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National Restaurant Association - Don’t fall victim to restaurant profitability myths

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Don’t fall victim to restaurant profitability myths

When seeking to profit in business, avoid the following myths and prosper as a responsible restaurant operator.

Myth: Buying larger quantities to get volume discounts saves money. Answer: Not after accounting for the extra waste, theft, spoilage, larger portion sizes and overall carelessness that results when more products are purchased than are needed. Smart operators purchase just what they need even if the price/unit is a little higher. They know they will make more money if they focus on product use, not quantity discounts.

Myth: It is better to have cash overages than shortages. Answer: Although neither is great news, cash overages are often an indication of unrecorded sales ‑ one of an operator's worst nightmares.

Myth: Keeping food costs low means larger profit margins. Answer: Many of the most profitable restaurants in the country have high food costs, some as much as 45 percent to 50 percent. The issue is not how high or low food costs are, but rather how many gross profit dollars your menu items generate. That's why menu items should be promoted based on their gross profit contribution (dollars) rather than having a low food cost (percentage).

Myth: Only the chef or the manager on duty should check in deliveries. Answer: The chef and the manager on duty are usually the two people in the operation with the least time to always do a complete, thorough job of checking in deliveries. Many companies use an hourly employee who is trained to be a dedicated receiving clerk during certain hours of the day. An hourly employee generally has the uninterrupted time to devote the attention necessary to do a proper job checking in each and every delivery.

Myth: Profit-and-loss statements should be prepared and reviewed monthly. Answer: It is of limited value to compare a monthly P&L with a previous month. There may be a different number of total days or a different number of weekend days that will invalidate any meaningful sales comparison. Many restaurants do more than 50 percent of their sales on two days of the week ‑ Fridays and Saturdays. Many restaurant operators prepare their P&Ls on a four-week, 28-day cycle so that each P&L reflects the same number of days each week.

Myth: The most important part of pricing the menu is determining each item's food cost. Answer: Costing out each item is very important, particularly when determining their gross profit contribution. However, determining what customers will pay in your immediate market is the most important consideration. While not an exact science, shopping the local competition plus an evaluation of your customers' income levels and spending habits should provide valuable information for a framework on pricing decisions. Also, ask your servers how much they would charge for a menu item. After all, servers are closer to your customers than anyone else.

Myth: The best accountant in most restaurants is the bookkeeper. Answer: Actually, it's usually one of the bartenders. Their accounting skills are honed through years of experience keeping track of liquor usage and unrecorded drink sales with elaborate counting schemes using glasses, stir sticks, toothpicks, pennies and even olives.

Myth: Using garbage cans in the kitchen is a good way to dispose of trim and waste. Answer: Smart operators use clear plastic food boxes to deposit kitchen scraps and trim. Managers take a moment to inspect the contents of each box at the end of the shift.

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