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A Percentage Here and a Percentage There Can Double Profits

By Sandy Horwitz & Deryk Konhauzer

A restaurant whose gross sales are $3,000,000 with a net profit after operating expenses of $150,000 can double their profits by cutting costs by single digit percentages! For example, if prime costs (defined as all food & beverage costs + all payroll related costs, including gross payroll for all managers, hourly employees, payroll taxes, benefits and workers compensation, etc.) are decreased by 3% and operating expenses lowered by 2%, say hello to an additional $150,000 in NET profit due to a miniscule 5% of savings thanks to good decision making.

It goes without saying that the restaurant industry is a penny business-some would even say a half-penny business. Purchasing at times can be a tricky game. What if a vendor changes the price of beef? What if the vendor was charging $100 for 8 pounds of beef and recently upped the price to $103? Sometimes, a restaurant operator may ponder, "Is it worth stirring the pot with a vendor over three dollars?" The answer is YES it is worth it. In this instance, the three dollars represents 3% percent of $100. If you apply the three dollars to $3,000,000 in gross sales you have $90,000 that you pick up in profit.

Now let's talk operating expenses. Is it really necessary to keep the air conditioner on its coolest all the time? Are you getting the best rates on linens and flatware, insurance, cleaning and office supplies, etc? Or do you think with the proper attention you could get some of these items for 2% less? In the context of $3,000,000 in gross sales, cutting the costs of all expenses by 2% will tack on an additional $60,000 in net profit at the end of the day.

So, with operating expenses down 2% or $60,000, plus the 3% pick-up in prime costs or $90,000 will add an additional 5%, or $150,000 to net profit. This essentially has doubled the original $150,000 in net profit to a net of $300,000.

Our clients are disciplined in the restaurant culture. It is not because they are frugal or cheap-it also certainly does not come at the expense of a quality product at a terrific value. Yet it is through methodical management of daily reporting of information which can be an important tool where purchasing and inventory control are involved. Maximizing inventory through the use of specials is a great means of minimizing spoilage, as well as, potentially introducing profitable and more permanent menu items. Staffing is also a huge area of control-especially when it comes to the right vs. wrong time to cut servers for the night.

A wise person once said to me, "if you turn your back on your business, your business will turn its back on you." Simply put, the tone must be set at the top. Managers should be trained to be cost conscious. It is imperative that they understand the concept of controlling expenses. For example, preventative measures should be taken by management to convey to staff the importance of limiting unnecessary loss, such as the inadvertent disposal of silverware and/or linens, such as napkins.

There are methods we will touch on in future articles that are obvious. Yet it can easily be missed that a percentage here and a percentage there has an impact on your bottom line. And if you have multiple locations, your income will multiply too!

Sandy Horwitz & Deryk Konhauzer of Goldstein Schechter Koch, a 60+ year-old certified public accounting and consulting firm based in South Florida.

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