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 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.

By David Scott Peters

www.therestaurantexpert.com

Your back door is where you do a very important segment of your business – it’s where you order and receive your product. And it’s where restaurant bleed cash.

To fix this, I stress the importance of having systems in place to make your life easier and make you a lot more money. Here’s a step-by-step system that will help you do both of those things.

1)       Plan where deliveries are to be accepted. If you have the room, the best place to check deliveries in is in the walk-in cooler.

2)       Work with your purveyors in advance to set up receiving time. Bring your orders in when you have trained staff to check them in (see step four) and during slower times.

3)       Limit your delivery driver’s access to only delivery areas.

4)       Have either management or a trained key employee receive orders.

5)       When checking in your delivery, follow these steps:

1. Check invoices for accuracy against your PO (hung at the back door) for each item, quantity and prices.
2. Check products for quality and condition.
3. Check temperatures of any refrigerated products to make sure they are not out of the safe zone.
4. Weigh products

i.      Have a large scale in your receiving area. (If you don’t have one… go get one!)

ii.      Check it routinely for accuracy.

iii.      Remove products from packaging and/or ice before weighing and compare to the invoice weight.

iv.      If there are any discrepancies or problems with products that have to be returned, have the driver make note on the invoice or fill out a credit memo immediately, before signing the invoice.

v.      Remember that once you sign an invoice, you are responsible for payment as shown on the invoice.

6)       Have stocking procedures in place as follows:

1. Get any refrigerated products into walk-in coolers or freezers immediately.
2. Remove and date any fresh product as may be required by your health code authority.
3. Remove any excess packaging and break down boxes as soon as possible.
4. If you are breaking down all of your boxes, keep the label from each so you have the lot number.
5. Make sure whoever is stocking is trained to use the first in/first out (FIFO) method in stocking.

7)       Have clerical procedures in place as follows:

1. All invoices are verified and signed before a check is written if you are on COD.
2. A copy of the invoice goes to the kitchen manager or chef and a copy goes to whoever is in charge of the checkbook.
3. Immediately update prices in your inventory spreadsheet (or in SMART Systems Pro).

Conclusion

One of my Elite Members shared that implementing these systems for ordering and receiving food reduced the amount of food he has in his three restaurants, motivated his kitchen managers, resulted in cleaner more organized walk-ins and most importantly, it put more than $6,000 back into his bank account.

So what are you waiting for? Follow these simple steps at your back door and start making more money.

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.

By David Scott Peters

www.therestaurantexpert.com

For decades restaurants have been run with one key number in mind to ensure they have a chance of making money. That key number is called prime cost.

What is prime cost?

Prime cost is the grand total of your total cost of goods sold, which includes both food cost and liquor (also known as pour cost), and total labor cost. In order to have an accurate prime cost number, you must be on an accrual accounting system (sign up for a consultation, and I’ll cover accrual accounting with you).

To calculate your actual cost of goods sold accurately, you start with you beginning inventory, add to it your total purchase for that period (in this example, let’s say one month), then subtract your ending inventory. This sum product of this calculation will give you your total cost of goods sold (the total of all product you physically used or left your shelves during that month). You can quickly see that if you don’t follow this formula and show your total purchases as your cost of goods sold that you will NEVER have an accurate number to evaluate your business… and that’s how many businesses go wrong fast.

Now, while total labor cost sounds simple, and it really is, many restaurants still calculate this number wrong. Total labor cost includes not only the total wages your employees have earned for that period (again for this example we will use a month), and this is where most restaurants stop, but is also includes total taxes, benefits and any insurances paid (workers’ compensation and health insurance).

What is the ideal prime cost?

While I am not a trained economist, I am not a certified public accountant and I am not a statistician, what I am is a restaurant expert who works with more than a hundred restaurant owners in all of North America on a daily basis. And what I can tell you is that if your restaurant is doing at least $800,000 or more a year that the prime cost target is 55 percent. The margins are just too tight to go any higher.

How to get to 55 percent

I know what you are thinking: “NO WAY! There is just no way I can achieve that target prime cost and still have anybody on the floor to serve the guests or in the kitchen cooking food, or without reducing the quality of the product I serve.”

The reality is there is a way, and I have members achieving it over and over again.

Prime cost is something I come back to again and again because it’s the magic number. It’s a core component of my teaching. But for the purposes of this blog post, let’s look at some sample labor strategies and systems you can use to get you closer to 55 percent.

1)      Budget Labor: Use our labor allotment system, members have seen a minimum reduction in labor cost of at least 1 percent and many as high as 10 percent. It’s much easier to hit a target when you have one, and it’s that much easier when you’ve spelled out for your managers how much money they have to spend, how many FTEs (full-time equivalents) and how many hours they have to schedule each and every schedule in order to stay within your budgeted targets.

2)      Tracking: Track labor on a daily basis enables management to make small changes on a daily basis to stay on budget.

3)      Training: Implement a training system (we offer one for full-service and one for quick-service as well as for management training) to reduce labor costs due to lower turnover and increased sales due to happy guests.

While the list goes on, these are actionable systems you can implement today and will be on your way to a 55 percent prime cost. What is really incredible is they work for any restaurant, no matter what kind of service or food you serve.

No matter what path you choose… TAKE ACTION! And get your prime cost to 55 percent.

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.