The Right Way to Cut Costs and Increase Cash Flow

By David Scott Peters

www.therestaurantexpert.com

Operating a restaurant has not changed much fundamentally over the past 50 years, but running a profitable restaurant has.

Why is that? There are many factors that have contributed to this, such as the price of product rising to record levels, high workers’ compensation insurance rates, rising liability insurance rates, new minimum wage laws, skyrocketing rents — the list goes on and on and on.

So what is a restaurant owner to do? How can you continue to operate profitably when every expense seems to be doing nothing but going up?

The first thing you must do is have the proper mental approach to this challenge and that is: “have a top-line mentality with a bottom-line efficiency.”

You have to work on increasing sales work and on decreasing your costs at all times.

If increasing sales is your only focus, you might fill your restaurant and do record sales, but you’re probably losing money faster than it’s coming in the door because your restaurant operates inefficiently.

If cutting costs is your only focus, you can literally cut yourself out of business because you start buying cheaper ingredients, start cutting labor and can’t provide your guests with great service. You can create a situation where you have an impressive profit margin of 25 percent or more, but if you have very few customers actually dining in your restaurant, there still isn’t enough money to pay your bills.

This is why you MUST focus your efforts on increasing sales and decreasing costs at the same time. And one does not come before the other.

I want to help you focus on the bottom-line efficiency.

To get started, the first thing you need to do is grab your profit and loss (P&L) statement. This is your report card on how you’re doing as an operator. It’s also your crystal ball when it comes to making more money! (For the focus of this article we are strictly going to look at expenses.)

Every restaurant owner knows that you can have your greatest impact on your restaurant’s profitability if you first attack your prime cost, or what I like to call your controllable expenses. These are expenses in the direct control of management on a daily basis: cost of goods sold and labor cost. Who you hire, how you train, schedule, buy, prep, serve, etc., has everything to do with how these numbers fall in line.

While every restaurant is looking for the proverbial home run when it comes to reducing the cost of running their restaurant, such as reducing food cost or labor cost by 1 – 5 points, the truth is that it’s a combination of the little victories that add up to winning the war.

Go down your general and administrative expenses on your P&L. Look at every line item and ask yourself, “how can I reduce this expense without compromising my restaurant operation?”

Here are just a few line items and ideas to get you started:

  • Garbage collection: Is your kitchen breaking down every box before they throw them away in the dumpster or utilizing a recycle bin, if available. Maximize how much garbage you can fit inside your dumpster and reduce the number of pickups your restaurant requires.

Do you use a lot of fry oil in your restaurant? If so, keeping the above in mind, you may want to look into installing a bulk oil system. This will not only reduce your dumpster fees because you’re no longer filling it with fry oil boxes, it can reduce your risk of injury due to removing old fry oil, ultimately reducing your workers’ compensation expense.

  • Linens: All too often restaurant owners are getting proverbially “screwed” by their linen company. Make sure you read your contract. Are they counting linens or just charging what they think you use and lose? Often getting bids from other linen companies can drive your contract price down.

Lock up all of your linens in a storage locker. At the beginning of each shift issue each line cook a dry and a wet rag, apron or chef coat. Don’t allow them to just take what they think they need. You’re getting charged through the nose for each rag they grab.

Are you using tablecloths in your restaurant? I had a member save almost $40,000 a year when she decided to spend $8,000 on new table tops and get rid of table cloths.

  • Credit Card Expenses: Credit card companies give their customers neat benefits to use their cards, such as airline miles or cash back. Do you know who pays for those benefits? You, the merchant, pay. Do your best to get a handle on these extra fees that are impossible to reconcile. Look at your credit card processor to make sure you’re getting the best deal possible.
  • Paper Products: Here’s an expense that just keeps going up. All that Styrofoam is made with petroleum and as it goes up so do our prices. On top of that, we spend all of this time monitoring our proteins and vegetables from our distributors and barely look at paper products. And the distributor knows that. This is one of their greatest profit centers. While you’re keeping them honest on food, they’re sticking it to you on paper, chemicals and cleaning supplies.

