Cost Controls Are Not Just For Detecting Dishonesty

The prevention and detection of fraud and theft are just ancillary benefits of a cost-control program, a premise that is not always clear to independent operators. Many independent operators feel that their physical presence and the hiring of family members eliminates the need for cost controls. Once they progress beyond the singular idea that cost controls are to keep people from stealing and understood that the primary purpose was to provide feedback on day-to-day operations and decisions, they appreciated the real purpose and value.

Why don't all restaurant operators have cost-control programs? The answer is that they are not aware of the waste that is taking place around them. It is not very complicated, as it is all basic management. You have to be able to identify value, and you have to know your costs and detect where they are excessive. Cost control encompasses all areas....from the back door to the front door; from purchasing to paying your bills; from recording each transaction to depositing the sales and receipts in the bank. Cost control is also more than just computing percentages and ratios; it involves making decisions after the information has been compiled and interpreted.

Cost control is used to monitor the efficiency of individuals and departments; to inform management of what expenses are being incurred and what incomes are being received; and whether they are within standards or budgets. In essence, cost controls are for knowing where the business is headed, not for discovering where it has been. That enforces the preventative and proactive purposes of cost controls.

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10 Restaurant Start Up Mistakes (And How To Avoid Them)

In any new business venture good decision-making is vital. Opening a new restaurant requires so many decisions that it's not hard to make some bloopers along the way.

The key is not totally missing the mark on the really important issues that can make or break your chances for success. Here are some of the more important common missteps new owners make in areas that play a big role in how well a new restaurant is likely to do.

1. Underestimating capital needs. There are many good new restaurants with excellent prospects for success that simply run out of money. It's common for first time owners in particular, to leave out or inadequately project all the startup costs involved in opening the restaurant. Some of the reasons include construction overruns, change orders, delays, and to be blind-sided by additional costs mandated from local inspectors and building authorities.
   
   Also, soft costs like permits, liquor licenses, insurance binders and pre-opening payroll are often missed completely or grossly under-budgeted. Unless you've done it before, it's usually advisable to seek some experienced, professional help in identifying and estimating, in detail, startup capital you'll need. Even then, many pros still add a 10%-15% contingency for the host of things that can (and often do) happen to add more cost to the project than you plan on.
    
2. Believing you'll start making money on opening day. The odds are stacked against this happening. Even the best run chain restaurants, who open restaurants for a living, factor into their startup budgets, an allowance for funding operating deficits for up to 2 to 3 months after the restaurant opens.
   
   It usually takes time to build sales volume to an adequate level. Even if your sales are strong from day 1, food and labor costs are usually sky high for the first several weeks as your managers and staff get acclimated, productive and have the time and energy to focus on anything other than just taking care of who's at the table. In time, most things can be fixed. Run out of money and you're done. Not factoring in an adequate reserve for initial operating deficits is another cause of undercapitalization (see #1 above).
    
3. Lack of a clear vision and purpose. This may sound somewhat vague and intangible but a successful startup requires the coordinated effort of a dedicated staff pulling together in the same direction, united by a common goal. Getting this accomplished requires some leadership skills.
   
   New operators who either don't have or can't communicate an underlying mission that the staff can rally around will find it difficult to create the kind of climate that supports teamwork, hard work and dedication to excellence that endures through the long hours and sometime chaotic conditions that take place during the startup phase of any new restaurant.
    
4. Lack of documented systems, procedures and training manuals. Restaurant operations involve the ongoing repetition of hundreds and even thousands of divergent tasks by many individuals and groups of individuals. Organization and consistent execution is key to creating a successful restaurant. Franchised restaurants start out with detailed recipes, checklists and procedures to do everything from prepping the lettuce, to cleaning the restrooms to closing out the cashier. In new independent restaurants, it’s often making it up as you go.
   
   There may be nothing to go by other than what's in the owner's head. This makes it more challenging to train employees and execute consistently so customers get a consistent level of service and food quality regardless of who the server is or who's in the kitchen. The longer the restaurant operates without a documented way of doing business, the longer the restaurant stays stuck in the often unorganized and do-what-it-takes and difficult startup phase.
    
