What is a sign that you may make it after all??

Post
HRumbut
Junior Burger
2007/08/12 01:09:03
My sister and I have opened a small restaurant in TN and we are in our 6th month. We have excellent word of mouth from our customers, and we get a lot of return people. We are struggling to make things meet, we are making ends meet, but sometimes it is really close. How do you know if you are actually going to come out okay, will I ever be able to breathe a little easier? This is the first time in business for me and 2nd time for my sister. THanks Heather
UncleVic
Sirloin
RE: What is a sign that you may make it after all?? 2007/08/12 01:11:31
Sorry to say this, but it will take another 18 months to give you a good idea on which way your going..
Starting out is tough... Most die in the first year.. You have to struggle to make it past that hump. If your head is still above water the 2nd year, your doing good!

matilda
Double Cheeseburger
RE: What is a sign that you may make it after all?? 2007/08/13 00:04:00
quote:
Originally posted by UncleVic

Sorry to say this, but it will take another 18 months to give you a good idea on which way your going..
Starting out is tough... Most die in the first year.. You have to struggle to make it past that hump. If your head is still above water the 2nd year, your doing good!





I've always been told two years is the make or break mark. I actually have had consultants who told me they wouldn't even consider taking on a new business as a client if it hadn't been in operation at least two years. They're friends of mine and no, I wasn't asking them to take me and my business on as a client. I was more interested in taking them on as a client for my business...LOL.
Sonny Funzio
Double Cheeseburger
RE: What is a sign that you may make it after all?? 2007/08/13 16:20:53
quote:
Originally posted by HRumbut

What is a sign that you may make it after all?? ... How do you know if you are actually going to come out okay, will I ever be able to breathe a little easier?


Hi Heather,

Nope ... there is no sign.

You know you have a higher likelihood of "coming out ok", as you put it, if you know why you have the profit and cash flow that you do.

It takes time ... and complete, careful and thorough recordkeeping.

The first step is knowing how to do a proper breakeven analysis. This is *not* a seat of the pants estimate ... it involves very specific analysis and understanding how all the variables fit together.

One of the benefits of doing your breakevens is the opportunity to "plug in" the level (amount) of profit you desire for a given period ... and then being able to work backwards, so to speak, to see whether your operations are capable of generating those results based on variables like your seating capacity, customer turnover, sales per ticket, prime costs, advertising response etc ... these are all interrelated items.

If you need specific instruction on how to do a proper Breakeven Analysis, you should find a few good textbooks that explain it. It is really too complex to post in this thread. A good place to look for such books would be a college that has a culinary arts program, or a very large bookstore. You may find the info in a general text on restaurant management, or possibly in a text specifically on Food, Beverage and Labor Cost Controls. And don't settle for a short cursory explanation meant for "restaurant owner wannabees" ... you want the sort of understanding that takes the better part of a textbook.

If you are having a really, really hard time getting to sleep some night, and want some reading material that will absolutely glaze your eyes over and render you unconscious ... you can read a truly horrible, blathery post I made about a year and a half ago that touches on such things. The post is about half-way down the page at ...
http://www.roadfood.com/forums/topic.asp?TOPIC_ID=11912

Business is a fickle pursuit. As I allude to in that post, "People who manage to stay afloat (merely) on the basis of good revenue, without having a tight ship are missing out on substantial profitability ... and if revenue dries up for whatever reason ... they are finished."
You can not really rest easy until you have a grasp of *why* your business has the results that it does. Nagging doubts about understanding the whole picture are a very valuable warning.

Finally, other factors outside of your restaurants walls can affect your business ... sudden competition ... changes in food cost ... a freeway ... an economic downturn ... a disaster. You have to be light-on-your-feet and have your eyes wide open all the time ... only then will you sleep easier.

Pwingsx
Double Chili Cheeseburger
RE: What is a sign that you may make it after all?? 2007/08/13 17:35:17
Hearing music and seeing Mary Tyler Moore throwing her hat in the air?

