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Three Keys to Restaurant Profitability – A Guide for CFOs

Business best practices by Jonathan Sorkenn

Traditionally, the role of a Chief Financial Officer has been largely isolated to numbers. In today’s rapidly changing economic landscape, with restaurant sales slowing, a restaurant CFO’s purview has expanded to touch on everything from labor retention, vendor management, and pricing, to company culture, staffing, and customer behavior. 

In addition to budgets and reporting, restaurant CFOs are expected to be innovators and problem-solvers, making strategic decisions to streamline operations, manage risk, and ensure regulatory compliance. It’s a lot of hats for one person to wear, and it requires increased cooperation with the rest of the C-Suite as well as IT departments, legal teams, and marketing managers. 

The restaurant business is fast-paced and has notoriously low margins. There are a lot of nebulous, hard to measure factors that go into determining profitability, which can make life difficult for a CFO. 

As complex as the restaurant business is, maintaining profitability boils down to three simple keys that can act as both starting points and guides to keeping a restaurant profitable.

Reduce Costs Without Compromising Quality

So easy, right? Of course not. Balancing cost with quality is one of the trickiest things any executive has to deal with. If your prime costs are too high, your profits suffer. Too low, and you sacrifice the quality of food and service.

It’s a universal problem that affects every restauranteur from mom and pop diners in rural Nebraska to three-star Michelin restaurants in downtown Paris and everywhere in between.

One of the best ways to control costs is to involve your management staff. Compeat CFO, Kerry Carney explains, “Managers can actively optimize prime costs every hour through proper benchmarking, forecasting, labor scheduling and limiting overtime, reducing wastes, and preventing fraud.”

Some larger chains use incentive programs for their general managers, betting that their enthusiasm will spread to the whole team. Zaxby’s, for example, has implemented a deferred compensation trust fund for management-level employees. Taco Bell now provides leadership development for general managers at their company headquarters, which also helps franchisees feel more connected to corporate.

Another way to approach this balancing act is to find ways to improve quality without increasing costs. Some chains are using predictive analytics that tells managers what to order, helping keep food costs down.

Grow Carefully

There is much pressure in the restaurant world to grow, grow, grow. But, as newly public Habit Burger Grill, in Irvine, California, CFO Ira Fils points out, sales are lower in new markets, so it’s important to “balance growth between new and existing markets.” 

It’s also essential to balance the need for growth with company culture and brand identity. “Our private equity investors would like us to grow quickly,” says Bill Long, CFO of Snooze, an A.M. Eatery, in Denver. “We have 23 company-owned restaurants now, and we don’t want to grow so fast that we lose what makes our brand special.”

MOD Pizza in Bellevue, Washington, is growing by 100 units a year, with 75% of those units company-owned. Their company mission “to employ people who need a second chance at life” is so important to them that they have tasked everyone in the company with telling their story. They have also limited the franchisees to a “number that can fit around one table” to ensure that each and every one of them shares their vision.

Large chains also have to be careful to balance expansion, capital allocation, and company culture. Taco Bell maintains an asset-light model with 7,000 units that are mostly franchisee operated. To facilitate expansion into US cities, the mega-chain is developing a new urban model with a smaller footprint that will allow them to fit into existing retail centers. 

Integrate Tech Solutions

CFOs are all about data and rightly so. Fortunately for the numerically inclined, there has never been a better time in human history to be in a job that benefits from big data. The data has always been out there in the ether, but only recently have we developed efficient ways to not only capture it but also make use of it.

Modern business intelligence software turns raw data into actionable information, allowing CFOs to make quick, informed business decisions. Good business intelligence software centralizes all your data making it easy to manage and analyze so you can paint a picture of what is happening in your business at any given moment. 

Integrating these solutions allows you to go beyond standard accounting practices by incorporating the impact of below-the-line expenses, which in turn puts you in a position to determine whether your supplier relationships are contributing to or hurting your profitability. 

“Without full insight into profitability, it is impossible for CFOs to recognize and correct areas of the company that are underperforming. The ability to see and understand comparative results based on individual stores, chains, products, and more is a critical component to the analysis of a companies’ true bottom-line results.”- Apprise – CFO’s Guide to Profit Strategy & Analysis

Integrating business intelligence software into a company’s enterprise systems provides a complete picture that would otherwise be impossible to see, much less act on. 

When selecting a software solution, it’s important to choose one that scales appropriately for your company’s size. Make sure it includes comparative as well as trend views, that it integrates both above and below line cost drivers, and is industry-specific. The best programs include the ability to customize things like data fields, time fields, and graphical views. Many allow you to get granular in your customization options.

One factor that’s often overlooked is training, even though adequate training is arguably the most crucial factor in choosing an enterprise solution. It is critical to set up comprehensive training on new software programs. 

Implementation should start with a thorough assessment of your business so the software can be tailored to meet your needs. Ideally, trainers should come to you and provide support well after implementation is complete. 

Maintaining a profitable restaurant is all about finding the right balance. As CFO, it’s up to you to make sure you have the right tools to find and achieve that balance.

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