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Mistakes Restaurants Make

The restaurant business is tough. Everyone in it knows it. Everyone looking to get in it ignores it.

As with other high risk investments, opening the right kind of restaurant in the right kind of market can pay off very well financially. Some of the better chains can see average net profits approaching, and even exceeding 30% of sales. That’s a great return! While the risk of opening a restaurant is huge, the reward can also be huge. If you happen upon the right concept, and manage it well, you could see your investment paid off in 3 years or less, and have lots of residual cash flow to boot.

Certainly there has to be some sort of magic formula you can follow to make sure your restaurant gets these incredible returns, isn’t there?

Unfortunately…no. There is no magic formula. Experienced operators have businesses go belly up every day, and just as often, novices open up with no clue of what they’re doing, and make a killing. While experience does give you a better chance of succeeding in the high risk world of restaurant ownership, I’m going to give you some points of consideration even more important than experience.

These are the top mistakes restaurants make.

1) No unique selling point

Your customers need a reason to come to you instead of your competition. While I know you’d love to think that your food is so good that people will line up out the door to eat it, you’re mistaken, just as millions of mistaken restaurant owners before you who are now out of business.

Good/great food and/or service is NOT a unique selling point. Now, I don’t want to understate the importance of great food and service, but it isn’t the reason someone is going to try your restaurant.

If you want to offer something truly unique, you need to move past food and service. Yes, you need to have great food and service, but by having great food and service, you are only meeting the minimum expectations of your customers. You are not giving them a reason to eat with you that your competition isn’t claiming as well. What you need is something original to sell…other than the best food or the best service. You need a UNIQUE selling point.

Burger King offers “accommodation”. “Have it your way!” they tell you.

Applebees markets themselves as “Your favorite neighbor”.

Hooters sells…well…cute waitresses in tight tops and shorts.

A truly unique selling point isn’t the best food or service. It’s an emotion you offer to people, whether it be nostalgia, accommodation, or something else.

2) Too large of a menu

This is a VERY common killer of independent restaurants. As an independent operator, you’ll get pressure from customers to have certain items on your menu.

You have to realize that this is all part of the process. YOU CAN NOT PLEASE EVERYONE. It’s a waste of time to even try because you’ll lose your own identity in the process.

Large menus create several problems within an operation:

Large menus lack focus.

Large menus take longer to order from. The more choices you have on your menu, the longer it takes each table to peruse that menu, and the longer it takes for them to order. For every minute they are NOT ordering, you are NOT making money for the seat they are occupying.

Large menus require more inventory items. The more items on your menu, the more ingredients you need to buy to make those items, and the more items you’ll have on your shelf. Every item on your shelf represents a possibility for loss. It can be stolen, it can be mishandled, mis-prepped or stored incorrectly and spoiled.

Large menus require more equipment and personnel to produce. The more items you have on your menu, the less opportunity your staff has to cook multiple orders at once.

Large menus mean longer ticket times. When you have too many different dishes cooking at once, and less multiple orders in the same pans, it means more time to produce whatever is being ordered.

It is inherent in people to assume that somehow offering people more will make you appealling to more people. It’s just not true.

3) All talent and no brains

So you can cook. Your food is fantastic, and everyone you cook for confirms it. You’re ready to open a restaurant then, aren’t you?

NO!

Owning a restaurant isn’t about cooking. It’s not about having good food. While those things are components of a good restaurant, they are not the reason for its success.

Once you have the perfect menu for your market, knowledgeable staff to serve your market, a trained line to reproduce your food, and plenty of booze to ply your guests with, you’re 1/3 of the way there

What most new restaurant owners don’t realize is that having good food and service is only 1/3 of the battle. The other 2/3rds include marketing their restaurant and managing their restaurant. Managing is a very important piece to the puzzle that most new restaurant owners overlook. Beyond making good food and selling it to people, you need to know how to collect data and analyze your business to make sure you have the necessary information to run a profitable business.

You need to know:

  • How many people I’m feeding each day/shift/hour;
  • What items they’re buying, and how many of each;
  • What gross profit those items are contributing;
  • What those items should have cost me to sell;
  • What my actual cost of selling those items is;
  • What my labor is compared to my budget;
  • How many labor dollars I spend per sales dollar;
  • How many labor hours I spend per sales dollar;
  • What I purchase each day, and how to categorize each purchase for analysis;
  • What my sales are compared to what they should have been;
  • What my Prime Cost (Sales vs. Cost of Goods and Labor) EACH WEEK;

That’s a lot of things to worry about.

There are many other managerial concerns. This is why I’m telling you that your great ideas for a menu, and incredible talent for cooking will only get you 1/3 of the way to operating a successful restaurant.

