Restaurant Operations

18.1 Introduction

Managing the finances of a restaurant requires a manager to consider many different variables, and there are a number of things that can affect a restaurants profits and losses. Some of them are within your control and others are completely outside of your influence. To best help your restaurant become financially healthy, you need to have a plan. In this module, you will learn about different plans for managing your money. You will learn how to create a budget for your restaurant and how to use that budget to manage food and energy costs. You will also learn how to keep your restaurant financially viable by leasing the equipment that you need. Finally, you will learn different methods of protecting your assets through a comprehensive inventory management system.

18.2 Budgeting

Any business needs a budget, and your restaurant is no exception. No matter how simple you think your costs might be, a budget will help you keep track of how much money comes in and how much money goes out. A good budget will not just help you manage your money. You can also use it to help increase your profits. A budget is a plan for your finances. It predicts the sales that you will achieve, and it helps you track how much money you need to spend to make those sales happen. As every business manager knows, you have to spend money to make money. In the restaurant business, you have to spend money on facilities, labour, and food if you want to have a product to sell to customers. Budgeting is not about writing down some estimates on a piece of paper. In order to make your budget work you will need to work on your budget in three phases: evaluation, planning and control.

Evaluating Your Needs

Before you prepare a budget, you need to do a lot of research. This research has two main segments: the things that influence your business that are outside of your control and the things that influence your business that are within your control. Things that are outside your control include your local economy and your competition. You should always look at your competitors when you are evaluating your potential restaurant sales. To do this, you should visit your competitors and compare them objectively to your restaurant. The range of the menu, the price of the food, the portion sizes, and the atmosphere can all affect how competitive your restaurant is in comparison to your neighbour's. You should also remember that food quality, costs, and atmosphere can be overshadowed by the marketing strategies that your competitors employ. Thus, you should also keep an eye on how your competitors portray themselves in the media. Your sales generators will also affect your business. A sales generator is the area that your restaurant is located in.

An example of a generator might be a school, an office building, a train station or even a bus stop. Even though you have no influence over these things, you still need to consider them when you are putting together a budget. You will want to identify each one according to a category. You might use age groups, hours of operation, or on-site dining facilities. Once you have evaluated all of the external factors that affect your business, you need to use this to analyse your finances. You should be using your profit and loss statements, guest counts, and cheque averages to determine the level of health that your restaurant currently has. This analysis should always include internal factors that affect your business' budget. You should look at employee labour costs, including the number of hours that were worked versus the number of hours that were paid for.

Planning Your Budget

With all of this information at your disposal, you can begin the planning phase of your budget. This planning phase should include projecting your potential sales based on the internal and external factors that you explored during the research phase. Based on your sales, you can then begin to calculate the costs of the products that you sold. This will include the cost of food stuffs as well as the cost of drinks. You should consider whether food costs are increasing and include this in your prediction. You will also use the labour costs that you found in your research to forecast your payroll costs. You should be scheduling employees according to your sales predictions. For example, if your research tells you that lunch times between 11:30 and 14:30 are your peak times, you would have more staff at this time and cut the number of staff that are on the clock in the evening. 

Once you have all of this data, you can begin to transfer it onto a budget worksheet. You can use software like Excel or specialist software to create this sheet. However, it is important to keep this information in an organised and accessible place so that it can be easily referenced and changed.

Controlling Your Costs

Now that you have all of your information in one place, it is transformed. It is no longer a list of figures. It is a tool with which you can manipulate the money that comes into and leaves your business. The control phase is the phase when you compare your projected costs and profits with thereal amounts. You use this comparison to look at how the two figures varied.

Once you have these numbers, you can begin to look at why they varied so much. Finding the variables and their explanations provides you with the ammunition you need to act upon these differences and adjust your budget to help rectify them. When you enter this phase, it is important to remember that a budget is not a concrete structure which cannot be moved, because there are just too many factors involved in managing a restaurant budget for this not to be the case. By definition, a budget is not a static entity. It is designed to be changed, to manipulate or adapt to realities.

18.3 Keeping Food Costs Down

Once you have a budget, you have a valuable tool for helping you keep costs down. Food costs can account for much of the restaurant's budget, but as food is your main product, it is important that you are giving customers what they pay for. This can be difficult if you have committed to purchasing food that is sustainable, local and seasonal. However, it can be done if you set up some successful strategies for managing your money.

