Knowing how to manage your restaurant expenses is the necessary foundation for longevity and profitability.
Entering the restaurant business takes tenacity and creativity; staying in the business takes strong money management skills. There are many moving pieces you, as a manager, must contend with, such as marketing, utilities, improvements, and inventory purchasing. Daily, money comes in and money leaves. Some of the costs fluctuate and others are easier to predict, like the rent. There are also the unplanned costs of fixing kitchen equipment or replacing tableware that can’t be put off for long. Do you know how to handle all these expenses?
One of the best ways to manage your restaurant’s expenses is to create a budget that addresses the following categories, and then to try the cost-saving tricks included at the end of the page.
Create a Complete Restaurant Budget
The fixed expenses are the same month to month and are easy to budget for. Make a list of all fixed expenses at your restaurant, including the following:
- Insurance premiums
- License fees
- Salaried incomes
- Loan payments
- Business association membership fees and dues
Some fixed expenses are paid once a year—still include them in your budget. A common mistake new restaurant owners make is not preparing for this annual payment, thinking they will earn the money last minute. Avoid the headache and include fixed expenses like these into your budget from the start.
The fluctuating costs are just about everything else in the business, and the areas you want to stay vigilant with are:
- Food costs
- Hourly wages
If you’re operating a new restaurant, it will take roughly three months to see a pattern in fluctuating costs. Use your restaurant POS system to help you analyze these costs on a weekly and monthly basis.
Food and Labor
It’s no surprise that food and labor are the primary expenses for a restaurant. Aside from rent, all the other expenses are frills or rendered useless without food and labor being accounted for. To keep a balanced budget, follow these two principals:
- Your weekly food order should not exceed 30% of your weekly sales.
- Your labor costs should be less than 30% of your restaurant’s total revenue.
If you find that one of these markers are off, dig into why. It could be you that you overschedule certain shifts, have a problem with food waste, or that your menu prices aren’t right. (For the last, see how to establish the right menu prices in three steps.)
Cost Control Strategies for Restaurants
If you find that restaurant expenses are rising without the corresponding profits, there are a few changes that can be made. Since the fixed costs are difficult to renegotiate, move your focus to the fluctuating costs. Below, we share four tricks for reducing food-related costs.
Reduce Food Waste
Food waste is one of the leading budget drains for restaurants, and correcting this can be as easy as serving ugly food. Some restaurants discard fruits and vegetables that are less than perfect-looking, and in the process, are tossing out valuable product. Another effective way to reduce food waste is through inventory management. Review the basics of inventory management to improve operations and increase your profits.
It’s essential to track the daily stock-in and stock-out, and the real consumption throughout the day. If you find that there is a variance greater than 5% between your ideal stock and actual physical stock, then you have an issue with food wastage.
Manage Portion Control
Portion control is one of the fastest ways to reduce food waste. Have the right measurement tools and strict food-plating procedures to limit the amount of food that is thrown out. As you start out, you want to track the following:
- How much food is returned by a customer.
- How much food is burnt in the kitchen.
- How much food or liquid is spilled on the floor.
- How much food is thrown out at the end of the meal.
Take Advantage of Restaurant Credit to Buy Ingredients
If paid in cash, raw materials can be more expensive and come in less quantity. Instead, purchase the raw materials through the restaurant’s account, giving you time to run your business, generate revenue, and then pay off the credit balance with the money earned. This is especially helpful for young restaurants. Establish in advance the ground rules for payments, orders, and receiving.
Additionally, compare food prices from different vendors to get the best price and quality. Buying opportunities can help you save significant funds over the months.
Yield management is making sure that the yield of raw materials is considered when purchase orders are made. The best example being meat; the amount of meat consumed versus how much is delivered on the plate is different. When ordering food, order with the yield of items in mind.
Staying in Control of Your Restaurant Expenses
Revisiting your food costs is the first step to rebalance an out-of-whack restaurant budget. If you find that these expenses are optimized, audit the labor costs. These six restaurant labor KPIs will reveal any discrepancies.
Over time, as you manage the restaurant budget, you will find new patterns and methods of operating that work for you, that are very different from other businesses. For example, an ice cream shop has different labor costs than a traditional restaurant, and a food truck has different food costs than other foodservice operators.
For that reason, focus on the percentages instead of dollar amounts to stay in control of your restaurant’s expenses.
Are your sales optimized? Track these four essential restaurant KPIs to find out.