This article was first published in the March 2021 copy of Savour Magazine.
Managing your bottom line, labour and food costs will become even more important with the increase in the minimum wage this year.
Chandni Sahrawat, owner and director of operations for Sidart, Cassia and Sid at The French Café shares her insights on the importance of business health checks to keep your business running smoothly.
Twelve years ago when we bought Sidart, our first business, we were so green, but we were fortunate to have our investor mentor us. Our mentor taught us that a weekly business health check is one vital thing you can do to ensure you know how your business is doing.
What does a weekly health check look like for your business? How long does it take and why should you do it? A weekly check should include revenue calculation, bank reconciliation, calculating the wage cost and food and beverage costs. The whole exercise may seem tedious at first but should take no more than 30 minutes and is absolutely essential to business sustainability.
Making sure daily cash ups match remittance in bank and cash deposits adds a level of security to your operations and makes management accountable. If there is a variance, you can quickly pick it up and investigate. Was there a refund issued? Why did staff have to refund a transaction? Was a customer overcharged? Promptly identifying issues and addressing them with staff and customers leads to better customer service.
There is a general formula for business profitabilty in the hospitality industry. Wage and food costs must be at 30% of revenue so that you have 40% for operating expenses and profitabilty margins. Plugging your weekly revenue and then subtracting GST from it will give you a net revenue figure to then work out a percentage of your wage cost and food and beverage costs.
If your food cost (invoices for produce that week) and your beverage cost (invoices for beverage purchases that week) are higher than 30% you might want to assess why this may be the case. Is there a seasonal fluctuation in price of an ingredient? Was too much food ordered, resulting in food waste? Is your menu underpriced? Could you increase prices if the ingredients are competitively priced, or do you renegotiate with your suppliers for better pricing?
Sometimes food and beverage costs increase for valid reasons, such as reopening after a closedown (as you need to restock), busy periods and special events, but if the food and beverage costs remain high over a couple of weeks and you cannot justify them, then this is a symptom that needs to be addressed.
Wage costs are calculated on the total gross salaries paid to your employees that week. In order for your wage cost to be accurate, remove any annual leave payouts from your calculation but leave sick leave payouts in the calculation. The figure you want to work with should reflect the cost of your employees or team working that week.
Annual leave is deducted as it is based on work done for previous time periods and sick leave is not deducted, as if a staff member is sick that week, someone else needs to fill in for them and that is a cost to the business. If your wage cost is higher than 30% you should know the reason why. Was there a public holiday that week? Were a lot of staff sick? Were sales lower? Increased wage costs over a period of time should ring alarm bells. Either sales need to sustain the number of staff you have or you will have to reduce staffing levels to make the business sustainable. Consider the number of salaried staff versus staff you have on hourly wages and see if you can restructure your team to improve the wage cost. If the wage cost is consistently low, albeit a positive sign, it also shows that there is room to pay staff more or increase revenue by recruiting additional staff members, perhaps.
In our current economic climate, staff retention is crucial to business success, good staff make the backbone of our industry. Without our staff, we can’t run kitchens or provide good service to diners. Retaining key staff by paying competitive rates and passing on tips in full to reward their hard work will create a happy, loyal team, increase productivity and therefore revenue.
Good practice dictates yearly performance and pay reviews for staff as a minimum. Weekly business health checks will guide you in making the best decisions for your staff and your business.
Spending 30 minutes each week checking the vital stats of your business, especially as we navigate through these uncertain times, is crucial. It is like checking the temperature and treating any symptoms before they turn into an illness. Sustainable businesses have healthy bottom lines but also happy staff and repeat customers.