The first thing to do is to control your food costs, referring back to your budget to see exactly what your food costs are per customer. This is often done by dividing the monthly costs of your food by the number of customers that you serve every month. Be sure to include costs like the base cost of the food product, delivery costs, spoilage, food theft, and any meals that were given away for free. When you are starting to look at costs, do not try to restructure your entire menu or food ordering process. This is often overwhelming and thus, very difficult to do because there are too many variables to consider. Make sure that you start small, looking at one food product at a time. Moving through the menu gradually is the most cost efficient way to keep costs down because it prevents mistakes.

Keeping costs down is not about being cheap or pinching pennies. It is about ensuring that you only buy things that you will use and ensuring that you use everything that you buy. As a restaurant manager, you should be striving to reach 100% utilisation. This means that you should be throwing practically nothing away. Every edible part of a food product should be saved to create more food. For example, meat bones and vegetable scraps should be kept to make stocks and soups. You can use meat trimmings for other meat dishes, such as terrines.

To see how much food is being disposed of, look at your compost bin and discover the valuable food items that are currently being thrown away. Even the simplest scraps can be turned into a delicious soup and soups can be huge money makers for a restaurant. When looking at food costs, you should look at your menu as a whole instead of considering individual items.

Any menu will have certain food products that have high prices which eat into profits. However, it is how balanced your menu is as a whole that makes the most difference in profits. A healthy menu will have high cost items with low volume sales that are offset by high volume and low cost items. The key to balancing a menu is to be certain that your top few selling dishes are not high on food costs. This allows you to sell dishes that are more expensive to make and buy, but not worry about the profit because you will not be selling a large number of those dishes anyway.

18.4 Reducing Energy Consumption

Your energy use can also significantly eat into your profits. Although energy costs are a necessary component of doing business, it is easy to forget that restaurants are some of the most energy reliant commercial buildings. Most restaurants consume nearly three times as much energy as an average building. This is partly due to longer business hours, but it is compounded by the energy demand and the amount of specialised equipment that restaurants require. Despite the high demand for energy in food service, it is easy to drive up energy costs because of an excessive use of energy. This is why you need to create an energy management program for your restaurant. The first part of your energy management program should be to invest in energy efficient appliances. Appliances can eat up a significant part of your energy budget, with refrigeration taking up almost half of all equipment energy costs in restaurants. You can help combat this by investing in new or used appliances that are rated highly in terms of efficiency.

You should also install fluorescent lamps and other efficient tools in your restaurants. As you will often be leaving lights on for most of the day, you should use bulbs that are as efficient as possible. You should also turn the lights off in areas that are not being used. Even small tools can help boost your efficiency levels. For example, replacing the spray valve in the sink area with a high-efficiency spray valve can cost hundreds of pounds in energy costs per year.

Secondly, you need to set up a maintenance schedule. Even energy efficient appliances can begin to waste energy and money if they are not running properly. You should have your heating and cooling systems evaluated seasonally. You should perform regular maintenance on your refrigeration systems to make sure that the condenser coils, clean evaporator coils and the door gaskets are all full functioning.

This maintenance schedule should include recalibrating your equipment. Fryers and griddles in particular need to be recalibrated to ensure that they are delivering a fully functioning service without eating into your energy bill. After you have created a schedule to keep your appliances running at a high level of efficiency, you should work to cut out idle time. It is imperative to be running equipment when you are operating.

However, turning equipment off when you are not using it can save you a significant amount of money. You can also begin to look at your cooking methods. For example, using a griddle is more energy efficient than using a broiler. You should look at your menu and the methods you use to see if you can find better ways of cooking food.

18.5 Leasing Equipment

There is a certain amount of baseline equipment that every restaurant needs to have in order to function. In many cases, you will need a cooking stove, an oven and a refrigeration system in order to run almost any type of restaurant. However, if you want to run a fully functioning restaurant, you will need an ice machine, a warmer, a dishwasher and a vast amount of other equipment. This equipment can cost tens of thousands of pounds when it is purchased 'used' and hundreds of thousands of pounds when it is bought new. However, acquiring kitchen equipment can be done several ways, including through leasing.

Purchasing equipment outright is difficult for most new restaurants because it can cause the start- up costs to skyrocket. Thus, leasing equipment is a popular option for many new restaurants. When you lease this equipment, you can save the rest of your money for other important areas of your budget like payroll, marketing and food costs. Leasing equipment also reduces costs for the first few years of running a new restaurant. These years can be the hardest because you do not yet have a fully established business. Having lower costs on your essential equipment can help get you through the first few years with fewer problems.

