Restaurant Operational Control

Point of Sale System

A good point of sale system will minimize bad communication between the kitchen and the front of the house, deter employee theft, keep employees from punching in early or late, identify which menu items are selling & who is selling them, allow for daily price changes, accumulate valuable tip reporting information, help establish employee incentive programs, be an important factor in menu engineering, and much more. A good point of sale system used to its fullest can add 1-2% to the bottom line.

Control of food leaving the kitchen
Proper control of food coming out of the kitchen will help ensure that all ordered items are being accounted or charged for, which is the main function and importance of a point of sale system.

Summary breakdown by entrees/appetizers/desserts & a detailed breakdown by menu item, server, & time period
The importance of detailed sales information is to understand what, when, who, and why sales are what they are. The more information you have in this area the better decisions you can make when it comes to menu designing, menu pricing & engineering, hours of operation, staff hour allocations, etc…

Time & attendance, including tip reporting, labor budgeting, & labor scheduling
A quality time & attendance component of a point of sale system is critical for a number of reasons including, forecasting sales and scheduling labor hours and dollars accordingly, tracking employees punching in too early or late, make it easier to prepare employee schedules once set up, and keep tip information required by the IRS.

Purchasing

Purchasing, inventories, and food costing are all inter-related in the typical restaurant operation, with purchasing being the most important part of food costs – food & beverage (“a prime cost”) on average represents 30-40% of the costs in a restaurant and therefore is one of the most important areas to be controlled. An operator has to develop procedures for whom will do the purchasing, selecting purveyors, determining the quantity and quality of the product needed, receiving the product, and more. Using an outside consultant to analyze your purchasing can often be very beneficial. These consultants can negotiate and audit vendor contracts and often work on a percentage of savings to you.

Are par levels established?
Par levels are determined from fairly consistent levels of sales and considering how often items can be purchased, minimum purchase requirements from purveyors, and allowing for a 30% cushion. Par levels are established to allow inventory levels to be at a minimum, which will curtail waste, spoilage, theft, and require less storage space.

Do you control pricing by receiving bids from multiple vendors, ask for specials, consider freight costs, and have advance knowledge of price increases?
Purveyors should be selected based on a competitive price basis per pre-determined specifications and also considering consistent quality, minimal price fluctuations, and good service. Competitive bids should be received on a weekly basis for high cost items and every 3 to 6 months on all other items put out to bid. Many operators list the purveyors for each item and let them submit bids. Then they remove the highest bidder from the list and a new purveyor is added.

Are deliveries checked for weight, quality, and pricing?
Receiving procedures are critical to ensure that the product you worked so hard to purchase at the right price is what you received. At a minimum the operator should weigh and/or count the product, visually inspect the product, check the pricing and make sure the invoice is correct.

Food Costing

Food costing is an area many restaurant operators are not good at or they don’t spend much time with. Maybe it’s because the process can be difficult, tedious and continuous due to the fluctuations in food prices. Having said that, costing out a menu (along with knowing the sales mix) is the only way you will ever know what their ideal food cost percentages are and be able to compare them with actual food costs. This information is a must for any operator that wants to reach maximum profitability.

Are there pictures or standards utilized & recipes followed for each menu item?
The starting point of food costing is always having a recipe file. Without it the operator will not be able to accurately cost out the menu. A recipe file needs to be established for each menu item listing all the ingredients and portions for each item. All items have to be converted from the way it is purchased to the way it is served (taking into account waste, shrinkage, etc…). Standards need to be maintained for consistency of food presentation and costs.

Does the menu get costed regularly?
If the menu is not costed out regularly then the information will probably be out-dated and inaccurate. It is critical to continually and regularly cost out the menu to keep up with the ever-changing environment. How do you raise prices without properly costing out the menu? How do you uncover non-profitable items on the menu without costing it out? How do you maximize the return on you investment without costing out the menu – you don’t.

Do you utilize procedures & other tools to control portions?
Portion control is an integral part of controlling food costs. A good operator trains the employees regarding the importance of controls and often will use procedures including weighing items on a test basis, use appropriate sized serving utensils, buy pre-portioned items, observe items as served, and use pictures of each menu item.

Menu Pricing

Menu pricing seems simple at first. You should price items based upon what the market will bear right? That is true in large part, however, there are many decisions leading up to that – the operator has to decide do they want to be about service and therefore charge a little more or do they want to be about value and charge a little less or provide larger portions for the same price. Do they price menu simply based upon desired profits? Many times in order to accomplish the profit goals, items from the menu need to be dropped or added, or the operator has to create a niche in the marketplace to get around pricing constraints by competitors. No matter what the operator has to price the menu based upon making a profit.

Do you know how your competitions’ pricing compares?
Before a menu can be priced there are many factors that need to be addressed including pricing by competitors. A good operator will research the competitors’ products and pricing before pricing their own menu. This will give them a better understanding of how to create a demand for their product – price being one element.

Are menu items changed for seasonal increases?
Where some operators lose profits is by not making price adjustments or changing their menu for seasonal fluctuations in costs. If the profit goals already take into account seasonal cost increases that might be okay, otherwise something would need to be done to maintain profitability – again pricing is one option.