5. Owner fails to function like an owner. Instead, the owner functions like just another employee and ends up bussing tables, cooking in the kitchen and doing the books. Obviously this is often a necessity during the startup phase but eventually someone has to manage the business, not just run the restaurant.
   
   Managing the business includes activities like monitoring cash flow, analyzing the P&L, deciding about next month's marketing activities, evaluating what's working on the menu and other "strategic" functions to position the restaurant for future success. If the owner is constantly training employees or working the line, guess who's managing the business? Nobody.
    
6. Having the grand opening on opening day. You only have to do this once and you learn to wait a month or 2 to declare your grand opening. There are few things worse than getting slammed with more business that you can possibly handle on day one. With so many restaurants, the public's first impression can easily be their last.
   
   Blow it on opening day and chances are you won't see most of those people again, ever. And they'll tell their friends to stay away too. Soft, quiet openings are the way to go. Get your act together before you tell the world.
    
7. Focusing too much on what you like. What you like doesn't matter, because you are not the customer. What matters is what your customers like. Find out what people in your area want and the price they're willing to pay for it. Go to existing restaurants and find out what people are buying. Take formal or informal surveys, conduct focus groups, anything to get a sense of what people in your area are hungry for that they currently can't get in your market area and what they're willing to pay for it. Too many new restaurant concepts miss the mark by not analyzing what people want in their local market.
    
8. Deciding on a concept, and then finding a location.  Don't marry yourself to a concept. Find a location in a good market with adequate parking, access, visibility and other positive traits, and then determine what the local market wants that it can't get and find a way to satisfy that unfilled desire.
    
9. Accepting a secondary location to save on rent. Don't be too sure that your restaurant is going to be so exceptional that customers will go out of their way to find you. With all the restaurants there are today, chances are they won't. High visibility and convenient access are more critical today than ever. Saving money on rent in a poor location often results in spending all that and more on advertising in an attempt to get noticed and bring in more business.
    
10. Trying to appeal to everyone. You can't and if you try you'll end up with too may items on the menu, an overly complicated kitchen, confused customers and no unique identity in the marketplace. The key to success for today's independents is to identify an unfilled niche in your local market and being laser-beam focused on filling that particular slice of the market. This will give you a much better chance to become really good at

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Restaurant Start Up - Design and Kitchen Equipment

An efficiently designed kitchen with labor saving equipment is by far the most effective way to reduce labor costs. After several months of operation, examine the kitchen in action. Look at each employee, what are his/her motions and movements? How many steps must be taken to reach food items and more stock? Look at the position and layout of the equipment, is it set up in the most efficient way possible? Ask the employee's how they would like their work areas set up, and how it could be more efficient. They are the real experts as they work the same job every day. Look at the wait staff work areas, could they be made more efficient? This exercise will result in faster and better service. 

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Ten Signs That Portion Standards Are Not Being Followed

10 Signs That Portion Standards Are Not Being Followed

1. Measuring tools aren't being used to portion food.
2. Standards are lacking for serving bowls, plates, and cups.
3. Portion markers aren't used to cut pies and cakes.
4. Customers tell you that portions are either too large or too small.
5. Too much food is being left on the plates in the bus tub going to the dish room.
6. Customers are making frequent trips to the salad bar.
7. Entree portions are too large and are discouraging the sale of appetizers and side dishes.
8. Dessert sales are low.
9. Customers are requesting many doggie bags too often.
10. Too many items are left over or used up early in the meal period.

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Restaurant Start Up - The Menu

The bottom line in determining what portion size to serve is to "serve the largest portion feasible, but charge accordingly. It is far better to serve too much food than too little. Perceived value is the key to determining the relationship between price and portion size.

The crucial element that must be reinforced is that every menu item, entrees, side dishes, and some desserts must be a specific weight and size. Portion controlling is the basis for the restaurant's entire cost control program; its importance cannot be overstated.

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Delegate With Caution

When you delegate new responsibilities to members of your staff you will have to deal with the question, "what's in it for me." It is only fair to reflect someone's increased contributions to your profitability on their check. If you don't give for what you get, you will not find many volunteers to take on additional duties.

