Starting a restaurant business can be an exciting experience as you get to serve people delicious food and interact with them on a daily basis. However, managing a restaurant can be both challenging and exciting. Unlike other small businesses, restaurants and fast-food chains require active management and accounting due to a large number of daily sales and expenditures.
Everyone wants a profitable restaurant, but it not always easy to achieve that in this fast-paced industry. There are multiple factors that may end up affecting your bottom line, for example, labor costs, food costs, utilities, rent, etc. Statistics show that there is a 4.8 percent increase in food prices in the year 2020 (highest in ten years). And with the ongoing trend, these prices are not likely to come done anytime soon.
There are ways restaurants can boost their sales and profitability under such circumstances. Here are the top 5 proven ideas to help you run a more profitable restaurant business and minimize costs.
Let’s get started!
Unlike other companies, restaurant businesses and fast food chains need to manage food costs and the cost of goods cold weekly instead of monthly. And the problem is that not many restaurant owners are familiar with their finance and accounts management needs. In order to manage food costs, you need to calculate your Cost of Goods Sold as follows:
Current Inventory + Food Purchases – Ending Inventory = Cost of Goods Sold
Once you have this number, you can divide COGS by Weekly Sales to calculate your food spend percentage. You have to manage these numbers weekly and calculate the profitability of your restaurant. Make sure your COGS stays flat or goes down if possible, and your sales always go up. It will help you understand how much money you are making and how much is going out as food costs.
Another most important area which you need to consider to increase the profitability of your business is the inventory. But this might be a bit complicated, and you need professional help from the best accounting firms in Dubai to ensure that you are using your inventor efficiently. The first step is to calculate your Inventory Turnover Rate (ITR), which is “the number of times inventory is sold or consumed in a given time period.” It helps you understand how your restaurant is operating in terms of sales, costs, and inventory.
When it comes to inventory turnover, most restaurants prefer using Cost of Goods Sold as compared to Sales value as it doesn’t include any markup. The formula is as follows:
Inventory Turnover = COGS/ Average Inventory
Average Inventory = (Beginning Inventory + Ending Inventory) / 2
The average ITR for restaurants in second quarter in 2019 was around 16.84. However, the inventory turnout rate will depend upon the type of fast food joint your run. In order to increase the profitability of your restaurant business, you need to ensure that your ITR is high, which shows that you have a lower food wastage and spillage.
The next step is to calculate the profitability of your menu and identify dishes that generate a higher percentage of revenue. When you create a menu for the first time, you leave it all together and don’t revise prices and menu when your supplier has already increased the prices of most of his commodities. Did you know around 80% of the food sales originate from only 16% of the items on your menu!
Therefore, it is time to revise your menu because you cannot afford to get this 16% of the items wrong. You need to calculate the menu profitability of your restaurant weekly, if not then monthly, to ensure higher profits and overall sales.
You need to have a regular business review and forecast to understand where you stand in terms of overall sales and profits. This means you have to conduct regular meetings with your vendors and suppliers per month, if not weekly, to make sure you are getting a competitive price in the market, and everyone is on the same page.
It is essential to address your pricing and quality of goods regularly. Study shows that around 92% of the restaurant business owners overpay their suppliers. So, make sure you are not among these owners and run a profitable business with low expenditures.
Instead of hiring an in-house accountant, you should consider outsourcing accounting services from the best accounting firms in Dubai. For an in-house accountant, you would need to provide him with office space, payroll, and paid leaves. However, by outsourcing accounting services, you forgo all these expenses and hire services part or full time, which is also cheaper.
A full-time accountant will cost you around $60,000 per annum plus additional overheads like medical leave, retirement plans, bonuses, etc. However, outsourced accounting will cost you approximately $2,000 - $5,000 per month, depending upon your business needs. You can also hire these services for part-time or a few days a week.
For a profitable fast food restaurant business, you don’t need to change your entire menu or relocate. Just follow these simple tips to maximize your profits and increase ROI. With these tips, you can keep providing your customers with delicious food while at the same time enjoying higher profits and revenue. For increasing the profitability of your restaurant, you need to keep a check on daily expenditures and inventory because these numbers keep adding up and may surprise you at the end of the month or week.
Therefore, understand your restaurant's accounting and management needs and work accordingly to boost productivity and profitability from every aspect of your set up.
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