4) Poor pricing strategy

You need to have a method for pricing your menu.

At the end of the day, your food cost must be 32% or lower, liquor 21%, beer 26% and wine 30%. This can very slightly, but these should be the percentages you think you can achieve when pricing your menu.

5) No marketing skill

This may be the biggest restaurant killer of them all.

I’ve talked to hundreds of restaurant owners in my day. I have yet to meet ONE that didn’t underestimate the importance of marketing. As I stated earlier, marketing is 1/3 of the reason you succeed or fail. I may even have to give marketing the extra 1% of the 100% possible when splitting reasons for success into 1/3rds, and say that it is even more important than good food and service, or management skill.

No matter how great your food is, if no one knows, it won’t sell.

Marketing to existing customers represents an exponentially greater opportunity for increased sales than spending dollars trying to reach new customers. These existing customers are a better source for new customers than any marketing method out there targeting people who haven’t been in your restaurant and aren’t already familiar with your product.

6) Bad negotiation skills

Most new restaurant owners don’t know what they SHOULD be paying for the services necessary to successfully operate a restaurant. That’s a problem.

Every vendor out there, whether they be a food distribution company, point of sale software provider, chemical company, paper goods, linen, liquor, beer or wine distributor, or a credit card processor, has clients who get great deals, and clients who get taken advantage of.

Normally, the difference between a vendor giving you a good purchase rate, and taking advantage of you, is your knowledge of the goods you’re buying, and what other people are paying for them.

Two things are a given in negotiating a purchase contract:

If you don’t know what other people are paying for the same goods you’re buying, you’re not getting the best price

If you aren’t making your purveyors COMPETE for your business, you aren’t getting the best price

While there are other negotiation tactics to consider when trying to get premium pricing from a vendor, these two are the most important to remember.

Know this. There is a sucker in every negotiation. If you don’t know who that sucker is, it’s you.

There are other important factors to operating a successful restaurant, but we see these six problems in most restaurants and food service ventures that fail. Keep these six in mind in your plans for success!

For the best restaurant bookkeeping and accounting services, head over to our main website to get connected with a restaurant accountant professional today.

Restaurant Accounting Services Stands Ready to Improve Your Restaurant’s Bottom Line.

Far more than just bookkeepers, Restaurant Accounting Services (RAS) is staffed by accounting professionals with the added benefit of decades of experience in the restaurant industry. We are always at the ready to answer questions from you, interact with and reconcile vendors, answer payroll related inquiries, etc.

We completely replace the need for transactional processing in-house accounting.

With the installation of a scanner provided by RAS, management scans not just invoices, but any document to be conveniently stored in our Virtual Filing Service. RAS polls sales data directly from your P.O.S. system, and completes the transactional /reconciliation process via online banking access.

RAS serves only restaurants.

Our efforts are focused on a streamlined and efficient bookkeeping process, completing the entire scope of our work far more quickly and accurately than an in-house bookkeeper, at a reduced cost. Along with accuracy, there is the added benefit of understanding what the figures mean.

Timely review of accurate numbers means a quick response to correct those numbers. Experience, efficiency, accuracy and timeliness along with implementation of recommendations results in an improved bottom line.

Accounting and Bookkeeping Services

Sales Reporting | Payroll | Profit & Loss | Checkbook/Credit Cards

Accounts Payable | RASCAP | Virtual File System

To learn more about how we’ll help your restaurant, please
call (866) 460-6225 or enter your information in the contact form.

Why Restaurant Accounting Services?

You will find RAS is more accurate, timely, and complete. Additionally, RAS costs are substantially less than “in-house” bookkeeping.

RAS is a team of more than 50 professional and highly trained individuals whose sole focus is the complete accounting function for Independent Restaurants.

RAS performs the complete accounting functions from data entry, vendor payments, checkbook & credit card reconciliation – to weekly financial reporting for restaurant management.

With the simple installation of a batch scanner by RAS, invoices are scanned for detailed data entry.

RAS polls daily sales data seamlessly online from your POS System and completes the reconciliation tasks via online banking.

Accurate Labor, Food & Liquor costs are known & controlled weekly with RAS reporting – as required for factual management.

Your dedicated RAS accountant is there to service you 40 hours a week – every week.

All RAS clients have three things in common:

  1. All were pleased with how quick & easy RAS made the conversion of their records.
  2. All were surprised by rapid improvements in their bottom line with accurate weekly financials.
  3. All say… “We only wish we had discovered RAS years ago!”