Work with your distributor for the best paper products for your restaurant at the best prices. They often have their own paper programs that can help you reduce your paper cost by more than 40 percent!

If you’re using logo napkins, you can reduce your costs by giving customers plain napkins when they request more. You’ve already done the branding thing, why give them the most expensive ones if they’re just going to dirty them up with wing sauce?

Keep in mind that every time you find a way to save a little money every month, you’re on your way to making a lot of money. Think about it. If you save $100 a month getting on a paper program, $150 a month by switching credit card processors, $25 a month by reducing the number of garbage pickups and $100 a month by controlling your linen usage, you’re making an extra $4,500 a year. And in a business where the average restaurant makes a nickel on every dollar in sales, every penny counts!

David Scott Peters TheRestaurantExpert (1)David Scott Peters is a restaurant expert, speaker, coach and trainer for independent restaurant owners. He is the developer of SMART Systems Pro, an online restaurant management software program helping the independent restaurant owner remain competitive and profitable in an industry boxed in by the big chain restaurants. He is best known as the SMART Systems guy who can walk into any restaurant and find $10,000 in undiscovered cash before he hits the back door… Guaranteed! Learn more at www.therestaurantexpert.com/rdspos.

Get Ready for Next Year

Don’t overlook the exercise of planning

By David Scott Peters

www.therestaurantexpert.com

Like any restaurant, as our business grows and we bring on people to help us make it successful, it becomes vitally important that everyone know what their roles are, what the company’s priorities and goals are, and who is responsible for getting each of them done.

To accomplish all of this, where do you start? To help you with this process, let me share with you what we did when we were growing:

  • Gather your key team members.

Gather your partners, spouse and managers (really anyone who has anything to do with the successful implementation of your plans). Meet away from your business, cell phones off. (We met for two days.)

  • With an easel and a flip pad, start brainstorming.

Start writing down all of the projects and priorities you want to accomplish as a team next year. No project is too small or large to be listed. If you don’t put it on paper nobody around you will ever know what’s in your head.

  • Define each team member’s roles in the company.

While job descriptions are a must, the reality is that good people do more than the minimal requirements on their job description. Businesses grow and change, and people need to adapt. This is your opportunity to make it crystal clear to your team what you see as their roles and that what they do is critical to your company’s success.

  • Prioritize and assign.

Now go back to your lists of projects, tasks and goals and start to look at who will be assigned each of them based on how their roles have been defined. At the top of a page, start three columns, one for their name, two for the project they are assigned and three where you assign its priority. Then look at your list again. Start adding each project that has a Level 1 priority, then Level 2 and so on until all of them for that person have been crossed out. Then move on and do the same thing for the rest of your team.

  • Type and distribute.

Your last step is to take those large pages and type them up. Distribute them to each team member to use as their roles, goals and responsibilities. Since they have all been laid out in black and white and they have been prioritized, ask each of your team members to start working on a step-by-step plan on how they’re going to accomplish these projects and by when.

This exercise was invaluable to me and my team. It opened my eyes to the fact that there’s a lot to accomplish and that I have a team of excellent people who can get it done.

Now, don’t just stop there! You have two more steps to take.

  • Start working on next year’s budget and sales forecasts. Without these numbers as your guide, running a profitable restaurant is extremely difficult (if not impossible). Look for my articles “Gearing Up” and “Gearing Down” on the blog for details.
  • Start a marketing calendar. I probably don’t need to remind you what my philosophy on running a profitable restaurant is, but I will. You must have a top-line mentality with a bottom-line efficiency. That means you must work on increasing your sales, assuming your restaurant has all of the basics down, such as hot food hot, cold food cold, clean restrooms, etc. It also means that you must operate as efficiently as possible, squeezing every penny of profit you can from every dollar you ring up. The costs of doing business are doing nothing but going up and this is the only way you can ensure you make money in this highly competitive business.

