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The restaurant business is one of the most costly industries. High costs of purchasing food, renting premises, paying staff, and utilities can quickly “eat up” profits. Even a popular restaurant can be on the verge of closure due to a lack of proper financial management. For example, according to restaurant associations, more than 60% of restaurants close within the first three years of operation, often due to misallocation of resources.
Today, restaurants face serious challenges:
- Currency fluctuations and general inflation are driving up food costs.
- In many cities, space costs have increased by 15-20% over the past year.
- After the pandemic, consumer behavior has changed and competition in the market has increased.
The purpose of this article is to provide you with a clear action plan that will help you maintain the financial stability of your restaurant even in difficult economic conditions.
Key steps for financial analysis
It is recommended to conduct financial analysis at least once a year:
- Weekly to identify short-term changes.
- Monthly for strategic planning.
- Quarterly to assess long-term results.
Let’s consider the key stages of financial analysis.
1. Identification of key indicators.
- Cost of sales (COGS). Consider the cost of products, write-offs, and sales volume. The optimal COGS is 25-35% of income. For example, if a dish costs 40 UAH in cost price and is sold for 120 UAH, your margin is 80 UAH.
- Operating expenses. Includes salaries, rent, advertising, and utilities. Personnel costs are the largest item, up to 50% of the operating budget.
- Gross profit. The indicator of income after covering COGS. For example, out of a revenue of 100,000 UAH, where COGS is 35,000 UAH, the gross profit will be 65,000 UAH.
2. Regular reporting.
- Daily accounting. Record income and expenses to have a clear picture of your finances.
- Automation. Use programs (Poster, iiko, R-Keeper) for reporting and analyzing indicators in real time.
3. Calculation of profitability.
Assessing profitability helps you understand how efficiently your restaurant uses funds to generate profit.
ROI shows how much you earn from every hryvnia invested in your business. For example, your restaurant expenses for the month are UAH 90,000, and your income is UAH 120,000. This means that you earn 33% of your investment.
How to cut costs without losing quality
Reducing costs in the restaurant business is possible without compromising quality if you focus on three key aspects:
1. Optimization of procurement
Conduct a market analysis to select stable suppliers on favorable terms of cooperation. Establish long-term relationships with several of them for flexibility in case of disruptions. Regularly analyze prices, compare commercial offers, and renegotiate contracts every 6–12 months.
Use seasonal products — it is cheaper and better. We recommend developing a seasonal menu based on them.
Order ingredients that have a long shelf life in large quantities. To reduce the risk of spoilage, combine purchases with other businesses (for example, as part of a joint delivery).
Implement the FIFO (First In, First Out) methodology for warehouse management so that older items are used first.
2. Effective staff management
Use analytics to determine peak hours of operation. For example, if the main flow of customers occurs at lunchtime, you should increase the number of staff during this period.
Introduce bonuses for achieving key indicators. Invest in staff training: send employees to culinary courses, customer service seminars, or teamwork training. Focus on creating a comfortable working environment. Employees who see development prospects are less likely to look for another job.
3. Control energy costs
Replace old equipment with modern models with a high energy efficiency class (A+, A++). Maintain your equipment regularly, as dirty or faulty elements consume more energy.
Use LED lighting in special rooms, as it consumes up to 80% less energy than conventional lamps. Reduce water consumption by installing special aerators on taps.
Remember that a business that knows its numbers is always ready for challenges and unforeseen situations. To provide your restaurant with professional support, contact BRG Consulting. We will help you conduct an in-depth audit, optimize costs, and implement effective strategies that guarantee financial stability and growth.
To provide your restaurant with professional support, contact BRG Consulting. We will help you conduct an in-depth audit, optimize costs, and implement effective strategies that guarantee financial stability and growth.