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Probably every restaurateur is familiar with this paradox. Guests are delighted with the food, leave good reviews, the restaurant is 90% full, but when it comes time to look at the bank account, it turns out that it is not growing, and sometimes even shrinking before your eyes.
Where does the profit go?
BRG experts often compare restaurant finances to a large bucket. Revenue is a tap that constantly fills it. But there are many small, invisible holes in the bottom and sides. These are your uncontrolled expenses, inefficient processes, and wrong decisions that eat away at your earnings.
This article is not a boring lecture on accounting. It is a practical guide for restaurateurs who want to become financial gurus in their own business. We won’t delve into boring theories, but instead use humor and real-life examples to show you how to find financial “black holes.” Our goal is to give you the tools you need to confidently say, “I know where my money is, and I control it.”
How to read the three main financial indicators
To understand whether your business is healthy, you need to regularly check its “vital signs.” In the restaurant business, there are three metrics that show the real state of affairs.
Food Cost
This is the percentage of revenue you spend on purchasing food. It is important to distinguish between the cost of a single dish (plate cost) and the cost for a specific period (period cost), which takes into account inventory balances.
Calculation formula:
Food Cost % = (cost of food / revenue) × 100%
In global practice, a food cost of 25-40% is considered normal for restaurants. If your figure exceeds 50%, this significantly reduces your profit and is a cause for concern.
Labor Cost
One of the most common mistakes is to consider only the “net” rate. Labor cost includes absolutely all personnel expenses: bonuses, premiums, vacation pay, etc.
How to calculate:
Labor Cost % = (total personnel expenses / revenue) × 100%
Usually, this indicator is kept within the range of 20-35%. For quick service restaurants (QSR), it may be closer to 25%, and for fine dining restaurants — 35-40%.
Prime Cost
Prime cost is the sum of food cost and labor cost. That is, the total cost of what you sell and the people who prepare and serve it. This is the largest part of controllable costs, which gives the owner real leverage over profitability.
Calculation formula:
Prime Cost % = (Food Cost + Labor Cost) / revenue × 100%
The ideal Prime Cost should not exceed 60-65% of total sales. A high indicator is a diagnostic tool. It does not provide answers, but it asks the right question: “Why?” Is the problem write-offs? Theft? Unprofitable dishes? This indicator is your guide, suggesting where to start your investigation.
Hunting for hidden “holes” that eat away at profits
Significant financial losses rarely occur due to a single major disaster. More often, profits disappear due to a multitude of small but regular problems that together create a huge hole in the budget.
Waste and overproduction
A classic scenario: chefs prepare ingredients “in advance” based on intuition rather than data. At the end of the day, the surplus ends up in the trash.
Solution: Implement daily prep sheets based on sales reports from your POS system. Prepare only the amount you actually plan to sell today.
Spoilage and poor inventory management
Products spoil due to violations of the FIFO (First-In, First-Out) principle, improper storage conditions, or simply because no one knows what is in stock and in what quantities.
Solution: Introduce a strict rule of labeling all products with the date of receipt. Conduct weekly warehouse audits and use accounting software.
Ordering errors and spills
The waiter took the order incorrectly, the kitchen prepared the wrong dish, it had to be redone, and the wrong one had to be written off. The bartender spilled expensive alcohol. The waiter dropped a plate. These little things seem insignificant, but over the course of a month they add up to a significant amount.
Unaccounted staff meals and theft
“Hidden snacks,” when a chef prepares something for himself outside of official meals, and outright theft are direct losses.
Solution: Develop a clear staff meal policy. Every item eaten or drunk must be recorded in the accounting system. Regular inventories are the best remedy for theft.
Failure to comply with standard operating procedures (SOPs)
This is the root of most problems. When newcomers are poorly trained and “old-timers” work sloppily, everything suffers: service speed, write-offs, and the number of errors increase.
Solution: Document all key processes. Training should be a continuous process, not a one-time event when hiring.
How a modern POS system can become your financial director
A modern POS (Point-of-Sale) system is the central nervous system of your restaurant. Without accurate data, everything we talked about earlier turns into fortune-telling. It is the POS system that provides this data automatically.
Key control functions:
- Real-time sales analytics.
- Inventory management.
- Financial reporting (P&L, Cash Flow).
- CRM and loyalty programs.
There are many affordable and effective solutions on the Ukrainian market. Cloud systems such as Poster, Syrve, Servio, and SkyService offer powerful functionality for a reasonable subscription fee and often provide a free trial period.
The real power of a modern POS system lies in integration. It combines the dining room, kitchen, and owner’s office into a single, continuous flow of data.
Step-by-step strategy for financial recovery of a restaurant
Once the diagnosis has been made, it’s time to start treatment.
Phase 1: Self-diagnosis
The first step to recovery is to honestly admit that you are sick. This stage involves conducting a “DIY audit” to get an objective picture:
- Collect financial reports (P&L, balance sheet) for the last 3-6 months.
- Calculate your average prime cost for this period.
- Conduct basic menu engineering.
- Go through the kitchen and warehouse and record all sources of write-offs and clutter.
- Review invoices from key suppliers.
Phase 2: Planning
Don’t try to fix everything at once. Focus on actions that will have the fastest and greatest financial impact:
- Immediately implement controls over the three biggest “holes” you have identified.
- Optimize the menu based on the results of the engineering.
- Call your three key suppliers and ask for better terms.
- Review your staff schedule and compare it with sales data from your POS system.
Phase 3: Execution
This phase requires determination and iron discipline. Take inspiration from the experience of the giants:
- Domino’s: They publicly admitted that their pizza was bad, completely changed the recipe, and reclaimed the market with technology (Pizza Tracker).
- Chili’s: Under the leadership of a new CEO, they simplified the menu, focused on flawless operations, and offered guests better value.
All these cases are united by bold leadership. The numbers only show what is wrong, but only a leader can decide how to fix it.
From chaos to control: BRG — your path to a profitable restaurant
Financial control is not an innate talent, but a skill that can and must be learned. It is the ability to implement the right systems, track the right numbers, and act on the data obtained. The path from a loss-making project, sustained by pure enthusiasm, to a stable and profitable business begins today — with the first step of your own financial audit.
Want to not just find the “holes,” but build a system that won’t let them show up again? The BRG team is ready to do a profitability audit for your place and come up with a personalized action plan. Hit us up for a chat at brgservicesuk@gmail.com, and let’s turn your dishes into real profits.
The BRG team is ready to conduct a profitability audit for your establishment and develop a personalized action plan.