Marketing requires a plan with goals, budgets and a step-by-step guide. Marketing from the hip and on the fly rarely works and often loses you money. So take the time to plot out each marketing idea you have, what it will cost, what you think it will bring in and put it to paper with dates and deadlines.

Getting ready for next year starts now! Gather your team, define roles, assign tasks, forecast sales, develop your budget and put together your marketing plan. Following these simple steps will put you down the path of success and profitability.

David Scott Peters TheRestaurantExpert (1)David Scott Peters is a restaurant expert, speaker, coach and trainer for independent restaurant owners. He is the developer of SMART Systems Pro, an online restaurant management software program helping the independent restaurant owner remain competitive and profitable in an industry boxed in by the big chain restaurants. He is best known as the SMART Systems guy who can walk into any restaurant and find $10,000 in undiscovered cash before he hits the back door… Guaranteed! Learn more at www.therestaurantexpert.com/rdspos.

Stop the Drama

Communicate and train to make more money

By David Scott Peters

www.therestaurantexpert.com

Running a restaurant can often feel like you are in high school. Remember all the social drama that went along with being a teenager and trying to navigate friendships, along with trying to figure out what you want to do with your life?

In high school there is a lot of talking behind people’s backs, spreading rumors and trashing people for no reason. We learn all about reputation management in high school when we have to go around educating everyone about what is and isn’t true about us, repairing relationships that fall victim to false information and misunderstandings.

If only you’d had an opportunity to communicate truths and facts before rumors were started. Too bad high school didn’t come with daily pre-school addresses.

You know, like a pre-shift meeting in your restaurant?

So often I see restaurant employees — no matter their age, cultural background or education level — punch in at the clock and leave their logical brain at the door, just like in high school. They start chatter and rumors on partial information or just plain make things up. They talk behind fellow employees’ and managements’ backs.

Management often has to spend hours trying to dispel false information and rumors and repair employee relationships.

What’s silly about this is a lot of this wasted time could be prevented if management held a daily pre-shift meeting. One of the most basic ways to ensure positive communication is happening in your restaurant on a daily basis, to keep everyone informed, to reduce the rumor mill and to make sure everyone knows what you expect regarding performance is to conduct a daily pre-shift meeting.

Also similar to high school, many restaurant employees still don’t know what they want to be when they grow up. They are working in your restaurant only UNTIL they get their big break in acting, UNTIL they get their real estate license, UNTIL they get their teaching certificate, UNTIL they finish school… you get the picture. A large portion of restaurant teams have a short-term mentality, even if you and I both know most will probably never get to their next career choice. Many are career line employees, who have no drive or ambition to change where they are in life, dreaming of change rather than taking the appropriate actions to create change. This presents its own unique challenge to management, because they are trying to motivate a population that does not see the restaurant and its goals the same way management does.

This doesn’t make your employees bad people, nor does it make them losers. In fact, they are all winners who need direction from management, a work environment that is safe and positive and most importantly, they need you to clearly communicate what you need them to do, how you want it done, how well you want it done, how well they are doing and on everything that is going on in the restaurant appropriate to their level of responsibility.

And yes, you guessed it. All of this can be accomplished with a daily pre-shift!

A daily pre-shift meeting is your opportunity to communicate with your employees. Just take a look at some of the benefits:

  • Creating a positive work environment – a pre-shift ensures that your management team MUST communicate every day with your staff. This teaches management the direct relationship between constant communication and happy employees. Employees in the know are less likely to make things up, spread rumors, be unhappy or present a behavior problem. And management that communicates leads.
  • Happy customers – pre-shift meetings are your opportunity to train your employees every day, and we all know that training is imperative to your restaurant’s success. Management will train line employees on daily specials, how to up-sell at the table, product knowledge, events, coupons and promotions, events, etc. Training your employees on a daily basis ensures your guests have the best experience possible every time they dine with you.
  • Make more money – when you train daily, when management creates a positive work environment, and your customers are happy… your sales increase and you make more money!