Don't view delegation as increasing costs. Rather, view it as a way to free yourself to identify more ways to increase revenues. Even if delegation does nothing but give you more free time to have a life, any additional costs will be offset by your own increase in productivity.

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Seek Results.....Not Activities

I am often asked by my clients to provide training services. As if somehow the process of “training” will magically make all of their operational problems disappear. My response is always the same, “what is your objective?”  By focusing on the output (results) rather than the input (tasks) you can eliminate steps (work) that has no bearing on the success of your restaurant. Going through the motions of a training program does not guarantee results. It only guarantees you going through a “training process” that may not be needed. I have always believed that one should never do more work than is absolutely necessary to get the desired result.  Besides, isn’t it all about results?

The problem with providing an employee with a “job description” is that the job description focuses on tasks, not outcomes. It is conceivable that an employee can complete each task listed on the “job description” and still not provide you (the owner) with the desired result. Think about it….your restaurants profitability and reputation is predicated on the results your employees achieve. Activities (tasks) mean nothing if they do not deliver the desired result.

By defining results rather than tasks you allow your employees to interpret their jobs in the way it works for them. The result will be increased productivity, enhanced guest service, improved moral, and more sales and profits for you.     

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How Much Inventory Should You Keep On Hand?

The answer to the question is simple. As little as possible.

The point is, you don’t want to convert your liquid cash to perishable food inventory if you can help it. The more frequently you get deliveries from your suppliers, the less inventory you must keep on hand.

Inventory control is basic “cash management.” Minimizing your inventory increases the liquidity of your restaurant.

Purchases should be tied directly to sales and not storage capacity or some par-stock level based on the maximum usage plus a safety factor. 

Remember…….Inventory is Cash.

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Do You Have A Food Cost Problem?

If you are experiencing high food costs, some possible areas of concern may be:

1.       No balance of high and low cost items on your menu.

2.       No consideration of locally obtainable products.

3.       No competitive purchase plan.

4.       Theft in any form.

5.       Purchasing more than needed (spoilage).

6.       No daily check of invoices, quality, and prices.

7.       No rotation procedures.

8.       No perpetual inventory.

9.       No controls on issue items from the storage areas.

10.   Low yields on products.

11.   Over preparing.

12.   Not following or using recipes.

13.   Not following exact portion sizes.

14.   Improper handling (Wrapping, rotating, storing).

15.   No reconciliation of sold vs. used.

16.   Employee theft.

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Restaurant Profitability - The Managers Role

Restaurant profitability requires the manager to have a general understanding of the control process and operating environment of a foodservice operation, functions that generally occur in a foodservice operation, and cost relationships between the menu, level of service, labor, and technology.

Without these skills, the manager is doomed to fail.

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Why Your Food Cost May Be Too High

When I work with clients who have food cost issues, nearly all of them have very poor receiving practices.

When a driver unloads the product and hands over the invoice, on a good day the person does a quick check of the invoice and the delivered product, signs the invoice and the driver is on their way. Rarely is there a purchase order check on quality, price, weights, and a complete inspection on what was just delivered.

I have found that clients with food cost problems, 50 percent or more of their excess food cost is a result of what’s happening, or not happening, at the delivery door.

Receiving is an area where the combination of no system, carelessness and greed can add up to very big losses for your restaurant.

Here is my list of what you can do today to improve your receiving practices:

1.       When making an order, record the product type, quantity, and price quoted. This is your purchase order.

2.       At the time of delivery, count all products, and then verify that count against your purchase order and the invoice.

3.       For products purchased by weight……weigh them and compare the actual weight to what is shown on the invoice. You should not be paying for packaging or ice.

4.       Inspect for quality, consistency, and condition with your standards and specifications. You should have minimum standards and specifications for all of your products.

5.       Verify that the prices charged agree with the prices quoted.

6.       Bring any irregularities to the attention of the driver on the spot. Resolve them, noting adjustments, returns, etc., clearly on the invoice, and have the driver sign and or initial the adjusted invoice.

Delivery drivers notice everything you do (or don’t do) at the backdoor. Don’t make it easy for them to take advantage.

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How Often Should You Take Inventory?

