A few weeks ago, I was discussing with a multi-unit restaurant owner how often his team produces financial statements for him to review. I was surprised to find out his accounting department is only producing financial statements quarterly!
Successfully managing a restaurant requires a multifaceted approach that goes beyond serving your customer’s dishes and providing outstanding service. A crucial aspect of running any organization is maintaining a firm grasp on the financial health of the business. Monthly financial statements serve as invaluable tools for monitoring and evaluating a restaurant's performance.
There are three major timelines that are industry best practices for monitoring the financial health and performance of your restaurants. The profit and loss statement should be reviewed monthly, the cost of goods sold weekly, and labor should be monitored, at minimum, daily, at best hourly. By adopting the timelines, restaurant owners and managers can gain vital insights to make informed decisions, ultimately driving profitability and ensuring long-term success.
The Profit and Loss Statement
The profit and loss statement (P&L), also known as the income statement, outlines a restaurant's revenue, expenses, and net income or loss over a specific period, ideally on a monthly basis. Regularly reviewing the P&L allows owners and managers to assess the financial performance of their restaurant and identify areas for improvement.
Analyzing monthly revenue figures goes beyond assessing the total income earned. It helps identify patterns, such as peak sales periods, seasonal fluctuations, or the impact of marketing initiatives and menu changes. By carefully examining these trends, restaurant owners can make data-driven decisions to adjust their strategies, maximize revenue during high-demand periods, and capitalize on opportunities to drive growth. Having a deep insight into hourly revenue trends will help in properly scheduling labor for when it’s most needed during the day.
The P&L provides a comprehensive breakdown of various expenses, including food and beverage costs, labor expenses, rent, utilities, marketing, and other overhead costs. By examining the line item expenses, owners and managers can identify areas of overspending, cost-saving opportunities, or potential inefficiencies. This analysis empowers decision-makers to optimize their cost structure, trim unnecessary expenditures, and increase overall profitability.
Cost of Goods Sold
A restaurant’s Cost of Goods Sold (COGS) represents the direct expenses associated with producing the food and beverages served in a restaurant. As the price of food has risen in our post-COVID landscape, food costs represent the largest expense for restaurateurs. Regularly monitoring the COGS on a weekly basis is essential for maintaining tight control over costs and ensuring that pricing aligns with profit goals.
By frequently assessing the COGS, restaurant owners can evaluate the efficiency of their inventory management practices. This includes monitoring stock levels, tracking ingredient usage, and comparing theoretical consumption with actual usage. This analysis allows for the identification of discrepancies, such as waste, and theft. By addressing these issues, owners can streamline purchasing, reduce food costs, and enhance overall profitability.
Analyzing the COGS on a weekly basis enables owners and managers to evaluate the profitability of individual menu items. By identifying high-cost ingredients or underperforming dishes, they can make informed decisions regarding menu pricing, portion sizes, ingredient substitutions, or even menu redesign. Menu management empowers restaurateurs to strike the right balance between customer satisfaction and profitability, maximizing revenue and controlling costs.
Labor
Labor costs represent the second largest expense in the restaurant industry. Monitoring and managing these costs on a daily basis ensures optimal staffing levels and efficient allocation of resources.
By reviewing hourly sales, restaurant owners can identify peak hours of operation and allocate their staff accordingly. This practice optimizes staffing levels, preventing understaffing or overstaffing situations that can impact customer service quality and overall efficiency. Additionally, tracking productivity metrics, such as sales per labor hour, helps identify opportunities for process improvements or additional training needs to enhance staff performance.
Daily monitoring of labor costs allows for the prompt identification of potential issues. Excessive overtime, inefficient workflows, or inadequate training can contribute to increased labor expenses. By promptly addressing these issues, owners and managers can implement corrective measures, such as refining operational processes, providing targeted training, or implementing technology solutions to maintain a healthy balance between labor costs and customer satisfaction.
Knowledge is Power
Diligently monitoring monthly financial statements, with a focused approach on the profit and loss statement, weekly cost of goods sold, and daily labor costs, is paramount for the financial success of a restaurant. These financial statements provide valuable insights and serve as a compass for decision-making. By carefully analyzing and interpreting the data presented in these statements, restaurant owners and managers can make informed decisions to optimize revenue, control expenses, and enhance overall profitability. Embracing best practices creates a solid foundation for managing a thriving restaurant business in a competitive market, ensuring sustainable success for years to come.
How Elevated Operations Group Can Help
Our comprehensive accounting solutions are designed to provide reliable, accurate, and timely financial data, allowing you to make informed business decisions and maintain financial stability. We offer a range of services, including full-service bookkeeping, monthly financial statements, and monthly financial statement review. Schedule time with us today for a FREE consultation meeting!