 50% cost items) you can adjust based on projected sales.  Are you going into a slower week that usually sees a 20% dip in sales or an event that increases sales by 20%?  Having your UPKs allows you to control the inventory ordered in either direction with information and not an educated guess.

Food Purchases versus Usage

Now that you know what your usage is you can calculate the total dollar amount of what you are ordering by item, category and total.  Its great if your usage cost is controlled, but too often we see locations with high purchase costs that don’t match the usage.  What good is running a 25% usage cost for four weeks straight if your purchase cost is 30%? That means you are wasting 5% of your product each week at the cost of your bottom line/profits.

That is why knowing what your UPKs are allows you to compare what you are spending versus what you are using and trouble shoot.  Knowing that you have a discrepancy in beef patties (burgers) versus “you are spending too much” allows you to audit and coach the issue at hand.  Knowing where to look, helps us manage the situation and find the root cause of the issue, minimizing the overall headache of the food cost issue.

By calculating usage, you can compare like items; what are your beverage costs versus your beverage usages? If you are spending $1,500 in beverages a week and only using $1,000 where is the extra $500 going each week?  If you simply know or feel that you are spending too much without the data at hand it becomes hard to trouble shoot the issue.

Labor – Where are you wasting it, and where do you need it?

One of the hardest parts of labor in the service industry is that fact that you need to invest your labor into your business effectively.  We understand that you cannot run extremely high labor hoping to increase sales through operations because labor needs to be controlled. But you can take the time to increase the labor on strategic shifts that have the most potential to grow and work from there as you invest labor.   Finding an effective way to invest labor in your business until it takes affect and then reinvesting it into a different area is how you can control costs, increase operations and increase profits in a controlled manner.

If you are inconsistently getting hit on Thursdays for lunch and Fridays for dinner, taking the time to carry extra labor on those shifts until it becomes consistent is a great way to invest back into your company.  Blindly increasing your labor on all shifts may be a good idea (in fantasy), but it will lead to frustration and profit declines very quickly.  Controlling the investment to the two shifts that have the most promise allows you to maximize your investment.  Once the investment starts to level off and the labor lowers (from you increasing it) you can reinvest it into the next two shifts that show promise.

Increasing profits

Increasing your profits is about maximizing operations overall while efficiently investing back into your business for the best return on investment.  Throwing money at the problem will only get you so far; controlling costs and challenging your team to improve will allow you to grow your brand, profits and operations.  A great tool (to be revisited later) is tying your managers to the bottom line with a bonus program.  If your managers have metrics they have to meet (labor, food cost issues, etc.) and are tied to the profitability of the store it challenges them to maximize the stores profits.  It becomes more than a job and a way of life that can improve their income on a daily basis with immediate pay off and not a hope for a raise down the road.

Remember when you are looking to grow your brand/restaurant you need to make sure you are inspecting what you expect.  If you aren’t measuring it, how can you expect to audit it and control it?  Being able to have the proper information to audit and control allows you to manage the bottom line of your company more effectively.

If all of these items give you a headache, or you don’t know where to start, reach out to our team today at our website and set up a phone consultation to see where and how we can help you master the art of restaurant cost control.

Solutions for your Restaurant - Maximizing your investments
Solutions for your Restaurant – Maximizing your investments

Quit Repeating Mistakes

Last summer I wrote a piece on LinkedIn about the problems we often see in bars/full scale restaurants.  Over the past couple of months we have seen the same problems coming up over and over regardless of size, location or experience.  When looking into owning a restaurant, of if you currently do and you are trying to figure out where the issues are, start with these four items.

  1. Lack of Inventory Control
  2. Not tracking Tabs for Owner or Friends
  3. Under paying staff (Low labor rarely reaps rewards)
  4. Lack of systematic Operations (written down procedures)

For today’s exercise we will focus on the simple items above and how they can be fixed at an affordable cost.  When it comes to Lack of Inventory Control, it can be as simple as weighing bottles every night/shift of premiums and all inventory weekly and tracking food items.  Many times I see restaurants not following simple inventory control because they feel they can “trust” their employees or they don’t realize how much they can be losing.  Another big issue we see with smaller businesses (even franchises) is not following recipes, or even having them.

 

How many ounces of cheese goes on a salad, how many ounce of chicken?  Often times they’ll say 1 breast or a half; the problem lies in the lack of consistency in the product used and cooked.  Yes it takes time to work through these items the first time around, but they can save a company thousands of dollars a year (sometimes a month depending on the volume).

