How to understand your restaurant’s finances

Owning a restaurant doesn’t just mean creating a great place to eat, offering an exciting menu and providing top-notch customer service, it also comes with the relentless day-to-day responsibility of keeping a close tab on finances. This is where many new restaurant businesses fail, as owners are ill-prepared or unfamiliar with what it is required of them to manage that aspect of their businesses. The industry is highly competitive and those who don’t keep their eye on the ball can quickly run into big problems.

But it’s not all doom and gloom; thankfully managing a restaurant’s finances is a lot easier nowadays. POS technology has stepped in not only to help with running front of house operations, for example, but it also captures invaluable information that can be used in everyday decision-making. Taking time to familiarise yourself with the information you need to make financial decisions, and the information automatically being recorded by your POS system will pay off big time.

To get you started, below we highlight three key areas of information that every restaurant owner needs to be aware of. These will help you make the right financial decisions to avoid the pitfalls of low profits, as well as help you plan for future business growth.

Food and Beverage Sales

It’s no good just guessing how many dishes and drinks you served yesterday, last week or last month. It’s crucial to have a sound understanding of what your actual food and beverage sales are. Luckily, all of this information will be there at your fingertips in the POS system, and many of these systems provide standard reports that you can generate within a few seconds.

Drill down in detail to find out sales by each employee and also by individual food and drink items. What you think may be a winning dish may be completely the opposite. Make sure that you use any food and beverage sales report information in conjunction with other reports from your POS system to allow you make the most educated decisions for your business.

Restaurant Prime Costs

Restaurant Prime costs are arrived at by adding up of the cost of all the goods you sold, plus the costs associated with employing staff i.e., wages, taxes, benefits and pension contributions etc. The importance of establishing your Prime Costs figures on a regular basis will be blessing when it comes to quickly identifying problems and being able to take action to control short-term costs.

Once you have a Prime Costs figure at hand, work out it’s percentage compared to your Food & Beverage Sales figure, as this will provide a great indicator to whether you’re over spending on staffing and inventory. As a benchmark, anything over 60% means that you are overspending and that you definitely need to take action to reduce your expenditure.

Inventory Costs

Just what do you have in stock? The number of items and cost of each item? This is yet more vital information you should always be aware of, as it could make or break your restaurant. Many restaurant owners keep a tab of this information in their own spreadsheet formats, which is easy to manage and maintain.

Inflation and supply issues have contributed to the sudden price rises of certain products. Keeping abreast of these price changes will help you make quick decisions, for example whether you need to change certain menu items, or need to opt for alternative products or different product suppliers.

Running a successful restaurant often means that owners need to juggle many balls all at once, but keeping on top and being fully aware of your financial information is always crucial. Used correctly, the information gained from your daily operations will help you to make the right financial decisions and help build your business.

CHI is dedicated to keeping up with local and national trends in the Restaurant Industry to help serve our customers better and keep them one step ahead. If you are interested in opening, purchasing, or selling a restaurant CHI Real Estate can help. Get in touch with our team today.