Are menus priced to accomplish profit goals?
Pricing a menu for profits means that the operator has to have enough information to know that at certain prices and sales mix the profits will be X. That information includes food and beverage cost for each item on the menu, potential price increases of major ingredients, labor intensity to produce each menu item, the sales mix over a representative period, and total projected labor and general expenses based upon projected sales.

Are menu design & engineering techniques utilized?
Menu design and engineering is a critical technique to use in developing a menu that is both popular and profitable. The engineering part involves creating a worksheet that includes 1) The number of each menu item sold for the period, 2) the cost of each menu item sold for the period, 3) the food cost percentage of each item, 4) the margin contribution of each item, and 5) the overall food cost percent. The menu then is broken into four groups – (A) popular & profitable, (B) popular & profitable sometimes, (C) unpopular, but profitable when sold, and (D) unpopular & unprofitable. Based upon this analysis you can eliminate items, add new items, change prices, change how items are prepared, or refocus the menu placement and/or design. Menu engineering and design should be done before the reprint of the menu or if “ideal costs” materially differ from actual costs over a period of a few weeks or more.

Bar Controls

As with food costs, bar costs are controlled with the use of procedures and financial information. However, with a bar there is many more ways for employees to steal and therefore in most cases is much more difficult to control. Operators that have a substantial bar business typically develop a recipe file, train the bartenders and cocktail services, cost out drinks, control sales based on inventory and statistics, implement a good point of sale system, and visually check the Bar Service.

Is a weekly & perpetual (on some items) bar inventory utilized?
Inventory controls is a huge part of controlling bar costs. At the end of each week or even on a given day – compare the perpetual inventories against the weekly physical inventory taken, looking for differences. The manager based upon empty bottles from the bar should issue liquor.

Are spotting services used periodically?
The use of spotting services is a must for any restaurant with a bar. These services are trained to identify problems and even catch bartenders not ringing up drinks, “feathering” or short pouring drinks, over-pouring or giving away drinks, collaborating with servers, not ringing up drinks, and much more. In addition, the service with identify customer service or product issues that can be valuable feedback.

Does the Point of Sale system give a detailed bar breakdown?
As with food costs, a good point of sale system will give the operator incredible information with which to run the restaurant. The more detailed the reporting the more valuable the information for use in costing out the bar menu, knowing what is selling and what isn’t (especially wine), understanding what the “ideal costs” are and how close they are to actual costs, etc…

Do you have a recipe file?
Again as with food costs, a recipe file for the bar is a must. Without a recipe file, there is no way to know what the “ideal costs” are so how will the operator ever know if there is a problem.

Labor Scheduling

There are several factors that affect labor costs including sales volume, restaurant design, type of restaurant, cross-training employees, availability of employees, and ability of employees to name a few. Labor scheduling the most important tool management has to control labor costs. Labor (“a prime cost”) on average represents 30-40% of the costs in a restaurant and therefore is one of the most important areas to be controlled.

Is labor scheduled considering sales trends by day and hour?
If at all possible you should schedule labor hours based on historical numbers, projected sales, and review the labor cost before final staffing. If actual sales are materially lower, management has to react and send people home early. By direct contrast if actual sales are materially higher management will need to call staff in to work or authorize overtime and/or split shifts to service the customers.

Are blind staffing techniques used?
Blind staffing is when the operator fills out the schedule based upon the hours needed within each department without using names. The purpose of this is to meet the staffing (hours) needs of the restaurant without playing favorites, catering just to the employees needs, or preparing a schedule based upon what was done in the past.

Do you budget and monitor weekly overtime & split shifts?
Controlling overtime and even split shifts is a large part of controlling labor costs. If a restaurant operator is paying premium time to employees, the effective hourly rate becomes higher and profitability generally suffers. Keeping a pool of employees available is easier said than accomplished; however it does keep overtime to a minimum and is a good goal.

Have you considered cutting 1/4 hour a day from the hourly staff?
Cutting a 1/4 hour a day from all hourly employees might sound simplistic and not very meaningful in terms of profit to the bottom line. Let’s illustrate by taking an example of a restaurant with the equivalent of 50 full-time hourly employees. These employees make an average of $8 per hour. If the staff each worked 260 days (full-time) the savings would be (50 employees x $2.00 1/4 hr x 260 days) $100 each day and $26,000 annually.

Incentive Programs

Incentive programs are a key element in making a restaurant profitable. While helping to make the restaurant more profitable, incentive programs can also make employees feel like they are part owners, like they are getting rewarded for increased efforts, and are appreciated for work well done. Well thought out programs can make the workplace more interesting and fun as well.

Do you have a Front of the House incentive program?
Front of the house incentives is typically put into place to motivate employees to sell more and their reward is primarily an increase in tips. However, you can have a contest for just about anything including increasing check averages, helping other staff, volunteer to go home early – you name it. And the rewards management gives to the staff are typically gift certificates or money, but can be just about anything as well as long as the employee receives recognition as the winner or being the best.

