We’re MYTH BUSTING in today’s video. There’s 5 huge financial myths in the restaurant business that we’re going to pull apart to save you time and money.
To learn more please either watch the video above, read the transcript or listen to the podcast below.
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MYTH #1: BUY LARGER QUANTITIES TO SAVE MONEY
Of course you’ll save money by buying a five gallon bucket of soy sauce instead of 5 individual gallon size bottles. But you can’t pay bills with inventory on your shelves, not to mention inventory can evaporate, spoil, or somehow get knocked over and ruined.
We know that we’re far more careful with things that we have less of, right? You’ll eat those cookies like they’re going out of style when it’s a brand new bag, but it’s a different story when there’s only 4 cookies left.
When your inventory is flush, you and your employees are a little less careful, so even though you may have saved a few bucks by buying something in large quantities, it can often hurt in the long run because it doesn’t free up the cash you need to pay for things like marketing, operations or anything you need to keep your restaurant going.
MYTH #2: LOW FOOD COST MEANS HIGHER PROFIT MARGINS
Let’s say that you have two items on your menu, one has a 25% food cost and one has a 50% food costs. Which would you rather sell? Probably the 25% food cost item.
What if the 25% food cost item is a burger that sells for $10 and the 50% food cost item is a steak that you sell for $20. Now which would you rather sell? If you do the math, the steak gives you $10 in profit vs the burger giving you $7.50 profit. Myth busted.
MYTH #3: BETTER TO HAVE A CASH DRAWER THAT’S OVER AT THE END OF A SHIFT
We know that shortages are bad because the money that should be there, isn’t. An overage isn’t a great problem either because it means that you’re unintentionally stealing from your customers by not giving them the right change or it could mean that there’s theft happening.
Cash drawer overages are one of the best indicators of theft because employees are playing games with the system and their game caught up to them in that they weren’t able to reconcile in their head by the end of the shift. Usually employees are pretty careful to make sure that there’s not a shortage in the till, which would send up a red flag, but for most employers, an overage doesn’t send up any flags so employees err on the side of caution to make sure the cash draw is a little bit over.
MYTH #4: FOOD COSTS AFFECTS MENU PRICES
Yes, you need to know how much the item cost you before you can put a price on the menu, however it’s far more important to know what your customers are willing to pay. Start with the end in mind. If you’re pricing a burger, determine what your customer will pay for a burger first then figure out how much money you can afford to spend on buying the ingredients for that burger. If they’re willing to spend $10 for a burger, maybe you determine that you can afford to spend $3 on ingredients. Now you can go out and find the best beef, buns, and other ingredients to put that burger together for $3.
MYTH #5: REVIEW YOUR PROFIT AND LOSS STATEMENT MONTHLY
This was a little bit of a trick. Yes, you do need to review your P&L every month but remember that this is like looking in the rear view mirror. This only tells you what’s already happened and you can’t do much about something that’s happened in the past.
You should be looking at this by the fifth of the month so you can actually make changes if needed and action them while you still can. Are you on budget for sales? Purchases? Labor? Prime costs? If it’s the middle of the month and your sales are on track but your food costs are a little high, there’s time to actually do something about it.
This one is always a little challenging for people so below you’ll see a button for our new software BACON that has all these tools built into it.
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