Equipment To Lease

You do not need to lease all of your equipment. You should primarily focus on leasing the equipment

that has a short lifespan. Equipment like freezers, refrigerators, dishwashers and ice machines take a lot of abuse in every restaurant. They are also some of the most expensive pieces of equipment. This makes them perfect for leasing because it means that when something needs to repaired or replaced, you are not forced to re-buy that piece of equipment all over again.

Other pieces of equipment that is suitable for leasing includes:

Broilers

Fryers

Espresso Machines

Water Purification Machines

Stoves

Lease Terms

There are several ways to lease your equipment. The most popular ways are leasing and lease-to- own.

When you are leasing your equipment, you are often borrowing new equipment from the merchant for a fixed monthly cost. This is beneficial for restaurants because many contracts also include free repairs. Since you are often leasing vital equipment that is heavily used, these free repairs can make a big difference for you should something break. Lease-to-own is also a good method for leasing. By paying a fixed monthly cost for a fixed period of time, you can walk away from the deal with equipment that you own. Generally, you will find that there are different term lengths and lease structures to choose from. However, it allows you to walk away with assets without having to invest a huge amount of capital up front. It is important to note that some lease agreements will require you to pay a higher price for your equipment versus buying the equipment outright. This is normal in any lease agreement. In a fair agreement, it is not much different from paying interest on loans to buy equipment. However, you should be sure that the agreement is fair and worth the extra costs in the long term. You should always determine the most profitable route before you enter into an agreement.

Before You Lease

Leasing your equipment will require you to sign a contract, and very few leasing contracts are the same. You should send any lease contract to your solicitor before you sign it. Making sure the terms are favourable, and that you are not left vulnerable, is important when signing any contract. You want to be sure that you are not taking on more liability that you bargained for. For example, some leases will require you to continue to fulfil a contract even if your restaurant has closed and you have returned the equipment. This is important to know beforehand should the worst happen.

You also want to check the lease to make sure that it is a closed-end lease. If the lease is not a closed-end contract, you may be held responsible for making a large balloon payment when the lease ends. When you have a closed-end lease, you can just return the equipment when your lease runs out. This leaves you free to walk away if you want to find a new company or buy your own equipment.

18.6 Managing Your Inventory and Stock

Managing your inventory is one of the most important things that you can do to help keep your costs down. Knowing what you have and do not have on your shelves will help you make sure that you are using every resource available at your disposable. It will also help prevent ordering mistakes. Setting up an inventory system is one of the first things that you do when you manage a restaurant. Not only does it help with cost control but it is important for food hygiene. Inspectors do not take kindly to finding expired food on the shelves of restaurants.

To begin with your inventory plan, you may choose to start over completely. This means going through the kitchen and the bar and verifying the inventory for yourself. This will form the baseline for your future inventories and it ensures that everything you do is correct from the very beginning. Even if you plan to pass off the inventory duties to another employee, it is important that you do the initial inventory on your own.

You might choose to include a software based inventory system. This is less essential for small restaurants that have only a few dozen products in the kitchen. However, if you are ordering a lot of food or many different types of food from different suppliers, an inventory programme can aid you greatly in controlling your system. These programmes often offer automatic calculations and the

ability to make templates and set different parameters.

If you run a mid-to-large size restaurant, you might also consider investing in a scanning inventory system. This will allow you to scan items on deliver and will help you keep up-to-date with your stocks in real time, without having to designate a member of staff to investigate.

You also need to set up a company policy for controlling restaurant inventory. This will ensure that someone is responsible for managing the inventory. This policy should also outline the frequency with which inventories are examined. You should be sure to note whether this will happen daily, weekly, or even hourly. A good rule of thumb when creating an inventory policy is to ensure that at least two people, besides yourself, know how to go through this procedure. It never hurts to have a fresh pair of eyes to double check the numbers, to avoid mistakes. It also helps prevent shrinkage and loss, and it holdsboth people accountable should any serious discrepancies appear. 

Finally, you should look into the expected usage of your food supplies. This can vary sometimes, such as when a mistake is made or a large booking is cancelled. However, you should have a system with which you can track exactly what menu items were sold each day and how that directly impacts your stock levels. However, when the numbers vary too greatly on a regular basis, you should use

the inventory system to investigate these issues.

Module Summary

Reaching profitability at a restaurant is about more than just increasing your sales. It is a fine balance of budgeting and controlling your costs. You can serve a full house every night, but if your food costs and energy costs are running rampant, it will be hard to reach profitability. A combination of responsible energy use, well-appropriated food costs and a well-implemented inventory system can help your restaurant save money and grow your profits.