Restaurant Bookkeeper & Employee Embezzling

It is astonishing to Google “restaurant bookkeeper convicted of stealing”. The stories are endless and according to law enforcement, few are actually prosecuted. It is a difficult topic as it typically involves an employee once considered very close to the owner. Most business owners choose to keep it quiet when it happens to them.

In every instance the bookkeeper was a trusted employee. Why did they go from being a person who earned your complete trust to stealing? Everyone’s motive is different. It may begin with “just this once”, but then the amounts and tactics expand, and self-confidence increases as it goes undetected.

The reality is restaurant owners can only oversee so much. With the hours required to manage the income producing details of a restaurant and customer satisfaction, it is easy to understand a situation developing to where the bookkeeper is ultimately completely trusted with the restaurant’s financials.

What you will not find when you review the Google articles is bookkeeper embezzlement with Regional Multi-Unit Restaurants. Regionals, with extensive accounting departments, intentionally isolate in-house employees who handle cash and deposits, and sign vendor invoices for deliveries – from those with access to bank accounts, processing vendor payments, scrutinizing costs and financial reporting.

Regional operators are successful by working under the business school teaching that “Only what gets measured, analyzed and corrected improves.” The Regionals’ accounting staff identify and question every percentage variation, every week. If beer costs increase from 22% to 22.5% in one week, the Bar Manager will be answering for it.

What can be done to protect your money?

With proper assembly, coding, recording and reporting of a restaurant’s complete Prime Costs every week, key changes in Prime Cost percentages are instantly visible. Pilferage of funds, food and liquor cannot be hidden. Weekly reports provide a tracking means which enables management to address variations immediately. (See RASCAP Flash Report.)

Experts agree the only real means for the Independent Restaurant owner to keep everyone honest is to outsource their daily bookkeeping to restaurant accounting professionals. When restaurants are owned under a partnership, outsourcing also provides an impartial third party to provide checks and balances, segregate duties and financial management, all without any conflict of interest.

2014 Was a Volatile Year
for Restaurants Fresh Food Prices.

Restaurants Fresh Food purchase price adjustments are continuous, primarily due to the ripple effects of weather-related circumstances in the USA and beyond. However, in 2014 food costs raised significantly

In 2014 Restaurants “costs of goods sold” increased considerably. Beef & Veal product costs are up 11.5%, Pork 9.5%, Dairy 10.5% and so on. For 2015, Restaurant Prime Cost Fresh Food prices are again forecasted to increase at a rate higher than overall inflation. Significant increases are also forecasted in the wholesale costs of Beer & Coffee in 2015, due to weather-related conditions.

For regional Multi-Unit Restaurants with a staff of accountants tracking costs, this is not an issue. In fact, this is the reason Multi-Unit bottom-line profits are 2% – 5% greater than Independent Restaurants, even after their substantial back-office expenses. Large restaurant operations are successful by working under the business school teaching that “Only what gets measured, analyzed and corrected improves”.

The Prime Costs all multi-units track daily are also available to the independents by digging deep into systems that are commonly in place. However, the fact remains; the information must first be properly coded, recorded, and then mined from several areas beyond their POS Systems. This is time consuming and difficult to assemble in a fashion that can be easily understood & truly useful – every week.

However, there is an alternative. Since 2008, hundreds of Independent Restaurant owners have discovered that they too can enjoy the same resources of the regionals with Restaurant Accounting Services (RAS) as a member of their team – at a cost substantially less than in-house bookkeeping.

RAS’s growth & sound reputation is built on being the most complete, timely & cost effective Restaurant Bookkeeping alternative for the Independent Restaurant owner. RAS has accomplished this, and continues to improve with continuous investment in technology & employee training. Today RAS consists of more than 40 highly-skilled restaurant accounting professionals, focused solely on the complete cost oversight and structured daily bookkeeping for Independent Restaurants.

With accurate & timely Profit & Loss Statements, built on properly coded & recorded vendor invoices and POS derived sales data; RAS clients quickly see their complete Prime Cost fluctuations. This information is vital for timely adjustments in menu pricing, profitable daily specials & hourly employee scheduling. Late figures are useless for prompt adjustments to maximize next month’s profitability.

Restaurant Accounting Service reports are often customized to provide only the financial information clients want to share with its staff for cost accountability. In addition to their customized Weekly Flash Reporting and Profit & Loss Statements; RAS clients receive an up-to-date Balance Sheet, Accounts Payable with aging, detailed Sales Reports and reconciled Bank Accounts & Credit Card transactions.

To see if your Restaurant Bookkeeping is providing you with complete real-time reporting required for today’s restaurant management, contact RAS here or learn more about our services here.

“Controlling cash flow, minimizing losses & maximizing profits” – Only RAS!