What should you cover in a daily pre-shift meeting?

Create shift meeting notes, which serve as your blueprint to a successful pre-shift meeting. Your notes are really an educational or communications tool. They communicate the following and more:

  • Features of the day, including additional notes regarding the features
  • Any promotions you have running
  • Any contests or incentives you are running
  • Policy changes or planned enforcement
  • What the daily side work or sanitation duties are and who they will be assigned to
  • Tips of the day, from up-selling and menu knowledge, service tips to cooking skills and people skills to self-help

Tips for using shift meeting notes

  • Spice it up – no matter what you plan on communicating, you should make if fun and interesting.
  • Remember it’s a legal document – you should keep all pre-shift meeting notes in a binder so that if and when you are in a labor board hearing you have proof that you had a policy in place.
  • Represent you – make sure your managers know that this is not a place to doodle or place personal commentary. Rather this is a training document and must be treated as such.
  • 15 minutes – conduct the pre-shift meeting 15 minutes before the shift starts. Require your staff to come dressed and ready. That does not mean wet hair, brush in hand and uniform slung over the arm.
  • Treat the team as equals – all too often, management only runs a pre-shift meeting for the front-of-house employees. No matter your reasoning for not including those in the back of the house, you are setting yourself up for creating the “us-versus-them” mentality. You are basically telling your back-of-house employees they are not important. If you have to, run a second pre-shift in the kitchen. They need to be communicated with, too, you know.
  • Post it – some restaurants have staggered starts for each department to save on labor costs. That means that there might not be a time for all the staff to huddle up for a meeting. The answer is to write up your notes and post them. Then require each employee to read the notes and initial that they have done so.
  • Keep ‘em – keep your notes, especially after they have been posted and initialed. Remember, this could be used in a labor hearing or dispel the old, “I didn’t know” excuse.
  • Repetition is a good thing – whenever you are introducing a new menu item, a new policy, etc., you will want to make sure it is covered every shift every day for at least a week. This will ensure that every employee has heard the message at least once if they are part-time and that you have been crystal clear with everyone else.

Embrace the benefits

If you like chaos in your operation and babysitting a group of high school students, no matter where they are in their life, don’t change a thing. But if you are like me, and are frustrated by the petty little games that poorly informed employees play, then start communicating right away and every day by conducting pre-shift meetings. Start organized by using the Shift Meeting Notes template.

Not only will your restaurant run better, you will increase your sales and make more money as a by-product. Don’t wait another minute. Log into the Member site, print off the Shift Meeting Notes form and start using it. It doesn’t get much easier than that.

David Scott Peters TheRestaurantExpert (1)David Scott Peters is a restaurant expert, speaker, coach and trainer for independent restaurant owners. He is the developer of SMART Systems Pro, an online restaurant management software program helping the independent restaurant owner remain competitive and profitable in an industry boxed in by the big chain restaurants. He is best known as the SMART Systems guy who can walk into any restaurant and find $10,000 in undiscovered cash before he hits the back door… Guaranteed! Learn more at www.therestaurantexpert.com/rdspos.

When the Words “Good Enough”, “Fine” and “OK” Are Bad

By David Scott Peters

www.therestaurantexpert.com

Every quarter I travel to an Elite Member’s restaurant for our quarterly meeting. (As a group we rotate our meeting location to be able to tour a member’s restaurant(s).)

These Mastermind Meetings are incredible and do so much for everyone who attends. There are not many opportunities for restaurant owners to be in a room with 20 other positive minded restaurant owners who are willing to share their challenges, triumphs and opportunities with each other. I often feel blessed that they allow me to be in their group.

