The hype of the Christmas season is often a boom for restaurants, which typically follows with a decline in revenue in the winter months. Many communities across Canada engage with local restaurants to participate in featured winter menu programs to try to encourage better sales. But, there are ways to look internally in order to increase profitability when business is slow.
The key for franchise, independent chain and standalone restaurant owners is to receive and analyze accurate and timely financial data to help when sales fall. Accuracy is self-explanatory given it steers the direction of business decisions. Timely financials allow for quicker implementation of these decisions in order to keep costs down. Looking at the point of sale system, bank account, payroll filings, and up-to-date bookkeeping will often provide a clearer picture.
Restaurant owners need to ensure they’re getting detailed and accurate financial statements shortly after the month ends in order to adjust and maintain the profitability of their operations. This means comparing prior periods, budgets or projections, as well as other restaurants if operating more than one location. Projecting future cash flows, especially labour costs, is also integral.
Even if restaurant owners don’t follow a fiscal calendar year-end cut off (December 31), the downtime of winter is a great time to review and profit from financial data.
Here are a few scenarios we’ve encountered:
Looking at customer traffic patterns when there are fewer people coming in and adjusting accordingly by having fewer or different staff on hand can have a big impact on profits. With fewer staff available it can be difficult to get the right balance to ensure the best customer experience.
Having lower-paid employees take additional or longer shifts can reduce average wages per week without affecting customer service. Having salaried supervisors versus hourly management can also help keep costs down.
Having the ability to control operating hours has its advantages but not all restaurants are able to do so. While increasing sales is important, the overall profitability might decline as a result of staying open longer because of the additional labour and other costs.
We recommend to restaurant clients that have more flexibility, to look at tightening up hours that don’t make sense for slower times to keep profitability from declining.
When seeking or switching providers, payment terms should be a consideration in supplier selection wherever possible. Selecting those that offer longer payment terms means cash is available for other items.
For existing suppliers, the slow times are a great opportunity to look at renegotiation terms, especially if there’s a great rapport with the various suppliers. Some have flexibility in whom they deal with while others may not. Either way, projecting future expenses can help when business slows.
Featured menus can be a draw but it can also have the opposite effect if an item or two isn’t selling as well as anticipated. Cash is tied up until inventory is sold, but it’s worse when there’s an increased risk of spoilage for perishable items. There’s always a risk of theft for higher-value items, such as alcohol, if proper measures aren’t in place.
Projecting anticipated sales can help you plan better to avoid any unwanted inventory levels during a period of time. We recommend knowing what items are selling better than others, in order to project what’s needed, resulting in more cash when sales are slower.
An essential step in running a successful business is doing a cash flow forecast. One of the top reasons why businesses fail is because they don’t have enough cash to allocate to labour and suppliers.
This is why we stress how important it is to have timely and accurate financial data, to look at the monthly balance sheet, but to also review year-over-year to see any patterns that can be adjusted to increase profits.
8 ways to increase profit margins
- Reviewing the staffing mix to optimize
- Reviewing sales per hour to determine if each hour of operation is covering variable costs
- Reviewing supplier contracts and renegotiating where possible
- Reviewing inventory wastage to determine if adjustments are required to reduce spoilage
- Reviewing requirements for compliance or obtaining support for tax compliance to ensure deadlines are being met
- Considering past specials to plan for future
- Reviewing current inventory levels to determine upcoming specials
- Closely reviewing alcohol purchases to ensure not sinking costs into low-turnover inventory
BDO can help – learn more:
We work with a number of businesses in different industries to help them sort out their year-end books.
Get a free template here to help you maximize profitability during downtimes. Contact our Cloud Bookkeeping Services team to find out how we can help your business.
To learn more about these issues and our survey, download BDO’s Franchise Restaurant Report 2019: Owners’ top concerns and trends affecting the industry.
Lyn Little, CPA, CA, National Franchise Leader, BDO Canada LLP
Lyn is a partner and BDO’s National Franchise Industry Leader. Lyn connects restaurants with the right individuals or services that they need to grow and develop as an organization. She can be reached at 905-633-4942 or via email.
John Leavitt, CPA, CA, Partner, Assurance & Accounting, BDO Canada LLP
John specializes in helping franchisees build better businesses by providing assistance with all their accounting, financial reporting and tax needs. He is also the author and presenter for The Profitable Franchise video series. He can be reached at 403-205-5754 or via email.