How often should you take inventory? The answer depends on your purpose for taking inventory. Technically, you need to take inventory as frequently as you order. So if you order produce five times a week, you should inventory produce five times a week. When it comes to a fiscal inventory…….that is, counting everything on hand and extending the value of the stock on hand…..you should do that at least once a month for accounting purposes. Some operators take weekly inventory to keep on top of food and beverage costs, especially if they’ve been having a problem.

Some operators take inventory after each meal period to pinpoint product theft, but once a month is enough to calculate the cost of goods consumed for the income statement. When you take inventory before calling in an order to a supplier, you do it to determine the amount required. The amount you need to order depends on how much you will use between successive deliveries.

Still some operators take a fiscal inventory only once a year, which is all that is necessary for income tax purposes. But the operators who take a fiscal inventory only annually have no idea what their food cost is running the other 11 months of the year.

I’ve learned over time that not taking a monthly fiscal inventory is fairly common among many independent operators. Many believe that they have a consistent level of inventory that never changes. There’s a fallacy in that logic, even if the operation has the same amount of sales volume every month and the menu-sales mix remains constant…..neither of which is a realistic expectation. Inventory levels will fluctuate for various reasons.

With a little organization of your inventory records and storage areas, the inventory process can be made an efficient and painless process. One should approach inventory taking with the same intensity and attention given to counting each day’s sales receipts. The process of counting everything on hand should not take more than two hours, depending on the size of the restaurant. The extension of the value of inventory may take another two hours if extended manually or just seconds if you do it with a computer. Just remember: There are no shortcuts for accuracy in inventory: You must count everything in order to give yourself an accurate picture of your restaurants financial health.

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12 Points to Consider When Conducting Employee Evaluations

1. Know the employee’s job description thoroughly. You are evaluating how well the employee meets the job requirements, not against other employee’s or what the employee’s potential is.
2. Always conduct the evaluation in private, with no interruptions. Schedule each evaluation far enough apart so that there is plenty of time to discuss everything in one sitting.
3. Don’t let one incident or trait, positive or negative, dominate the evaluation. Look at the whole picture over the entire time since the last evaluation.
4. Evaluations should be balanced between positive and negative attributes, never one sided. A totally negative evaluation will almost never motivate a poor employee. Bring out some of his/her positive contributions and in detail describe what changes are needed. A totally negative evaluation will only scare the employee. Should a negative evaluation be warranted it is probable that the employee should have been terminated long ago.
5. Review past evaluations but don’t dwell on them. Look at areas where improvement has taken place or a decline in performance.
6. Always back up your thoughts and appraisals with specific examples. Allow plenty of time for the employee’s comments. Remember, you could be wrong. If examples or circumstances come out in the evaluation that was never mentioned before, you are guilty of allowing the communication process to deteriorate.
7. Don’t cover too much material or expect the employee to make drastic changes overnight. An evaluation is only part in a series of continuous steps to help and direct the employee.
8. Begin the evaluation with some positive points and then direct the discussion to areas that need improvement.
9. Certain personality traits and deficiencies may not always be changeable. Don’t overemphasize them but relate them into how they might affect his/her job performance and the performance of others.
10. Finish the evaluation on a positive note. The employee should leave with a good feeling about his/her positive contributions to the restaurant and how precisely what and how to improve his/her performance.
11. After the evaluation, make certain that you follow up on the thoughts, ideas, and recommendations that were brought out during the evaluation. Without a follow up the evaluation is of little value.
12. Evaluations are confidential. Keep them that way.

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Opening a Restaurant - The Mystic of Working Capital

This is often the great black hole of restaurant development. Of course, everyone knows that you need money set aside to operate your restaurant until the cash flow is sufficient to carry it. But in reality, it is too often a bogus figure that is never funded. Undercapitalization….not enough money….is an all-too-frequent reason for restaurant failure. Good concepts, well executed, and with excellent potential for success can fail if the financial obligations associated with them cannot be met in the early months of operation. The amount dedicated to working capital is often underestimated. Ideally, you want to have six months to a year of fixed expenses covered. Realistically, many operators budget one to three months. Because they have underestimated other preopening expenses, this fund is depleted in the early weeks or months.

Budget for success…..not failure…..

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