LINE UP 1,000 PEOPLE WHO SMOKE AND ASK THEM IF THEY AGREE THAT SMOKING INCREASES THEIR RISK OF HEART DISEASE.
Now ask those very same people if they agree that some form of exercise can help to reduce stress and decrease the chance of a stroke. I’m sure you can put your mind to the test and guess the right the answer. So why is it then, that less than 25% of those folks, after answering those two simple questions, will take permanent action to change their behaviors? Studies have found that because there is no immediate consequence to the action, the effort required to change a routine seems greater than the admitted risk at hand.
In the past, during new client reviews, we took a handful of financial key indicators – revenue, discounts, cost of goods (food and beverage costs), labor cost, gross profit, net profit and cash flow – and compared them between clients who utilized a budgeting tool against those who did not. SPOILER ALERT: Restaurants who utilized a solid budget performed better in EVERY category identified above; couldn’t have guessed that one right? Well, surprise surprise, looking at current reviews that trend hasn’t changed… and it never will. Here are our top 4 fun facts we learned from our reviews:
STAY THE COURSE
Operations that budgeted costs were in line as compared to their budgeted revenue figures. They were able to make adjustments for unforeseen circumstances and maintain a consistent profitability (i.e. they allowed themselves to become proactive restaurant operators as opposed to reactive restaurant operators… big time bonus to tipping the profit scale in the right direction).
WHERE’S THE BEEF?!
Operations that did not budget consistently, consistently ran into a cash crunch that stemmed directly from a lack of knowledge on when to purchase equipment, pay for advertising or other marketing services, or miscalculating their tax obligations.
SIZE DOESN’T MATTER, REALLY!
Whether a restaurant did 1 million or 5 million in sales, the percentage of decrease in costs and retained earnings was almost the same. Simply stated, there is just as much money left on the table in large organizations as there is in small ones.
Turnover was lower, significantly lower! Now don’t get confused here; this isn’t about forecasting or scheduling. This is about understanding how much the operation is spending on hiring, training and providing for their employees.
There’s always an unglamorous reality check involved in these types of reviews as we discuss our analysis results with the clients who didn’t have a budget. When asked why they didn’t have a budget in place, the sad truth comes out – the top three reasons, in order, are outlined below:
“I don’t have the time to go through and make one;” “The budget for my restaurant is in my head;” “I’ve been doing this for so long I know where every dime is spent.” Let me be clear here: This is not a viable reason – this is an excuse. The top excuse received, in fact, which translated into the idea that routine was winning the battle over what’s best for the business.
PARALYSIS BY ANALYSIS:
Now this one surprised us. Some clients mentioned that they would spend too much time focusing on too many non-critical areas of their operation and they simply got lost in the analysis of all the numbers. I have great news for you, restaurant budgets don’t need to be complicated!
Even though they agreed to the importance of a budget, they admitted that they felt it was too hard to update it on a regular basis, or they did not have enough time to spend updating it correctly (catch my drift on the PSA now??).
I’m going to lay this out as modestly as I can so you truly grasp the importance of solid budget for your operation: A budget is as critical to a restaurateur as a lighthouse is to a sailor. Both can be the key element between you surviving or dying during rocky times.
Ask yourself these questions and allow your answers to determine your next action:
- How much profit do you believe you can realistically earn from your operation in the next year?
- What are 3 areas that can potentially have the greatest impact in reducing your costs?
- How will the reduction in costs for these areas impact the guest experience?
- How will they affect your employees?
- What are 2 ideas that you have for increasing your revenue?
- How will these ideas increase your bottom line without affecting your guest and your employees negatively?
Operational budgets can seem like a total beast if you don’t know where to start. However, they do not have to be complicated! Here at RSI failure is simply not an option; we’re powered by an industry-specific management system backed by a team of knowledgeable experts who are here to assist you in succeeding. Stay tuned for our upcoming blogs about the importance of budgeting for your restaurant where we’ll cover the Decision Making Triangle. Don’t know what that is? Check out the rest of our Resource Center… we’ve mentioned it before (a time or ten)!