Restaurant… and Business?November 15th, 2010 Posted by blackinkservices
Everyone wants one. We all go to them. How much fun would it be to own a business where your job is to make people have a good time? Right…
We love them and anyone who has ever been bitten by the hospitality bug has felt the drug of being in the biz, part of the industry, in the know. Once you see the interworking of the restaurant business it is as if the curtain has been pulled back on the Wizard of Oz and there is a new sense of clarity to how the world really works.
Now this is a blog post, not a book. There are hundreds of books published every year dedicated to the business side of serving food. And there is my first point. There is no single algorithm that explains or breaks the code for the restaurant business. There are so many nuances to the business I will not attempt to answer them here. Instead I am going to just touch on the business side of hospitality. The question I ask every new member of the restaurateur club: WHY?
For the purpose of this discussion let’s define restaurant as a sit-down experience where there is a server who brings you your food.
I think the first important point to make is that a restaurant is not a product business but a service/product business. This might sound obvious but on day 90 with every new restaurant owner I quickly remind them of what they sell. They sell an experience. The product plays a starting role in that experience, but it is not what you sell. If it was just food, a restaurant by my definition would not only be the biggest rip-off ever but drive-thru’s would be the sole way we would purchase prepared food.
Okay, obvious I know. Let me tell you the first time I review a Profit and Loss statement on a new venture I am asked, “What is the break-even?” In a service/product mish-mash business like a restaurant, this is by far the golden ring we are all chasing and always is just out of reach. The truth is that a static break-even point for a restaurant is non-existent. The real answer is that there will never be an clear answer and get comfortable with that on day zero. Now that does not alleviate you from the task of chasing the ring. A prudent and successful owner is always chasing the margins. This is where bookkeeping in the restaurant business is so important. It is always the task that is quickly lumped into miscellaneous administrative tasks. It shouldn’t! It is job number one if you plan on success. The amount of data that flows through a restaurant is astounding and overwhelming. Most owners approach this with after-the-fact bookkeeping (also known as a checkbook) or by collecting every ounce of data and getting buried in the details that will never paint the picture you need to see. The real task is to determine the information you need in real time to make the decisions that will affect the bottom line, and quickly.
Start now, before you start. The biggest expense you will have is also the first one you will have – rent. Rent will be by far the biggest nut you have to cover and one of the hardest to push-off or change after you get started. Solid pro formas of your restaurant model will tell what you can afford. Start smart and concentrate on what the business can afford in the worst of times. You only get one shot at getting this right, and this can be the quickest way to success or failure. Labor will be the second of three things you can control quickly. Too much and you bleed, too little and you clientele will feel the pain. You have to find the right fit and quickly. This process will take time so track immediately and be nimble with your staffing model. Visit the model and drill down frequently. Whether the Chef, Manager, or Owner is in control of the labor, it will affect the bottom line and the customer experience, and fast. Third, is every restaurant owner’s favorite acronym, COGS. Cost Of Goods Sold is the life blood of success and failure of the kitchen. This is anything that leaves in the customer’s belly. It is a moving target and made up from many expenses and many vendors and is always a mix of product. Do not chase the product, chase the percentage. Always look at your COGS as a percentage of your gross revenue. Once you identify a trend in your COGS, you can use that data to adjust your purchasing. That does not excuse the Chef from buying smart the first day.
In computer programming there is another popular acronym, GIGO. Garbage In, Garbage Out. All bookkeeping is the same way. This is why finance in a restaurant is a team sport. You must have the standard operating practices in place to track and follow all the information. Without this, the rest is pointless.
The last is the first. We get the chance to meet potential restaurateurs when they are just making the decision to enter into the business. Without exception I ask them all the same question. Why? There is no right answer or wrong one. Just make sure yours is sensible and in line with your life goals. The hospitality industry is a long hour, high failure rate business. It is not easy and if executed improperly or untimely or lady luck does not shine then this can be the most expensive venture you have ever made. On the other hand, well thought-out restaurant ventures can be extremely profitable. Make sure you have a balanced ego, sufficient finances, and dreams… balanced with reality.
Want a little more of the aesthetic and construction side of opening a restaurant? Check our one of our clients, Bruce Bruschel’s New York Time’s blog. Click Here