You gotta have enough sales
So maybe you’ve got a chance to purchase a fledgling restaurant franchise. “Sales are okay,” the current owner tells you, “I just can’t give it the operational attention it needs. I bought this as an investment, not to be an operator. In the right hands, sales will go up and profitability will follow.” Or some sort of similar quote. Those words should act as a warning siren, giving you a migraine by now.
Sales - adequate sales - are the lifeblood of a restaurant, absolutely crucial to its success. Insufficient sales, amongst a myriad of other problems, lead to higher labor costs. That skeleton crew that you absolutely must have to keep your doors open becomes prohibitively costly when your sales aren’t high enough. X hours open per day times $Y per hour average wage times minimum number of employees required to help your customers times Z days per week open for business becomes a lot more costly when sales are paltry. At $15,000 in sales per week, assuming minimum staffing requirements are $1,800, this cost of labor is about twelve percent. When sales are $10,000 in that same week, this cost jumps to eighteen percent. Six points. Because bottom-line profitability for a restaurant is often so razor-thin, this sole example reflects the reason that you absolutely have to have high enough sales.
There are a number of fixed costs that restaurants incur, including: rent for the premises (or a monthly loan payment for a purchased location), salary for your can’t-live-without general manager, fees for accounting and payroll costs (assuming you outsource this service, which, in my extremely biased but knowledgeable opinion, is one of the smartest things you can do for your business), insurance, some utilities. All of these costs are there whether you’re pulling in $80,000 per month or $53,000. That’s $27K less to pay for all of these there-every-month costs that painfully stare at you.
Looking to get in to the restaurant arena? You’d better have a plan in place to pull in enough Benjamins, as the kids like to say.
Tags: accounting, Restaurant, sales