Five key steps to take to have an effective handle on your restaurant's economic model
Budgeting is a crucial part of running a business. It’s not something you do only when you create your business plan, but an ongoing process that you monitor in order to keep your restaurant profitable. Reviewing your budget on a regular basis helps you keep track of your finances and achieve success.
Although, most of of get anxious or confused when we have to think about numbers, the process doesn’t have to be difficult and complicated. Monitoring your cash flow and managing your restaurant budget can be easily done with the right tools. Here are five helpful tips:
Track your numbers
Tracking your numbers may seem like a tedious task. But with the modern technology, you can have it all automated. An effective POS system can significantly help you track your weekly prime cost. Your restaurant’s prime cost is the ratio between your sales and cost. It’s one of the most important numbers to track. Ideally, you want to achieve a 60% prime cost. This means that your gross margin is 40%. If your fixed and variable costs get in the way of growing your business, you can consider getting a loan, but here are some more ways to track your numbers:
- Use an accounting software
An accounting software helps you manage your books and records, as well as your inventory and transactions quickly and accurately. If you have a POS system with inventory management capability that tracks all your inventory and purchases, you can simply sync your data with your accounting software and the rest will be taken care of. What’s left for you to do is analyze the reports. This tool also allows you to keep track of your restaurant’s expenses.
- Hire an accountant
Your accountant has a very important role to play in ensuring that your current budget is still applicable and if you are able to stick to it. Bookkeeping is a complex and time-consuming process. It will save you time and energy if you can outsource it to a professional. Choose an accountant who specializes in the restaurant business. This person should also be able to help you in other areas like business projections, payroll management, and even provide you financial advice.
Define your accounting period
Most restaurant chains follow a four-week accounting period for a number of reasons. Counting inventory is usually done once a month, it complements the need to do a weekly report of the prime cost, reduces the need to accrue payroll and allows for better comparability of your numbers. A month can have a maximum of five Mondays or Tuesdays while a four-week cycle can only have four. Consistency with your records makes comparing your current numbers with the previous easier and more meaningful.
Set budget targets
It’s hard to determine where you’re going or what success is for your business without setting realistic budget targets. If you’ve been running your business for a few years already, you should review your budget at least once a year. By creating a target budget, you get to allocate funds wisely. Understanding what your budget is and your needs are if you want to expand your business, can determine if you need more capital.
Below are the key areas that your budget should include:
- Sales – Many restaurant owners prefer to add 5-10% on the previous year’s revenue targets and from there, start to look at where the can reduce cost and improve on profits.
- Expenses –You have to properly keep track of your expenses, which can be done through organized inventory management. If you accurately record your expenses from previous years, you can use it as basis for determining your future costs. Your expenses should include your food and beverage costs, alcohol costs, payroll costs, rent or mortgage, and miscellaneous expenses from the previous year.
Compare your sales and your cost
Knowing the financial condition of your restaurant business can be as simple as comparing your monthly costs with your monthly sales. Of course, if your expenses are higher than your sales, it tells you that you have to make some changes with how you operate your business.
Don’t forget about your weekly operational budget
Lastly, remember that budgets can take in any form. In addition to setting up your yearly financial budget, you also want to work on your operational budget. While it is important to have a high-level view of your restaurant’s financial path to be able to strategize for the future, an operating budget helps you easily manage and control your everyday expenses, which has a significant role on your revenues.
about the author:
Lidia Staron is a part of Content and Marketing team at Open Cash Advance. She contributes articles about the role of finance in the strategic-planning and decision-making process.