While I always come to these quarterly meetings with something I want to share, teach and enlighten members with, the majority of the meeting is members going around the table sharing a challenge or two they have been working on and want the group’s input. Time and time again, this exercise is worth its weight in gold.

During a recent meeting while we were going around the table I noticed that there was a theme emerging. Members were describing challenges of a young manager who was doing “fine,” sales volumes that were “OK,” references to managers and employees who were doing “good enough,” and then of course the fresh images of my walk-through the day before.

This got my juices flowing, and then I started in on one of my famous passionate David Scott Peters’ monologues delivered with all the excitement I could muster (sometimes you’d think I was delivering a soliloquy from Shakespeare’s Hamlet). Let me do my best to summarize the two main points I was making:

  • As restaurant owners we need to “raise the bar.” When you walk through your restaurants, you need to have a customer’s eye. Everything we do needs to keep the customer in mind. How clean we keep our restaurant, the service we deliver, the product we deliver and ultimately remembering that we don’t just sell food and/or drink… we sell an experience.

When it comes to our management team, we need to set the bar high enough that they have to reach to ultimately achieve your customers’ expectations, your expectations of excellence and you and your investors’ financial expectations.

Your job is at every turn to take the time to communicate, correct and enlighten your management team of your high expectations so that they can succeed.

My mother, whom I consider one the greatest restaurant managers I have ever known and who is extremely detail oriented, worked for someone even more detail oriented. Nancy was the vice-president of food and beverage at the Show Boat Hotel and Casino in Atlantic City, N.J., years ago. Nancy could make my experienced and seen-it-all-mother look like a rookie.

When Nancy saw that the buffet line had literally just ran out of spoons, she would ride my mother about it, explaining that spoons shouldn’t be allowed to run out. She would ride my mother until it was in everyone’s heads that as soon as that basket of spoons was half full, they were to fill it up, “no questions asked.” When that was fixed, Nancy would then find another point of customer contact that needed to be perfected and the process would begin again.

It may seem small, but Nancy, and ultimately my mother, did not accept anything other than excellence, and I suggest the same thing to my members and to you.

  • There is no such thing as “good enough.” The ideal of good enough in the restaurant business is exactly why independent restaurants are taking such a beating. This phrase alone breeds mediocrity.

If you find yourself saying that your staff and management team are doing their jobs in a way that requires the use of the word “fine,” I would say that you are failing to execute the very basics as a restaurant operator. I’ll put money on the fact that you are leaving profits and sales on the table and probably losing money.

Look at it this way… who wants to spend thousands of marketing dollars to shoot from the rooftops to drive customers in by the bus load with this message: “Our service is OK. Our food is fine. Our cleanliness and ambiance is adequate. Come dine with us where your experience is forgettable.”

If you haven’t set the bar high enough, isn’t that what you are ultimately doing?

Taking action

The key to raising the bar is to take action. Taking action starts by clearly defining what excellence means to you and your operations. It means you have to put those expectations into action by communicating them on a daily basis and implementing systems to ensure that those expectations are met with or without you there.

Start the process

My goal in life is to help the independent restaurant operator not just survive, but to thrive, in the sea of chain restaurants out there. In order to do that, my job is to get you thinking of success in new terms, to motivate you to take action and ultimately to get you to raise that bar.

Do us both a favor, treat the words “Good Enough”, “Fine” and “OK” as if they were words you wouldn’t want your kids to use, even after they have heard them on the playground. They are unacceptable, BAD WORDS!

David Scott Peters TheRestaurantExpert (1)David Scott Peters is a restaurant expert, speaker, coach and trainer for independent restaurant owners. He is the developer of SMART Systems Pro, an online restaurant management software program helping the independent restaurant owner remain competitive and profitable in an industry boxed in by the big chain restaurants. He is best known as the SMART Systems guy who can walk into any restaurant and find $10,000 in undiscovered cash before he hits the back door… Guaranteed! Learn more at www.therestaurantexpert.com/rdspos.