One of the first questions we are asked by our clients is: ‘Why do so many restaurants fail?’ There are many reasons that our beloved pubs, cafes and restaurants seem to be doing a roaring trade one minute and are closed the next. Some of these reasons may be beyond a business owner’s control, however most of the reasons restaurants close can in fact be avoided.
The coronavirus pandemic has delivered a devastating blow to the Hospitality sector. But amidst the wreckage, opportunities for new ventures and growth arise. Business owners and aspiring restaurateurs are using this time to rethink their business models and plan more effectively for the future. Social distancing is one of a number of unprecedented and unrivalled challenges faced by the Hospitality sector and many businesses will not survive. What may surface in their place, however, is a new generation of operators who will start, or restart, the life cycle of their businesses with a broader spectrum of systems and processes in place to ensure they not only survive but that they prosper long into the future.
Some of our best ideas come to us in the flash of a lightbulb moment. Walking down a busy and picturesque street; eating a simple yet wonderfully tasty meal; or laughing with friends over a glass of wine. These are the moments that give birth to our favourite drinking and dining concepts, brought to life by the impassioned entrepreneur for the rest of the world to enjoy.
But what makes your idea unique? What will be the reason that a passer-by decides to sit at one of your tables? What will be the reason they come back? Developing an idea into a fully evolved concept is the fun part. Think about your style of cuisine. How will you design the restaurant to complement the philosophy of the food? Will the style of service be relaxed or formal? What about the name and logo? No matter what concept you choose: keep it simple, keep it clear and be consistent.
Many restaurateurs will tell you that location is key. Whilst it can be important, it is only one of many factors to consider when deciding where to open your restaurant. The busiest locations will come with the highest rents and the most competition. Choosing a venue that is the right size with a Lease agreed upon the right terms trumps location every time. Do not enter into a Lease that is just a little bigger than you planned for, a bit more expensive, with a rental escalation clause you hope you will be able to afford once business picks up in the future.
Commercial landlords are renowned for being unscrupulous and unforgiving. Make sure you take professional advice and fully understand the terms of your Lease. Does the contract include the fixtures and fittings? Are the business rates fixed or variable? Is there a profit-sharing clause, obliging you to share your future profits with the landlord? Are all of the licences and permissions up to date or will they require fresh applications? Most importantly, is the total rental expense in line with industry standard or below?
Just as developing your concept is the fun part, the financials are it’s antithesis. Whether you use an external accountant or do the financial planning yourself, it is imperative that you get it right at the outset.
Having a viable business model means that your concept has a good chance of generating enough sales to cover the costs of running your restaurant. Understanding the costs associated with running a food and beverage business is vital to working out how much you should charge for your menu items, how much you should pay your staff and how much you should spend on your marketing, crockery, napkins – and a multitude of other items of expenditure.
Budgets & Forecasts
Budgeting is the term used to describe the financial plan you will prepare ahead of each trading period, usually for the coming year or quarter. It is the best case scenario for your financials and includes external factors such as seasonal trends.
Forecasting is the process of revising your budget during the trading period to reflect the likely financial performance of the business, taking into account any change in the factors that were used to draft the initial budget. Are there any events planned in your neighborhood that will bring in extra sales? Has the summer extended itself due to a heatwave? Did you hire a new member of staff who has generated a new customer base for you? Adjust your budget well ahead of time so you can plan your expenditure accordingly.
Profit & Loss
Your Profit & Loss (P&L) is a financial tool that records your performance each month. It is often prepared in the same format as your budget and forecast, and is completed daily or at month end. The P&L is the most important financial tool for effectively managing your business and is used to calculate your cost of goods (COGs), which is the cost of stock and ingredients purchased from your suppliers, and your gross profit (GP). These are 2 of the key performance indicators (KPIs) in any food and beverage business and should be monitored closely to ensure you are performing at industry standard or better.
When all is said and done, a healthy bottom line profit should be around 20% of your monthly turnover.
Your people are your greatest asset
Use strategic and professional digital content
Pay market rate or better
Aim to spend around 2% of revenue on marketing
Use incentives to motivate staff and increase sales
Keep your customer service sparkling to increase referrals
Inspire and empower your team!
Engage customers through online platforms and review sites
The coronavirus has changed the way we engage with our friends, family and the world around us. It presents a number of challenges that will be reflected in the sales capacity of even the most popular bars and restaurants. To overcome this challenge, established restaurateurs must scale back their costs and expenditure in order to protect their profit margins.
Most new food and beverage businesses fail due to poor financial planning and a lack of operational experience. Make sure you do your research at the outset and seek external advice and expertise where needed. When setting up your back office use the following financial and operational tools to streamline your daily operations and protect your bottom line profit.