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The Restaurant Roadmap is your guide to building and running a successful restaurant. Each episode explores the full journey of operations—from planning and development to menu design, execution, and growth. Hosts Danny Bendas, Amanda Stokes, and Chef Eric Lauer bring decades of expertise, joined by industry leaders and restaurant professionals who share their insights and stories. Together, they uncover strategies, tools, and lessons that help operators improve performance, strengthen teams, and elevate the guest experience. Whether you’re opening your first location or refining an established brand, The Restaurant Roadmap equips you to navigate every step with confidence.
Danny: Welcome to The Restaurant Roadmap podcast, powered by Synergy Restaurant Consultants, your go-to source for actionable insights and real-world strategies from the industry’s top experts, clients, and special guests. Whether you’re building a new concept or refining an existing one, we’re here to help you create a forward-thinking sustainable brand, elevate guest experience, streamline operations and maximize your bottom line. With decades of hands-on experience, our mission is simple: to deliver practical, proven solutions to the everyday challenges restaurant operators face. Let’s dive in and get to work.
Danny: Hello everyone. Welcome to The Restaurant Roadmap podcast. We’re going to carry on with financial information once again. Let me introduce you to Clyde Gilfillan. He is our finance slash operations slash all around good guy. Clyde, how are you, sir?
Clyde: Doing great. Doing great. Hello to all.
Danny: So, I think we’re in our fourth podcast to talk about finance, P&L, and I wanted to start off by asking Clyde, just kind of do a recap of the previous information we’ve discussed. You know, budgets, cash flow, how does it all kind of work? What is it and what isn’t it? And then we’re going to go into, okay, how do we manage your P&L via operations? So Clyde, I’m going to be quiet and I’m going to let you kind of do a recap of all the things we’ve discussed so far.
Clyde: Sure, sure. So, we first began with understanding the difference between budgeting or budgets and cash flow, and what we want to understand is that cash flow is king. What’s coming into the bank, what’s going out of the bank, is the most important thing, and doing such things as cash flow projections, daily reconciliations between your accounting system and deposits and merchant clearing, you know, credit cards that clear in is very important. So, because whatever you have in the bank is really the most important thing for you. So, understanding what cash is, how cash flow comes in and out, and how to project where your cash flow is going to be. For such things as CapEx and paying bills and things like that, that’s most important.
A budget, on the other hand, is more of a target, more of a goal, more of, kind of, a where you think you might go, but it’s not really used for cash, and we do what we don’t want to do is use budgets for such things as how much money do I have in the bank, or what should I be doing, et cetera. So, that’s the main difference between the two. Budgets do have a place. They’re good for such things as management of incentive bonuses, if you have loans, the banks are going to want to see budgets for understanding loan factors, you know, things like that, but they’re not as important, at least in my opinion, as cash flow and what’s known as cash flow projections.
The second thing we talked about was understanding, you know, what a P&L is, also known as an income statement, if you’re more of an accountant. And that really just tells you, through your accounting system, whatever accounting to your system you’re using, you determine your income and your outflow. So, you have sales that come in. That could be via your POS, it could be wholesale, business accounts receivable, for instance, and it could be, you know, you’re doing events and getting checks from people. So, that’s all income, and you’re going to calculate those things you know through your accounting system.
And then the second thing is that you have all the outflow. That could be, all the invoices that you have, rent you pay, sales tax that goes out. Because, remember, we’re collecting sales tax, and then we’re keeping it for a roughly 30-day period and paying it on the 20th of every month, in arrears. You know, labor, so you’re going to pay payrolls, all those sort of things, all your insurance costs, et cetera. And then we discussed how to break those down into a restaurant P&L.
And so, the general kind of way that we talked about it was, you have all your sales, commonly—we’re just going to call them sales for our podcast and our people. Then you get a second category called expenses. And in those expenses, you’re going to have cost of goods sold. That’s your food and beverage costs, normally, some QSRs also put in paper products in there, but most restaurants have that as a separate [file 00:04:39].