Do you have a Back of the House incentive program?
Back of the house incentives are geared to motivate staff to perform and then get recognized for that performance. There are hundreds of incentives that can be used; the operator just has to find what fits for their restaurant in their situation. Some examples of typical incentive programs are the following: 1) Food costs are lower than the goal set; then the kitchen staff receives a reward. 2) Reward staff for giving good suggestions (use a suggestion box) to improve operations and saving money. 3) If there are no workers compensation claims for a period of time, then all the staff might receive gift certificates or other rewards.

Do you have a manager incentive program based upon controllable results?
Good management incentive programs are almost always based upon controllable results. That means whatever numbers management has some control over should be included in the calculation for incentive bonuses. Controllable profits always include the “prime costs” (product and labor costs) and overhead items that are not fixed costs, such as utilities, repair & maintenance, credit card discounts, laundry & linen, replacements, supplies, and others. The operator typically comes up with benchmark numbers as a starting point, decides how to weight the importance of each area, and shares increases in profits with management as a bonus.

Controllable Overhead Expenses

Even though the majority of cost reduction dollars happen in the prime cost area, overhead expenses can, and often do, play a huge part in a restaurant being profitable or not. Almost every line item in overhead can be “controlled” at some point or at some level. The potential savings from a line-by-line overhead analysis can be material, ongoing and done at different stages of the restaurant (i.e. – negotiating rent for the restaurant space is done before any operational analysis on actual numbers is done, however both are extremely important to the future success of the restaurant).

Have you developed a overhead expense budget?
An overhead expense budget will help you quickly identify potential problems as they occur, reviewing reacting quickly to large deviations.

Did you negotiate a good lease?
Negotiating a lease is something that once it’s done you might not be able to change for a significant period of time; and it’s a material line item that can easily stunt future growth of the company if not done properly. Restaurant leases can be complex and typically include tenant improvement provisions, minimum rent (per sq. ft.) versus a percentage of sales, CAM charges, CPI increases, sales definitions (what to exclude), free rent, security deposits, phase-out provisions, personal guarantees, and more.

Are “replacements” or small wares bills analyzed?
The cost of silverware, glasses, plates, utensils, and small appliances can be extremely high. Many employees don’t understand that a lost knife or broken glass costs money and therefore is no different than pouring a heavy drink, or giving larger food portions than the recipe calls for, or losing cash. Some ideas to control costs might be to buy durable plates and glasses, educate the employees regarding the cost and handling of items, develop an incentive program in this area, and “rake” the garbage to find out what is really happening.

Are linen & laundry bills analyzed?
Laundry & linen contracts are difficult to understand & monitor. Because this is the case you need to spend time in this area if it is a material line item for the restaurant. Significant savings can be found by tracking deliveries & inventories, auditing bills, and having another company review your contract. Other cost saving ideas might be using paper napkins and paper or glass for the tabletops.

Are credit card rates reviewed & bid out?
There are numerous credit card companies and several programs in the marketplace depending on how much volume your operation does, the ticket size, how much commission the broker is willing to accept, etc…Visa and MasterCard is where material differences in rates mostly occur and they are typically used much more frequent than American Express.

Do you bid out your insurance rates & have your coverage reviewed?
All the insurances required in a restaurant business such as, workers compensation, liability, property, and unemployment insurance, add up to a very important overhead line item(s) for all restaurants. Make sure you have the right coverage, the right carrier (with restaurant clientele), and keep bidding out the contract each year if nothing else to keep your broker looking out for your best interest.

Are utility bills reviewed & trends analyzed?
Another area not usually addressed in-depth is the cost of Utilities. If your utility costs are increasing analyze the bills to understand why. You can always get a free energy audit to understand where the potential cost savings are the largest. Many operators end up utilizing better, more efficient, light bulbs, monitoring the use of equipment or purchase more efficient equipment, tracking the air conditioning usage, and developing incentive programs for employees helping to control these costs.

Daily / Weekly Financial Information

A restaurant is a very difficult business to own and operate unless you are proactive about constantly making changes to enhance your operations. Being proactive and making changes requires you to have knowledge of what is happening in your restaurant. That knowledge is acquired in large part by having timely and meaningful information by week, day, shift, hour, and minute.

Do you have weekly financial statements (by day)?
Detailed “flash reports” or weekly P&L’s can add 1-2% to your bottom line if properly implemented. A weekly P&L is the most important tool you can use to understand what is happening in your restaurant.

Are key financial data reviewed daily & in weekly meetings?
If systems and procedures are set up and no one analyzes the information then setting a daily/weekly reporting system up is a waste of time.

Are findings / trends acted upon?
Once you have reviewed your daily/weekly “flash reports” and found inconsistencies or perceived problem areas, are you following through to find out why? Are you checking the reporting system against monthly financials and internal source documents (i.e. payroll records, etc…) for accuracy? Without follow through the reporting system will not be beneficial.

Are perpetual inventories used for key items?
Inventory is no different than cash. If you leave it unattended, don’t count it often, and don’t keep tight controls, it will disappear. Just the fact that your employees know you are tracking food and bar items will deter theft and diminish other problems in the kitchen. Many operators use perpetual inventories for high-priced items and alternate items from week to week.