A lot of restaurant owners have a good idea of how much gross profit margin they are making. What many don’t know is how they can make money without raising prices or cutting costs.
Typically management will either find out their gross profit margins by using monthly management accounts or at the year-end as part of the statutory accounts.
The latter is an indication that the restaurants management are not maximising their profits. A well informed management team will want regular information so that they can respond to trends and potential problems as early as possible. If they wait until the year-end accounts, then by definition the information is available at the end of the year therefore some transactions will be at least 12 months old plus the inevitable wait until the accounts are prepared. This could easily add up to 18 months delay for some transactions which is far from ideal.
Regular management information allows problems which are affecting the finances to be identified early. A good example would be if there were problems with excessive waste problem (and the kitchen team were not forthcoming) from the beginning of the year, imagine being told that your profits have halved as a result?
Management information does not necessarily just mean a profit & loss and balance sheet. It should include the information which is of importance to the management team (hence the name).
In my experience, the important information is as follows:
- Gross profits
- Net profits
In addition to this, I would always recommend that if the information is available then the quantities of menu items being sold be reported.
Why is this of importance? A business I was working with managed to identify that they were selling 3 items which made up 50% of the annual sales. They didn’t foresee this as the items were actually quite low value items, they knew that these items were substantial but not to this degree.
Using this information, it was decided that 2 of the 3 items should go up in price but only slightly. This had a profound effect on the profits. This business saw profits more than double as a result. Some diners obviously noted the increase but few complained as the rise was seen as reasonable.
This really demonstrated how important it is to have useful management information and how it can be used to make important decisions.
In the meantime, please feel free to leave comments below or contact me on 01392 432525 or send me an email firstname.lastname@example.org
Image courtesy of basheertome
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