Your second biggest category is going to be your labor cost. That includes all of the amount of money that you’re paying people, plus all of the other things that go with it: payroll taxes, benefits, insurance, you know, things like that that are associated with labor costs. So, that’s the all-in labor cost number. We lump both of those things together and call that prime cost. So, it’s the two largest ones together that’s called prime cost.
Then you have basically your controllables, or your day-to-day operating expenses. Those things are like paper products and chemicals in, you know, GNA, and in, you know, pest control and all those sort of things. And then the last one is—and that’s going to include utilities and marketing and all of those day-to-day things. Some of those are fixed numbers, some are variable numbers. And their last is going to be what we call the occupancy cost and usually that’s going to be your rent. If you have common area maintenance, that’s going to go in there, and then you’re going to put your insurance costs. Those are kind of the three ones. And if you have property taxes, you’ll put that in there.
Some people have [unintelligible 00:05:47], and others, they own the property, and there’s other complex deals here, but those are the general categories. Then we finally summarize that up and to say kind of the math of the restaurant goes something like this. If you have one dollar in sales, you want to target somewhere around 30 cents of that dollar going toward your cost of goods sold, you want about 35 cents on that dollar going towards your labor, so that’s about 65 cents. That would be your prime cost. You want another 15% on your day-to-day operating costs, okay? So, that’s going to kind of get you about 20 cents on the dollar left over. Finally, keeping your occupancy cost around 10% should give you somewhere in the 10% positive cash flow.
If you can maintain those numbers, then that’s going to move you toward what I call the greater margin for error because not every single week or month do sales exactly come in the same way. A lot of places are very seasonal. So, that kind of sums up I think we’re kind of where we’re at now, Danny.
Danny: Yeah, yeah, very good. Thank you. I think that’s great. And you know, as we move forward here today, I’m sure there’ll be some things that are repetitive that I don’t think we can stress a lot of these things enough because you got to do this to make a living or make money, otherwise while you’re doing it? And then you also talked, again, just to recap, if you can’t make those kind of numbers, you may as well just put your money into a CD and make 4 or 5% call the day without, you know, without all the stress that you have opening a restaurant, right?
Clyde: Yeah, yeah. The general idea is that you’re going to go into the restaurant business for a variety of different reasons, but from a financial standpoint, you’re going to the restaurant business because you believe that if you operate it properly and do all the things that we guide you on and the things that we recommend in the order that we recommend them, you should be able to beat the base hurdle rate. That’s the idea. Base hurdle rate is, say, you’re going to use your ten-year treasury as that base rate, and it’s about 4.2% today. Actually it is moving up today. Yields are a little bit up today. And that’s kind of your hurdle rate. So, you know, a lot of people, they’re looking to beat that hurdle rate substantially, and the restaurant business, if done properly, is one in which you can really, you can substantially beat that hurdle rate.
Danny: Yeah, and I think the other important key here—two other things, again, just to reiterate—not every month is the same. So, if you’re a seasonal business, this is where cash flow becomes really critical is, you got to be able to save and budget, you know, a good month for the bad months, so managing that cash flow and you know, setting aside savings or doing whatever you need to do to manage your business year round is really critical, right?
Clyde: Yeah, that’s why you want to do that cash flow projection at least six to eight weeks out.
Danny: And then the other the basis for a lot of this, just to touch very quickly, is having a solid chart of accounts. So, can you just touch on that real quick, Clyde, and then we’ll move into the next session?
Clyde: Sure. Your chart of accounts is the base categories in which you’re going to account for the financial activity of your business, whether it restaurants or whatever. But using our restaurants as our base, any time that you open a restaurant and you begin to set up your accounting system, the very first thing is you’re going to set up a chart of accounts. All that is, is a listing of every single solitary account line or number that you may use, and you’re going to categorize it as a sale or an expense, and then you’re going to assign an account number to it and a description, and it’s going to stay there. So, once you set up your chart of accounts, you can always add to the chart of accounts, but you can’t subtract because if you delete a line, every single solitary entry that you ever made previously will be taken out of the system and your balance sheet won’t balance, and your income statements won’t be right, if you get audited and things like that, and you’re going to have tough time explaining things.