Sorry.
HRumbut
Junior Burger
RE: What is a sign that you may make it after all?? 2007/08/13 23:59:49
Well, I am partners w/ my sister who has been through a "corporate" training for a major chain and she uses what she learned there to guage expenses. Like what percent of your income should be food costs, payroll, and so forth. We are obviously starting out in the hole. Don't really see us turning an actual profit for a couple of years. We have start costs to recoup. Right now we are still trying to build our customer base and keep quality good. It was a rough start, but seems to be getting a little better. Generally, what times of the year are the busiest for restaurants? We had a slow summer, but seems to be picking back up as school starts. I am finding there is no real rhyhme or reason to when it will be busy.
matilda
Double Cheeseburger
RE: What is a sign that you may make it after all?? 2007/08/14 00:54:30
Where do you live? Is your business near hospitals, schools, universities, business hubs, etc? Are you in a tourist town? If so do the snowbirds come to see you or families on mainstream vacations? Is there potential to make more by catering business lunches or meetings? Etc., etc., etc.
jajarino68
Cheeseburger
RE: What is a sign that you may make it after all?? 2007/08/14 10:32:39
Get a good health inspection rating and have Don Dare say a few good words. Hope your place does well. Wonder if I've seen it.
Sonny Funzio
Double Cheeseburger
RE: What is a sign that you may make it after all?? 2007/08/14 13:37:51
quote:
Originally posted by HRumbut

Well, I am partners w/ my sister who has been through a "corporate" training for a major chain and she uses what she learned there to guage expenses. Like what percent of your income should be food costs, payroll, and so forth. We are obviously starting out in the hole. Don't really see us turning an actual profit for a couple of years. We have start costs to recoup. Right now we are still trying to build our customer base and keep quality good. It was a rough start, but seems to be getting a little better. Generally, what times of the year are the busiest for restaurants? We had a slow summer, but seems to be picking back up as school starts. I am finding there is no real rhyhme or reason to when it will be busy.


Yup, usually slower in summer ... busier in colder months.

As far as your sister's experience ... you both need to re-consider whether just the methods she learned at the franchise operation are sufficient for your independent operation.
The controls (purchasing, inventory, storage, production etc...) including standard operating procedures and policies from her franchise experience may be some of the most useful things to copy.
On the other hand, their CVP (cost/volume/profit) calculations and other financial analysis may or may not be sufficient for your independant restaurant needs.

>> Like what percent of your income should be food costs, payroll, and so forth

In and of themselves your Prime Cost numbers can NOT tell you what percent of your income they “should” be! Prime Cost numbers are merely one part of further analysis, the most important of which is a determination of your Break-Even and prospects for profitability.
As noted in the post which I included a *link* to above, there are some other uses for prime cost numbers such as comparing period over period ... one potential way to determine menu pricing, etc ... but in and of themselves (that is, without regard to their place in further analysis) prime costs at best hopefully point you in the direction of understanding what Controls (SOP’s) are contributing to those Prime Costs.

Noting the uncertainty expressed in your posts, I would say the two of you need to make a separate, objective re-evaluation of at least your financial controls.

Are you doing the specific calculation known as Breakeven Analysis? How many times have you done them ... and how often?
Are you splitting your fixed and variable costs for your calculations? ... Even after you cover your fixed expenses, for each additional dollar of sales you make your variable expenses continue to change ... this fact prominently affects your calculations and corrective options.
Specifically you should see that she is determining things like your total Variable Cost in order to figure your Variable Rate. Does your sister (or you) understand what a Contribution Margin is and use to determine and plan for profitability?

The results of Breakeven analysis are indications to make corrections which will change your breakeven point ... corrections to menu pricing, to your menu mix, to variable costs, to your volume (and working back from that your advertising, specials ...) etc etc.
There is a whole rasher of things in your control system whose correction or modification is derived BACKWARDS from your Breakeven Analysis.
Knowing these numbers flat out is what lets you sleep well at night ... breath easier.