Not tracking tabs for owners/friends is an easy one that we see everywhere.  The reason this is important is to understand what you are taking out of the business and what its costing you to do so.  If you think your bartender is over pouring because of inventory issues but your allowing your friends to drink for free it sends the wrong message.  Not to mention, you wouldn’t allow them to come into your kitchen every day and eat for free, so why is it ok at your business?

 

Very rarely when we enact these simple tracking items do owners not slow down on their own intake as well as what they give away.  We teach them to exchange services with their friends.  If they want that free beer, have them bring in a work meeting or friends for dinner to help grow your sales.  If your friend gets mad they can’t stay on the free ride train, they aren’t your real friend anyways.

One of the largest and most common issue I see is underpaying staff (even wait staff).  If you want to keep your best servers we have programs that we implement to ensure the best stay working for you and happy (reach out to us).  Remember a happy staff is a motivated staff (this doesn’t mean we don’t coach, write up and fire).  If you are supporting your staff and creating incentives for them they are tied to the business and your success; this drives sales and bottom line profit.

 

“If doing the same thing over and over expecting a different result is the definition of insanity, then how do you expect to succeed doing the same items everyone else is doing – With minimal to Zero success.”

No real System in place is seen everywhere I look, even some of the best franchises lack in a complete system to hold staff, managers and owners accountable.  This is one of our specialties; if you’re looking for the edge to maximize your success it’s time to reach out!  If you don’t have a schedule for cleaning your equipment, auditing your paperwork or a handbook to hold staff accountable you are adding work and losing time to your day.  When you have to come up with things on the fly, fix problems because there is no guideline you waste energy, time and ultimately money.  When you lack systemized operations you ultimately diminish the profits your ability to be successful.

Don’t let these four things limit your ability to succeed.  Though they may take time and energy to put in place long term they will save you time, energy and money. When a manager has to make and enforce decisions without the backing of rules and system in personalizes the decision to the employees they are managing. This leads to issues that add to a manager’s ability to operate properly; the company should set up its leaders to succeed by removing obstacles, not adding them to the daily routine.

 

Capital Investment & your Restaurant

Is a capital investment (like Credibly.com) enough to help your restaurant or small business grow, survive a rough patch or simply solidify your company?  Ensuring you utilize the right company for a great rate is just the beginning, what you do with the capital and how you ensure its maximized for your growth potential is paramount (When and where to invest your capital investment).  In this instance we will utilize the restaurant industry to solidify the uses of a capital injection into your company and how to maximize it.  What are the three most effective ways to maximize the capital you need in your restaurant?

 

Consolidating debt / Strengthening cash holdings

This may be the most practical use of an equity investment, working if supported with proper operations, systems and a well-kept building.  If your business is losing revenue from poor operations and repairing out dated equipment, then you will waste the capital inestment over time fixing the issues that got you there in the first place.  Imagine putting water into a cup with a small hole, eventually the water is going to escape no matter how much you put in there or how often; you must fix the hole first.

Lowering operational costs, increasing profitability and paying down debt works in your favor short and long term. If you pay down debt with poor operations your debt will repeat causing your equity investment to be merely a delay, not a solution.

Replacing/upgrading old equipment

When utilizing a capital investment, restructuring debt or taking a loan to reinvest you must ensure that you have the right variables taken care of to ensure your investment is protected. For example if you remodel your kitchen and all the equipment but not the old and outdated hood system designed to remove the heat, smoke and grease you will not operate properly. Knowing the chain of events and how your equipment works together and affects your operations is key to understanding the equity injection and where you wish to use it.

Remodeling your restaurants environment

Though a remodel may be needed, understanding the return on investment and the threshold to which your investment to return ratio diminishes needs to be evaluated.  Understanding the value of a remodled dining area, new TVs (sports bar) or outside image all play a role.  If your kitchen and operations cannot keep up with the new customers your remodle will bring in then you will spend time, energy and money creating a negative reputation instead of growing sales.  There is a point of diminished returns when remodeling versus new build that has to be taken into account.

Where does this leave you?

With traditional loans available, alternative financing (Flexibility in Alternative Financing is key) and your own current state of affairs to be considered it takes the proper evaluation to ensure the course to be set, organized and laid out for your company’s success.  Before you look to utilize a capital investment to bolster your restaurant or small business take the time to evaluate the costs involved, the state of your company and the threshold to maximize your rate of return.  Utilizing Blue Rock’s Range (Company) programs works alongside your company to maximize profitability and longevity.