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Strategic Planning

Planning for Future Restaurant Profitibility

Strategic Planning: a Modern Approach to Staying Profitable – Strategic planning is a procedure whose time has definitely come. This planning is used by top level executives today to face these seven issues:

  1. Increasing management productivity.
  2. Tightening cost controls.
  3. Selecting a more efficient labor team.
  4. Improving productivity of labor and facilities.
  5. Keeping just ahead of competition.
  6. Maintaining sales momentum in a saturated market.
  7. Heightening perceived price-value by customers.

What you do today might be outmoded and inefficient in the not too distant future. You will have to make any new operation highly efficient and you should also anticipate making your present one as effective as possible.

Many foodservice operators aim for a total cost of food and labor of 60-65%. These are called Prime Costs. If the total exceeds this figure, for most operations, action is needed to control costs and increase sales. If the Prime Cost is much lower than this, it is possible that the customer is not getting a good value which may cause sales to fall in the long run. Prime Costs control is key to your level of success.

Managing profits competently – Ratio analysis can be used to determine your restaurant’s profitability. These are the tools to show how profitable you are. These ratio analyses derived from the various data maintained as a record over a period of years, may be used to mark changing conditions or spot trends in profit performance. The wise restaurant operator will maintain records of the key ratios to better understand his day to day operations as well as to accumulate data for use by bankers and other lenders should the need arise for expansion financing.

Using ratios analysis is a vital tool for examining the status of your Prime Costs. In themselves. Ratio Analyses will not affect rising costs and dwindling sales, but they give warning that action is required. GEC is experienced in the creation, interpretation and utilization of ratios.

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Lloyd Gordon Offers Some Advice on Excess Profit Use –

"I am occasionally asked by a client if he should buy a building with his extra funds?

"Every successful restaurateur has disposable funds to invest. My strategy is this: ‘Invest your equities so that they make the cash registers ring.’ I mean, if you are going to invest $100,000 into an enterprise, use it to create one or more profit centers that will generate as large a cash flow as possible.

"In my theory, the equity invested in leased facilities could generate one or more profit centers with the cash registers jingling, cash flow would be immediate! Investing all your extra cash in real estate earn a return on equity of 10% to 18% whereas a modest restaurant or bar business venture might give a return on equity of 40% to 150% or more."

This type of investment strategy bears careful consideration by restaurant operators who want to maximize their investment return. It seems only prudent to follow a plan for investing in a business that you know well and at the same time creating as many profit centers as possible for immediate cash flow.

For additional detailed information on our restaurant consulting services see our "Service Modules" page.