It's not worth waiting until you have a real "oh, shoot" moment later on.

>> I am finding there is no real rhyme or reason to when it will be busy.

If you are not finding the "rhyme or reason" for why business is slow or busy, you need to work to figure that out.
Not only can you not “plug up” your slack periods effectively in terms of volume without understanding this, but it also makes setting an Advertising Budget impossible and makes things like ordering and scheduling a bear (and everything that goes with it like waste etc).
Widely varying volume can also be a symptom of other things like unsatisfied customers ... unpopular offerings etc. Nail it down.
Meticulously track your volume of business and correlate it as the result of other things ... specific advertising ... publicity ... things going on in the vicinity of your restaurant ... internal problems etc.
matilda
Double Cheeseburger
RE: What is a sign that you may make it after all?? 2007/08/14 13:47:30
quote:
Originally posted by Sonny Funzio

quote:
Originally posted by HRumbut

Well, I am partners w/ my sister who has been through a "corporate" training for a major chain and she uses what she learned there to guage expenses. Like what percent of your income should be food costs, payroll, and so forth. We are obviously starting out in the hole. Don't really see us turning an actual profit for a couple of years. We have start costs to recoup. Right now we are still trying to build our customer base and keep quality good. It was a rough start, but seems to be getting a little better. Generally, what times of the year are the busiest for restaurants? We had a slow summer, but seems to be picking back up as school starts. I am finding there is no real rhyhme or reason to when it will be busy.



>> I am finding there is no real rhyme or reason to when it will be busy.

If you are not finding the "rhyme or reason" for why business is slow or busy, you need to work to figure that out.
Not only can you not “plug up” your slack periods effectively in terms of volume without understanding this, but it also makes setting an Advertising Budget impossible and makes things like ordering and scheduling a bear (and everything that goes with it like waste etc).
Widely varying volume can also be a symptom of other things like unsatisfied customers ... unpopular offerings etc. Nail it down.
Meticulously track your volume of business and correlate it as the result of other things ... specific advertising ... publicity ... things going on in the vicinity of your restaurant ... internal problems etc.




The point of my previous post exactly...(please see below). Well said, Sonny Funzio.


"Posted [matilda] - 08/14/2007 : 00:54:30
--------------------------------------------------------------------------------

Where do you live? Is your business near hospitals, schools, universities, business hubs, etc? Are you in a tourist town? If so do the snowbirds come to see you or families on mainstream vacations? Is there potential to make more by catering business lunches or meetings? Etc., etc., etc."
Big Ugly Mich
Double Chili Cheeseburger
RE: What is a sign that you may make it after all?? 2007/08/14 19:24:21
quote:
Originally posted by Sonny Funzio Finally, other factors outside of your restaurants walls can affect your business ... sudden competition ... changes in food cost ... a freeway ... an economic downturn ... a disaster. You have to be light-on-your-feet and have your eyes wide open all the time ... only then will you sleep easier.
Or serve your stuff off a roach coach or pushcart.
HRumbut
Junior Burger
RE: What is a sign that you may make it after all?? 2007/08/15 11:22:15
Well, we have only been open 6 months, so we haven't went a whole year's cyle yet, but we do see some patterns. It has picked up quite a bit since school hasn't gotten back in. Summer was dead except for our BIKE NIGHT, that we had on Wednesdays and we had an all you can eat catfish on Fridays that went well. And we have learned a lesson as far as our lunch specials... we are in a "meat and potatoes" area. We tried having pasta dishes and other good foods that were a little different (nothing wild), but people didn't buy it. SO we tried country fried steak, mased potatoes and a veggie, meatloaf potatoes and so forth and those are consistantly sold. We tried a sweet and sour shrimp and rice dish, and they will eat that but that is as far it will go.

