Opening a restaurant is more complicated than creating great dishes and finding a cozy place to serve customers. Experienced chefs who have launched their own establishments know that the skills outside of the kitchen are the key elements of a startup’s success or failure. Nowadays, chefs who want to open their own cafés or bistros must also be savvy business managers who know just as much about cost of goods sold (COGS) and profit and loss (P&L) statements as they know about menu development and plating/presentation. Because the finance side seems to be what gets so many restaurant owners in trouble, this primer will cover those business skills that chefs need if they want to run their own eatery.
P&L Analysis/Management: One of the most vital documents for tracking the finances of a business is the P&L statement. Chefs need to become well versed in analyzing these critical reports to keep an eye on negative (or positive) trends in revenue and operating expenses. An accurate P&L report will provide a lot of necessary information regarding the health of a restaurant, specifically the income generated from food and beverage (F&B) sales, merchandise, and catering as well as expenditures tied to COGS, payroll, and other operating outlays such as rent, taxes, utilities, and supplies. Many industry experts recommend preparing P&L reports each week if possible. This will make it easier to study results over a period of months or years.
Budget Preparation/Allocation: Many promising restaurant owners have found themselves drowning in debt due to their management teams’ inability to stick to a budget. Others fail because they have no budget to begin with. Utilizing a budget to monitor and control expenses is essential because just as the P&L statement provides insight into revenue and costs after the fact, a budget allows for control over funds prior to the beginning of the spending period. Even more important than tracking expenses, a budget allows you to project profits based on customer purchases. By estimating how much revenue and profits your business will produce in a given month, you will be in a far superior position to handle unexpected costs (major kitchen repairs) or promising investments (opening a catering operation or second location). Knowing the amount of profits the restaurant should be producing and analyzing “the numbers” regularly enables you to make adjustments as needed to safeguard the business’s profitability. Without having a budget as a point of reference, your operation could be headed for disaster and you would have no idea. The final reason to create a strict budget to guide your restaurant is accountability. If you are unaware of what each area of the restaurant should be producing/consuming – or you simply trust that the numbers match up – then you have no benchmark when things go awry. Instead of allowing staff carte blanche, a budget sets expectations and provides clear evidence of a manager’s or staff member’s level of performance.
Cost Analysis: Food and labor costs take up 50%–75% of a restaurant’s total sales, and food outlays alone can account for 28%–35%. Obviously, the costs of running a restaurant create a very small margin of error for profitability. In order to keep an operation’s food cost in check, a regular analysis must be performed and all percentages must be calculated accurately to be useful. Once you have identified your food and labor cost figures, these percentages need to be compared to industry averages to gauge the health of the restaurant. You can have the most popular restaurant in your neighborhood, but all of those happy customers won’t mean a thing if your food costs are out of control. At its most basic, food cost is simply the cost of food divided by food sales; however, the method for calculating this critical piece of information is slightly more complicated. The industry standard for capturing this data is covered in the National Restaurant Association’s Uniform System of Accounts for Restaurants handbook, and another helpful resource is Ron Gorodesky and Kate Lange’s article, “Restaurant Accounting: For Profit's Sake, Inventory Your Food Cost!” This piece quickly explains some of the key principles behind food cost calculation, provides some general guidelines, and covers the step-by-step process.
Marketing: The tried and true methods of promoting a restaurant – word-of-mouth marketing, weekly specials, reviews in the local newspaper – simply aren’t enough anymore. With the increase in popularity of review websites such as Yelp, one customer’s opinion (positive or negative) can impact hundreds of would-be diners. You must take control of your marketing strategy, and a great place to start is online. Manage your reputation by encouraging happy customers to post positive reviews, respond appropriately to negative feedback, utilize social media and search engine optimization (SEO), launch an email newsletter to maintain contact with loyal customers and expand your email database, update your restaurant’s website, and take advantage of online reservation tools like OpenTable. Try a variety of avenues and don’t put all of your eggs in one basket. Most marketing specialists recommend a varied approach, but you don’t have to break the bank to reap the benefits of a diverse advertising strategy. Most of the examples above could potentially be performed by an internal team member who is internet-savvy, or you could enlist the assistance of a specialist or marketing company.
Performance Evaluation: The best managers get the most out of their teams and monitor results on an ongoing basis to look for areas of improvement. This means assessing the output of individuals, teams, departments, and the organization as a whole. Just as cost analysis and P&L reports present the business’s performance on key metrics, you must have a strategy for measuring your employees. This doesn’t necessarily mean deploying a rigid system of checklists, performance reports, and weekly meetings between staff members and their supervisors; there are many ways to introduce an evaluation system and you can choose a strategy that fits well with the existing culture of your business. The important thing is that you have some sort of structure in place to track how your employees are doing and keep a record of their improvement (or regression). There are many resources online where you can find sample forms for annual performance appraisals, and you may also consider reaching out to the local chapter of an HR organization to find more information or get advice on how best to install a new evaluation system.
While the above list is far from exhaustive, it provides some of the most essential skills for a chef to have in their arsenal if they wish to open and run a successful restaurant. Tracking the performance of the organization as a whole as well as its different components is critical to monitoring the health of the business. Analyzing expenditures is vital to identifying opportunities for improvement and savings. Finally, having a set budget is possibly the most important element of all as it creates a foundation for the operation and a benchmark for measuring its performance.
Monica Parpal – Understanding the Restaurant Profit and Loss (P&L) Statement
John Foley – Ten Tips for Staying Within Your Budget
Ron Gorodesky & Kate Lange – Restaurant Accounting: For Profit's Sake, Inventory Your Food Cost!
Laura Briere – 14 Restaurant Marketing Tips for Success Online and Off