Posts

Abstract blurred background of restaurant interior , vintage filter applied.
Restaurants have two major costs that make up their total prime cost – labor and food costs. In cases of seasonal adjustments in restaurants, it is essential to control the prime costs in order to survive the sales plunge. During the off-season, sales tend to experience a slump which leads to rising labor costs. This is because, despite lower sales, labor has to be paid (fixed cost incurs regardless of the no. of units sold) and will be incorporated in the bookkeeping process, no matter what. Moreover, prime costs make up approximately 55-65 percent of the restaurant’s total cost. This means that seasonal adjustments will require a stringent cost control drill for all restaurant businesses. Five ways to control costs during seasonal adjustments in restaurants have been discussed in the paragraphs that follow.

1. Adjust Labor Budget

As already mentioned in the preceding paragraph, labor costs tend to shoot in off-season owing to lower sales. You can control costs by making adjustments to the labor budget. At the time of setting and allocating budgets for the restaurant, the labor budget for off-seasons must be higher and vice-versa. This is likely to ensure that the prime costs are managed during seasonal adjustments where sales tend to fluctuate at a drastic pace.

2. Multiple Suppliers

Having multiple suppliers is a good idea for a number of reasons. For instance, in case of supply shortages from any of the suppliers, the alternative may always be available for backup support. This is crucial for restaurant businesses as the supply of raw material tends to oscillate during seasonal adjustment for the restaurant industry. Moreover, suppliers may as well transfer the cost of crops onto the restaurant if they are faced with a poor crop harvest. Switching the raw material supply under such circumstances is likely to induce cost control for a restaurant business. Moreover, having multiple suppliers will help save unnecessary hikes in Cost of Goods Sold (COGS) during seasonal adjustments in restaurants.  

3. Menu Adjustments

Another go-to tip to control costs during seasonal changes for a restaurant business is to make adjustments to the menu. Mixing and matching food items to incorporate the most popular and more profitable items into the menu can help lower food costs. Ensure that all items that you put on the menu have high-profit margins. Items that are neither popular nor have higher margins are to be eliminated from the menu as soon as possible. Not just food costs, but labor costs may as well be reduced by making changes to the menu. For instance, a higher number of workers are required to prepare a burger than those required for preparing steak. This means that, during seasonal adjustments in restaurants, menu items can be swapped depending on labor requirements to control the cost of labor as well.

4. Inventory Management

In order to ensure cost-control during seasonal adjustments in restaurants, keeping inventory estimates is necessary. You must have an estimate regarding how much inventory is to be maintained for the off-season as well as the on-season demand. Inventory orders must be placed based on these estimated figures. This type of inventory management is essential if wastage is to be reduced, which will lead to lower food costs as well. As for peak seasons, ample quantities should be available in stock to meet higher than ever demands in restaurants. Therefore, premium prices for raw materials may effectively be avoided.

5. Reduce Wastage

Lastly, it is crucial for restaurant businesses to ensure wastage control as this will eventually control costs (food costs). In an attempt to ensure perfection in food, a lot of wastage takes place within restaurant kitchens. This must be reduced in order to avoid wastage because the wasted food is costly. If wastage is prevalent in a restaurant, it means a higher quantity of raw materials is being ordered. This additional cost may be saved, especially during season adjustments in restaurants, when inventory management estimates are in place. A wastage sheet or a food wastage log must be maintained to cater to this issue.

Check out America's Best Bookkeepers


About Complete Controller® – America’s Bookkeeping Experts
 Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.

Owner of cafe and servant discussing new order on cash register display
Measuring cost as percentage of income in a restaurant has become increasingly important, not just an ideal. The relentless food and beverage industry has become saturated, creating a situation that is less profitable than 15 years ago. Making a profit has been marginalized considerably and, in comparison to other industries, the margin is quite thin! The activities of a common decent restaurant are no less hectic or critical than any other business but, with one single huge difference; the dishes doled out are the products. That means each dish would be required to come under calculations. These estimates are 75% higher than other industries. When measuring cost as percentage of income, a restaurant has room for profit that is low while costs can be exceedingly high.

Costs of a Restaurant

Costs can skyrocket in the food and beverage industry and surveys suggest that some even account up to 40% of sales. Depending on the nature of the restaurant, some experts estimate higher for others like fine cuisine and dining. Just the labor costs alone massively cut a portion of the sales to considerably impact profits.

Labor Overheads

In any restaurant, salaries and measuring cost as percentage of income go hand in hand. Wages and all routine expenditures such as hourly, weekly, or monthly payments to staff are considered labor costs. All businesses are exposed to tax laws which makes it a mandatory thing to keep in mind. Many business owners overlook employment taxes and other fringe benefits such as medical and health care. These taxes are payments from the sales of the business, so they have to be properly planned and considered for financial and bookkeeping purposes. For example, when budgeting, the labor cost calculations have to be accurate, otherwise the business will become a victim of grossly poor planning and, thus, a financial crisis.

Measuring Cost As Percentage of Income: Raw Material

A restaurant needs raw materials in order to produce mesmerizing delicacies and, usually, these costs are considered along with labor as the two most fundamental and elementary costs of a booming restaurant. If any sort of miscalculation occurs with these two costs, such as tax deductions or mis-estimation of costs, we are looking right into the face of a disaster. It is strongly recommended that proper guidelines be used for governmental resources and that food cost estimates are accurate down to the last cent. This is highly crucial in order to get the bigger picture at the end of a specified period of time. Measuring cost as percentage of income in a restaurant makes financial data easier to organize. This also helps attain its financial health and growth factors to help owners pave the direction of their businesses. All raw material costs should be brought into the bookkeeping to help place the image of the business on the table for professionals to analyze, for instance. Business owners draw great direction from the health and statistics of a business. It really pays to plan and monitor raw materials for the smooth functioning of any food and beverage business.

Importance of Reducing Costs

The fact is, when measuring cost as percentage of income, the restaurant has to be careful and adopt cost-effective processes. Profits are increased by small actions such as efficient energy management techniques, wastage minimization, increasing menu variation, etc. It’s central focus should be on a reduction of any and all non-essential expenditure while using practices that ensure optimization, effectiveness, efficiency, and a system that is well understood by restaurant employees, staff and hired help. Little things like switching off unused lights or curving the knife a little lower to get closer to the apple’s core for wholesome slices for the pie are all part of the plan. If regulated well, all of this increases profits.  Measuring costs as percentage of income of a restaurant will also place perspective of many of the functions and activities per the business plan.

Other things such as hiring hourly help more often can help reduce costs by letting slackers go. One thing a business shouldn’t stand for is individuals who don’t pull their weight. Lagging people draw expenses and hard-earned cash going with no valuable outcome. Employees must be paid when they start working and not when they clock in. If malingering is your problem, add extra charm and passion by offering incentives or bonuses.

While measuring costs as percentage of income at your restaurant, reduction of costs and expenditures through proper practices that are supervised and monitored along with accurate inventory control and raw materials inspections allow the business to succeed.

Check out America's Best Bookkeepers
About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual accounting, providing services to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks file and critical financial documents in an efficient and secure environment. Complete Controller’s team of  US based accounting professionals are certified QuickBooksTMProAdvisor’s providing bookkeeping and controller services including training, full or partial-service bookkeeping, cash-flow management, budgeting and forecasting, vendor and receivables management, process and controls advisement, and customized reporting. Offering flat rate pricing, Complete Controller is the most cost effective expert accounting solution for business, family office, trusts, and households of any size or complexity.