By Jacob Wilson, Contributor
Family-led restaurants with old traditions seem like a rare sight today thanks, in part, to just how competitive the restaurant business has become. In fact, 80% of new restaurants that open fail within the first year.
And although many inexperienced entrepreneurs believe that this can be contributed to a poorly designed menu and bad service, that is not always true. Restaurant owners mostly focus on the location, menu, employees, and finding the capital to start their business. But they also often forget to plan ahead and think about the necessary money needed to sustain their business. To prevent you from making those mistakes, here are six tips on how to manage your financial strategy better.
Track All Your Restaurant’s Expenses
Your restaurant’s financial state is heavily dependent on the expenses – it’s easy to lose track of everything you spend money on when you have a dozen of different obligations of different nature. However, you need to know how much you are spending to make sure that you are allocating your budget properly.
Tracking all expenses isn’t just a legal requirement, it also helps you get a more realistic view on the monthly expenditure and whether you would need to change something in the manner you allocate your budget. Your budget needs to be able to sustain all costs and if you notice that you are “limping” month after month, that means you need to up your game with your financial strategy.
Keep an Eye on Your Restaurant’s Labor Costs
From waiters to chefs, all employees in your restaurant have to receive their paycheck on time and in the amount that you listed in their contracts. Unless you wish to lose quality workers, you need to tend to the labor costs in due course.
Also, your labor costs need to directly tie into your financial strategy. Overstaffing means you’re putting an unnecessary burden on your business, but understaffing means an overly stressed team that’ll run out the door at the first opportunity. If people start leaving suddenly, that will also have an effect on your budget.
And don’t just think about your restaurant staff’s wages. You also need to think about any and all benefits you’re offering your team – such as PTO, 401K, and other more unique perks.
Consider Invoice Financing
Having in mind that running a restaurant is a very dynamic business. Tending to invoices on time isn’t just a matter of building a respectful relationship with your suppliers, but a crucial element to keeping your business going.
To prevent any budget issues due to invoices which weren’t covered on time, you should consider invoice financing because that will help keep your cash flow in order. You can learn more about invoice financing here, but essentially, instead of waiting for some of your less reliable clients to pay for your catering service, you can get 95% of the value in 24 hours and the remaining 5% after the invoice is paid in full. In this manner there will be no disruption to the cash flow and your business can go on as usual. You can look at doing the same with your suppliers, too.
Keep a Tab on a Cash Flow Statement
This step is necessary because it helps you learn the current state of your restaurant business and how your activities are affecting your budget. The cash flow statement will show exactly where your money is going, how much of it is leaving, as well as how much you have on hand on a daily basis. By keeping a close tab on your cash flow, you will be able to make financially sound decisions on time and in that manner prevent your finances from suffering a potential blow.
Be Prepared for Known Expenses
A restaurant business or any other business for that matter cannot be run by improvising. There will be situations when you would be forced to make decisions on the spot, but a successful and steady business is run by planning and making predictions, as well as being flexible so you can react quickly and apply some changes or seize an opportunity.
This is why you need to be prepared for the expenses you know you will have. This applies to your daily costs, monthly, and even those that might be due next year – all of that would aid you to allocate your budget more wisely. Chances are that besides those known expenses, you will also experience some unpredicted ones which is all the more reason to plan ahead.
Manage Reports Daily
If your sales have been stagnating or going down the hill for some time, you need to know about that. It doesn’t mean that it is the end of your business; it just means that you have to change your strategies.
For instance, you might have to cut certain costs, find different suppliers, or change your target group. You might want to start catering events or to adapt your menu to the needs of the locals. In order to make these conclusions, you need to know the facts and the only way to do it is if you manage your accounts daily. Setting aside some time each day to look at your expenses and sales will make you notice improvements that can be made quickly and easily.
Even though the competition can be harsh, that isn’t a reason to quit even before you started. With careful planning and keeping a close eye on your financial state, you can build a reputable restaurant business which will also be lucrative.
About the Author
Jacob Wilson is a business consultant, and an organizational psychologist, based in Brisbane. Passionate about marketing, social networks, and business in general. In his spare time, he writes a lot about new business strategies and digital marketing for Bizzmark blog.
