Start with these:
Profit = Sales minus Expenses. If expenses are higher than sales, we can only stay open as long as someone finds extra cash to make up the difference. If it runs out, the business will close.
There are 2 types of Expense: Fixed and Variable. The ingredients for making a pizza or cocktail are variable costs - mostly raw materials and labour. Rent and insurance are examples of fixed costs. The profit made on the pizza or cocktail first have to pay for the Fixed Costs.
Food and Liquor Stock is just like Cash. Most businesses keep a week's supply of food in stock, and several weeks of liquor. More than this and the boss should be getting worried - it's easy to be overstocked.
Boosting Sales is usually more profitable than Cutting Costs. But most people find it easier to cut rather than grow, so it needs smart leadership to handle them both. When you find someone who loves to sell, look after them!
There are only 100 cents in a Dollar. Take 100 coins and ask staff to divide them up for rent, wages and all the other business expenses. What did they get wrong - any surprises?
Staff is usually the biggest expense in hospitality. That's why the boss watches the roster closely, and why productivity is so important. And why wage rises are a challenge, unless there's a matching rise in productivity.
Extras or 'On-costs' add 30% or more to the total cost of staff. Examples are workers compensation, leave, uniforms, training and staff meals. For every $100 per week you're paid, add at least another $30.
New equipment is paid for by profits. There's nowhere else to get the money, unless we borrow it (then it has to be repaid). The best equipment has a fast 'return on investment' - it pays for itself quickly by saving labour and ingredients, or creating more sales.
The cost of small items can be surprisingly high. Work out the exact cost of a strawberry, an olive, a scroop of ground coffee, a teaspoon or a napkin. How many are lost or wasted each week?
Profitable Hospitality offers management and cost-control systems (Manuals & CD-ROMs) for restaurants, cafes, hotels, bars and clubs. The systems are based on the extensive consulting and operating experience of CEO Ken Burgin, and enable busy owners and managers to set up complete operating and cost-control systems in minutes, not months. Profitable Hospitality also runs regular management training workshops in the areas of kitchen profit & efficiency, restaurant marketing and functions management. A free monthly e-newsletter keeps you up to date on the latest industry management issues. www.profitablehospitality.com.
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