When is my business going to break even, and when is it going to show a profit? Finding answers to these questions is not just a paper exercise, but it’s the building block of any restaurant business. Entrepreneurs may not envision themselves crunching numbers while heavily invested in taking their ideas from conceptualization to execution.
When the cracks begin to appear in the first year of business, the causes for failure are determined to be poor management and unfavourable market conditions, which is often a less blunt way of saying poor financial management. An autopsy of a failed business will often reveal a poor financial plan, among other factors.
It’s easy for restaurant entrepreneurs to get carried away with their concepts alone and miscalculate financial risks, which eventually result in business failures. A start-up needs to have a good business plan, and the entrepreneur must have a clear understanding of working capital, expense and sales projections to sustain the business and plan its growth. A good financial plan will help estimate set up costs accurately and foresee at least two years’ worth of working capital. Apart from having a sound financial plan and managing cash flow, here are two basic requirements for start-up restaurant operators.
Build a robust reporting system
Information flow is vital for the proper functioning of any start-up. To achieve this, timely and accurate reporting of inventory, purchases, and sales are necessary. A healthy practice to follow would be to create a weekly reporting system in order to analyse inventory levels, expenses, pilferage, and wastage. This will provide valuable insights into the workings of your restaurant and keep track of the performance of your business.
Selecting the right point of sale (POS) system is crucial. It should at least have an inventory management module along with features that can record and analyse food and beverage costs separately.
Hire an accountant with F&B experience
Do not take shortcuts when hiring an accountant. Bookkeeping and accounting are not responsibilities that can be delegated to other restaurant staff that can double up as accountants, either because they have prior experience or have spare time.
An accountant in the F&B industry should understand food and beverage costs thoroughly and correlate them with market trends and procurement. One of my restaurant clients observed that they were not making a profit despite increase in sales. When we analysed their costs, we discovered that the food costs prevented them from becoming profitable. The cause for high food costs was the lack of analysis of food and beverage costs separately, which resulted in a lack of control of procurement. The food items purchased were not in line with the quality, quantity and price promised by suppliers. Furthermore, the restaurant owner, who also burdened himself with the task of accounting, was unable to keep track of rising costs. The situation could have been avoided easily by having a proper accounting system or delegating the task to a capable accountant. If restaurants cannot afford a full-time accountant, I’d advise them to hire part-time accountants. At the least, outsource the job to an individual or company that has a thorough understanding of finance so that you can concentrate on developing your concept.