![]() This particular format includes key ratios and allows the owner to see how to compare results with the annual budget in both dollars and percentages the importance of percentages is addressed later. Budget" example shown below, it's easy to see how each of these four areas is reflected on the financial statement. In the "Blue Fish Grill Profit & Loss vs. This is your ROI or "return on investment." ![]() Another important measure of profitability is to compare annual Net Income with the total investment you have in the restaurant. The importance of this number is quite apparent however, it may be helpful to compare "Net Income" with one or more prior periods to see if you're gaining or losing ground. Finally, what's left after all the expenses are paid, and hopefully with no brackets around it that indicate a loss. This makes it a good benchmark for evaluating management's overall effectiveness at "running the restaurant." Sometimes referred to as "operating income," controllable income reflects only those expenses over which the operations personnel have any real control or influence. Many of the larger, casual-theme chain operators can keep their prime cost 60 percent or less but for most table-service independents achieving a prime cost of 60 percent to 65 percent of sales still provides the opportunity to achieve a healthy net income provided a restaurant has a fairly normal cost-and-expense structure in the other areas of their P&L.Īdditional Resources: Why Prime Cost Is the Most Important Number (That Shoud Be) On Your P&LĬontrollable Income. In table-service restaurants, the generally accepted rule says that prime cost should run no more than 65 percent of total sales. Keeping close tabs on your prime cost is critical for a number of reasons it represents your two biggest and most volatile cost areas, and is really one of the few costs over which you have control. Prime cost is the total cost of sales plus all payroll-related costs, including wages, benefits, payroll taxes, workers' compensation and other similar expenses. It's also helpful to look at check average and customer counts when comparing sales from one period with another. It's good to compare current sales with the same period of the prior year and to a budget or forecast. Strong sales volume can make up for quite a few management mistakes and cost control glitches - at least for a while anyway. While this is pretty obvious, the top line is the single biggest profit-determining factor on the P&L. Integrate the steps described in this article to help turn around inconsistent or lackluster financial performance. Too few restaurants employ effective budgeting, which is a critical path to effective management and profitability. The restaurant P&L and budget formats differ from that of other businesses in that they make it easier to identify the four major checkpoints restaurants need to monitor - sales, prime cost, controllable profit and net income. (We strongly suggest you adopt the restaurant industry P&L format as recommended by and the National Restaurant Association.)Īdditional Resources: The Best Way to Format Your Restaurant's P&L The budget is your hypothetical profit-and-loss statement (P&L) therefore, it should be formatted the same as a monthly P&L. It forces management to consider changing conditions and adapt their operations to maintain profitability and consistency of product and service. A budget is an organizational plan expressed in monetary terms. ![]() The vast majority of restaurant failures can be attributed, at least in part, to the absence of a plan or practical budget upon which decisions, accountability and actions are based.Ī budget is a fundamental tool by which business owners and managers can predict, with reasonable accuracy, whether their restaurant will profit, break even or lose money. ![]() Unfortunately, more than 60 percent of all restaurants end up on the most hazardous of these routes by their third year of existence. But the most treacherous road leads to failure, and in some cases, financial ruin. Another, less desirable road is that which leads to break-even, or merely hanging on. The most preferred route is to take the road to profitability and success. "If you don't know where you are going, any road will get you there." For restaurant owners there are three "financial" roads, each leading to a different destination. Article How to Create a Realistic Budget For Your Restaurant by Joe Erickson
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