The margins in the restaurant business are so small that it is essential for the restaurant owners and managers to have a good understanding of what is affecting the restaurant’s profit on a weekly basis. A weekly profit and loss report, whether generated from a POS system or manually produced, should be generated and analyzed and variances in cost and sales investigated so that potential problems can be quickly corrected. Waiting for the monthly financial statements to be generated allows too much time to go by and too much money to be lost before the problems can be recognized and addressed.
Analyze the weekly report by comparing a) the current week with the prior week and b) the current week with the current week of the prior year.
Compare the following categories to prior periods and analyze variances of 2% or more:
1) Profit (or loss)
3) Food and beverage costs
4) Labor costs
Variance in Profit: Profit (or loss) = Sales – Prime Costs – Indirect Costs (general and administrative expenses). A variance in sales, prime costs, or indirect costs will all affect the profitability of the restaurant.
Variance in Sales: A restaurant’s sales can vary based on many different factors. Fluctuations can be contributed to a successful marketing campaign, recent negative customer experiences and reviews, new competition, or more people visiting the area due to local events. Some of these factors are not easily controlled but better service or more effective marketing are things that can be controlled.
Variance in Prime Costs: Prime Costs = Food and Beverage Costs + Labor Costs (all payroll expenses including benefits and worker’s compensation). Prime costs in quick service restaurants should be 55%-60% of sales, a little lower than in full service restaurants where the average should be between 63% -68%. Since the prime costs make up such a large percentage of the restaurant’s total costs it’s vital to understand and be able to control these expenses.
a) Food and Beverage Costs – These costs could increase due to employees serving portions that are too large, letting too much food go to waste, employee theft, vendor price increases, or, in some cases, inventory purchases greater than par level.
b) Labor Costs – These costs should be controlled by efficient scheduling (we cover this in our blog “Efficient Scheduling of Employees in Quick Service Restaurants”) so that the restaurant won’t lose money by paying too much in overtime or schedule too many employees to work during slower shifts.
Allen & Company, PC - a CPA firm serving Kennesaw, Marietta, Acworth, Woodstock and north Atlanta. Providing accounting, financial statement audit, taxation, and advisory services for individuals and businesses. Extensive experience working with franchised quick service restaurants and other franchised businesses.