Let's Talk Finances
of surveyed restaurant owners reported that raising enough money to open was a challenge for their team.
During the process, other financial challenges cropped up, including tracking costs, managing and prioritizing their spend (66%). To do your best to avoid these hurdles, let's cover some essentials.
1. Start by tracking your prime costs, which include everything you spend to run your restaurant:
Total cost of labor: That means your employees' wages, benefits, and things like payroll taxes.
Cost of goods sold: These are your total ingredient costs for each menu item you offer.
Operating expenses: Think rent, utilities, and direct operating costs like paper, towels, and laundry.
Vendor expenses: Your technology, financial services, and third-party commissions payments for things like delivery and reservation systems, and more.
2. Calculate your bottom-line profit. This is your company's net income, or what your business makes after all expenses are deducted from your revenue.
3. Evaluate your margins. This is your ratio of profit to revenue. To calculate your business's gross profit margins, divide your gross profit by the total revenue for the year and multiply by 100. If this number is in the negatives, that means you're spending more than you're earning.
"A good rule of thumb is to try to keep your prime costs under 65%. While this is ideal, it will likely vary depending on whether you’re running a quick-service or a full-service restaurant. Some best-in-class restaurants, for example, are closer to 50%. According to the National Restaurant Association, what’s leftover, known as your overall margins, is typically between four and six percent. I like to aim for 10% — it’s a really hard number to hit, but not impossible with the right technology."
Your restaurant POS technology can be a great place to track your finances. Square for Restaurants users, for example, have access to several reports, including gross sales, refunds, and net sales summaries. Leaders can tap into this data wherever they're working — behind the register, on a desktop or mobile phone.
A free resource like the Square restaurant profitability analysis tool can also offer you valuable information as you scale. Simply input your revenue and expenses to determine your business's profitability, identify high costs, and learn your revenue and profit per order and customer. One in four (25%) restaurant leaders we surveyed said that their business doing well on sales and/or cash flow most influenced their decision to open another location.
After taking a look at your finances, it can be easier to make informed decisions about your expansion plans. In the next section, we'll walk through what's involved in the process, step-by-step.
