Every business owner that is new to the restaurant industry needs to be familiar with it’s fundamentals. If you are in the business of food servicing or a restaurant owner, you must track and evaluate certain performance metrics over a period of time to understand the status of your business. Restaurant owners who regularly calculate their business performance metrics can easily identify areas for improvement and catch negative trends.
Where do you get the information to calculate your business performance metrics? Bookkeeping will help you in providing all of the necessary and relevant information from which all of your accounts are formulated. The process of bookkeeping is a recognized and well-defined process in the field of business and accounting. Each and every transaction, whatever nature (purchase or sale) may be, has to be recorded. The process of bookkeeping helps ensure accurate and timely records.
Increasing a business’s profitability and efficiency does not happen overnight. Operating a restaurant involves many moving parts – so many different revenue channels, costs and factors that eventually influence the net loss or profit. One simply cannot expect to make a change in one area and expect to see all margins and operations improve. In fact, running a profitable enterprise entails constant testing and tinkering until the best practices are found for the business.
Important Performance Metrics You Must Use in Order to Run a Restaurant
One of the first performance metrics you should calculate is your break-even point. This calculated figure will identify exactly how much you need in your sales to earn and get back your investment. The break-even point figure can also be used in forecasting the time it will take you to receive and earn back that money. Break-even is one must-have performance metric you need to look into if you wish to invest in a new restaurant.
Break-even can also be used for justifying any new large purchases such as launching a brand new marketing campaign or a commercial kitchen remodel. Saying it will cost $30,000 is one thing, but considering the recovery will take 4 months is a much better way.
How to Calculate the Break-Even Point
Sales of one month = $10,000
Variable costs = $3,000
Fixed costs = $4,000
Break-even point = $5,714.29 for the month
This means that you will start earning your profit after you have sold $5,714.29 worth of drinks and food.
The equation for break-even point is:
Total Fixed Costs ÷ ( (Total Sales – Total Variable Costs) / Total Sales) = Break Even Point
In this case, $10,000 – $3,000 = $7,000.
$7,000 / $10,000 = 0.7, and
$4,000 divided by 0.7 gives you $5,714.29.
Cost of Goods Sold (COGS)
Cost of Goods Sold (COGS) denotes the cost needed to produce the beverage and food items that you will sell to your guests. This way, the COGS is just a depiction and sign of the restaurant’s inventory for a definite time period.
It is important for you to keep track of your COGS because it is one of the major expenses a restaurant has to sustain. Certain ways are identified to minimalize these costs (such as picking in-season ingredients or trying to reach an agreement with the food distributor on better rates). Every dollar saved on COGS is a dollar towards the gross profit for the restaurant.
How to Calculate the Cost of Goods Sold (COGS)
Inventory at the starting of the month = $5,000
Purchase of another inventory = $2,000 in the month
Ending month of inventory worth left over = $4,000
Cost of goods sold for the month will be:
$5,000 + $2,000 – $4,000 = $3,000
The equation for Cost of Goods Sold (COGS) will be:
Beginning Inventory + Purchased Inventory – Final Inventory = Cost of Goods Sold (COGS)
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