We are gearing up for football season.
matilda
Double Cheeseburger
RE: What is a sign that you may make it after all?? 2007/08/15 12:16:50
Give them what they want.
blizzardstormus
Cheeseburger
RE: What is a sign that you may make it after all?? 2007/08/15 17:04:22
It's taken me 5 years to see the light at the end of the tunnel. My bottom line is never going to be great as I replace worn-out equipment and redecorate. But, for me, these are the signs I notice: customer count is significantly up this year and is staying up, locals are bringing in visiting family & friends to share their special restaurant, local businesses recommend us over other restaurants, and this year, almost every presidential candidate who is speaking in Atlantic is holding a luncheon with us or we are catering their lunch (Senator Obama tomorrow).
Baah Ben
Filet Mignon
RE: What is a sign that you may make it after all?? 2007/08/25 19:23:32
OK..everyone loves your place. They say they'll be back and they do return...But, how many times in a week or month are they going to eat at your place regardless of how much they love it. They also love other types of foods and those places that produce them.

When they say it takes 4-5 years to get a place profitable, they are not far off. You need to sit down and figure out exactly what your average check is and how much business you need to do each day. Of course, you must know your expenses to do this. Too many people have not taken into account all their expenses when they open a place.

Then, figure each patron will visit, if they absolutely love your place, once or twice a month. That's realistic. Then calculate how many of those "once or twice a month bodies" you'll need to make a go of it annually. You are going to be shocked to learn how many customers you really need to become successful. The customer base requirements are scary and that's why it takes time to be successful. It is a process and you have to love going through it to be happy and eventually successful. Now, you can speed up the process by spending thousands of dollars on advertising and public relations....Lots of places hire a public relations firm to get them on tv, etc.
Baah Ben
Filet Mignon
RE: What is a sign that you may make it after all?? 2007/08/25 19:29:52
One last suggestion...Do a pro-forma statement..Caculate your expenses against varios levels of annual sales..Obviously, the higher your sales, the less each fixed expense is in relationship to the over-all bottom line. There are also variable expenses to calculate, too. Get yourself an accounding book and check out pro-forma statement constructions.

Some fixed cost are things like insurance and rent. Some variable costs are hourly labor, food, etc. Sit down and detalin every single expense and start there. Frankly, all that should ahve been done before you invested in the operation. Hey, maybe you did that?
Baah Ben
Filet Mignon
RE: What is a sign that you may make it after all?? 2007/08/25 19:32:05
One last suggestion...Do a pro-forma statement..Caculate your expenses against various levels of annual sales..Obviously, the higher your sales, the less each fixed expense is in relationship to the over-all bottom line. There are also variable expenses to calculate, too. Get yourself an accounting book and check out pro-forma statement construction.

Some fixed costs are things like insurance and rent. Some variable costs are things like hourly labor, food, etc. Sit down and detail every single expense and start there. Frankly, all that should have been done before you invested in the operation. Hey, maybe you did that?
markolenski
Cheeseburger
RE: What is a sign that you may make it after all?? 2007/08/25 20:19:22
You know youve made it when they give you your own show on the Food channel
LuckyLabrador
Double Cheeseburger
RE: What is a sign that you may make it after all?? 2007/08/26 11:57:37
You know you've made it when it's written up in the Stern's next book!
Truckin
Junior Burger
RE: What is a sign that you may make it after all?? 2007/08/28 07:36:08
You know you've made it when you can give up your paper route!

I got to the end of the first year just stunned, have served thousands of people, nearly broke anyway, but clinging to the statement, "well, we're still here." Which everyone can attest, is no small accomplishment. Now approaching the end of the second year, I agree with the statements that this is the beginning of seeing where you're going. We didn't really grow, but we consolidated, didn't make a lot more money but felt a lot more on top of it. Next year - and we've made it to this point enough to know there will be a next year - we expect some organized growth, and possibly the first year of realistic expectations.