Math, start up & %

I was never good at math as a kid. But I've found that when it comes to managing percentages as a business it comes easier than before. I've seen what mismanagement looks like all too often and it's not pretty. 

 If a restaurant or business hits it's industry averages it doesn't leave much of a total profit to sale. After the barrage of taxes it's typically disappointing. 

Example: 

Food cost 30%

Labor cost 20% 

Liquor cost 20% 

That leaves 30% if you're really good. Taxes will chew up most of that. That also doesn't include insurance, rent and utilities. 

Most restaurants only have a 2% margin of profit to sale. That doesn't leave much for much of a lifestyle. Basically it takes four million in sales to earn eighty thousand a year take home. But that's if you're lucky. Unfortunately you've gotta be a little lucky. 

One of the most frustrating problems is a sales problem. That being said. If a place has an insane amount of sales and they don't hit their numbers it can turn into a financial shit show. It's important to figure out your break-even point. How much each percentage of cost is worth and what your food purchases to sales are. It should be no more than 30%. A demographic can oppose some challenges as far as how much you can sell stuff for. That has to be looked at carefully. Also 7% of your sales should represent your rent. 

Utilities and things breaking can hurt break-even point of your business. Having multiple accounts and setting aside money for that as well as taxes on a nightly basis is crucial. 

In all reality the only cost you can manipulate is labor. That should require you working more. If you underpay the staff you will lose them. The same goes for a properly poured drink or a food menu item that makes sense. 

Pizza joints & ethnic restaurants typically have a better survival rate because they can get a double digit margin of profit to sale. Having a situation that justifies reservations is also a blessing. 

A lot of this was learned the hard way. Don't think you can just put your head down in a restaurant and work hard while staying blind to the bigger picture. There has to be a balance. Sure you need to shave labor when need be. Improve your plate or drink costs with some items that are affordable on your end. Being locked in to a system that isn't providing a return and sticking with it is definitely the definition of insanity. 

Thinking carefully about marketing and looking at market research in your demographic is important. You don't want to get into a trap. A lot of sales people are lobbying for a piece of that small margin that you have. Sometimes something comes along that's worth it. But sleep on it. Nine times out of ten it's better than saying no. I used to struggle with this. But it can be done politely. 

In order to achieve all this it's good to have a stable amount of working capital. Sometimes having a turn key operation is the way to go instead of burying yourself with construction expenses. When also doing projections on a cash flow sheet don't be overly optimistic and have scenarios. Looking to see if that breakeven point at the location you are looking at even makes sense.