Restaurant Profits: How Close Are You Watching Your Numbers?

Although your restaurant’s food, services, and location certainly factor into its success, what ultimately determines whether it lives or dies is whether it does or does not make a profit. Now, this may seem an obvious statement, but it bears consideration.

The skills that are required to run a successful restaurant are quite different from those needed to create a successful business. The operators who measure and monitor their costs and profit margins closely, on top of maintaining a high quality of food and service, are the ones that end up succeeding in the restaurant industry.

It’s Your Numbers More Than Your Food, Which Determines Your Restaurant’s Success

Regular review of essential metrics such as your profit-and-loss (P&L) statement, your balance sheets, and your cash flow statements is what will tell you whether or not you are truly making money. Keeping a careful eye on these reports also has the added benefit of drawing your attention to areas in your operations which may need tweaking and gives you the opportunity to make needed changes before these misalignments become real problems.

Aside from showing you how well you’re doing, analysis of your numbers is also the only way that you can hope to control your costs – which is fundamental to success in today’s business environment.

How Weekly Review of Your P&L Summary Can Make All the Difference

Of all the metrics available, the P&L statement could be considered the most valuable because it represents the end result of all of your efforts – from operations to marketing to controlling your costs. Many operators find it instructive to review a summary P&L every week so they can see at a glance how the restaurant is performing and take quick action is anything is amiss.

The four key numbers to keep a watch on are your sales, prime cost (total cost of food/beverage/merchandise plus payroll), controllable income (sales minus prime cost and any other controllable expenses you may have), and net income. How a restaurant manages their prime cost in particular often indicates whether the business will succeed or fail, and as such, it can be additionally helpful to break your prime cost into columns of controllable and uncontrollable expenses so that you know exactly where and how you can takes measures to correct problem areas.

Sharing Your P&L with Staff Decreases Food and Labor Costs as Well

Furthermore, a weekly review of your P&L has the added benefit of increasing awareness and accountability of your staff. When everyone can see how they’ve done each week, the kitchen staff becomes more conscious of their inventory levels, management becomes more aware of scheduling staff efficiently, and so on.

Some restaurants have even gone so far as to implement a reward system to their employees for surpassing performance benchmarks, which can be yet another way that regular review of your numbers can serve you.

All in all, the restaurant industry is incredibly complex – it’s part retail, part manufacturer and it’s got a thousand moving parts that all have to work in unison to allow a business to thrive. As a result, generic accounting isn’t going to cut it. With profit margins as narrow as they can be, you’ve got to keep a careful eye on your cash flow to succeed, and to do that, you’ve got to keep a finger on the pulse of your numbers!