So, once you set up your chart of accounts, you want to kind of stick to it. And I recommend being very simple in your chart of accounts. We do have a sample chart of accounts that we recommend to our clients, and if you stick with that, and you pay attention to your bookkeeping and enter in things the right chart of accounts, and you’ll be fine.
Danny: Critical, and you really got to think that through when you’re starting out, if you’re starting a new restaurant because once you set it up like you said, it is what it is, right? So.
Clyde: Yeah you can’t ever—you can’t—you can always add, but you can’t subtract. A lot of times, we’ll come in and do a forensic analysis of clients accounts and their bookkeeping and/or accounting, and they’ll have a chart of accounts that’s just all over the place because they just keep adding and adding and adding, and then it’s like, you know, 300, 400 items long, and it just doesn’t make sense. And so, you could always start small. So, just start with food cost. You could then expand it to dairy, grocery, you know, maybe meats or seafood, proteins, produce. You can always kind of expand it out, but don’t get too large because it’s just going to overcomplicate things.
Danny: Yeah, and, you know, again, to your point, that gives you a good way to be able to run and manage your business and see where you’re doing well or where you have to investigate. If something balloons, you know, it just helps you target fixing things a little bit better, right? All right. So, two things. So again, if you’d like some information, and we can send you a standard chart of accounts, shoot us an email info@therestaurantroadmap.com. We’ll be happy to do that.
Again, if you have a topic you’d be interested in, send us an email, and if your question gets on to one of our podcasts, we’re going to offer you a 30-minute consultation. And then lastly, we now have on our website—synergyconsultants.com—a page where all of our podcasts that we have posted reside. So, if you want to get back to the ones that we’ve discussed here today, go to synergyconsultants.com and find the podcast page, and you’ll see all of the recordings we have done to help refresh, and listen to them if you missed them.
So, all right, Clyde, we’ve talked about all of that and now we’re going to talk about how to operations affect the income statement. Thank you, you put together some really great information here. We’re going to go through it. Some of it, again, can be repetitive of what we’ve discussed before or other podcasts, but I don’t think—it’s not too important to bring this up over and over again because it’s really, really important to your profitability, right?
And just to start that, and then I’m going to turn this over to you, we’ll go through, you can’t cut your way to prosperity, right? So, we’re not advocating that you just cut costs to try to get your bottom line where you need to be, so all of these things are designed to help you effectively and efficiently enhance sales or moderate costs if you need to, but do it without sacrificing the guest experience, when that leads to bad sales, you know, a lowering of sales, discontented guests and employees, and you basically cut your way to the bottom, right? So, all right, having said all of that, sir, we’re going to talk about, if you want to start off with, let’s talk about sales revenue and the decisions you make on the floor, you know, they all affect everything going downstream onto your profit and loss, right?
Clyde: Remember, we just finished our discussion about the income statement and how it’s set up, and what categories. And the income statement is done in arrears, meaning you’ve already finished a period; you’re going to do your reconciliations, you’re going to produce the income statement, you’re going to give it to your management team and/or other owners, whoever the stakeholders are that you’d like to distribute it to. But you got to remember, it’s in the past. It’s what you did. It’s not what you’re doing now. It’s not what you’re going to be doing.
So, one of the key principles of an income statement is producing an income statement for a period, whether your calendar period, or, you know, 13 four-week periods, however you work it, is to get that out to your stakeholders as soon as you can. And I recommend no more than five to seven days because any longer than that, you’re already into the next period. And it’s a why should we do that? Because if you understand how you played the game last month or last period, it can affect how you’re playing the game this period.
So, when we talk about sales, this is the amount of money that’s coming in. There’s only two things that affect sales and only two ways to really increase sales. Number one is, how many guests are coming through your particular type of facility. That’s called volume, or guest transactions, et cetera. So, the number of guests that come through, you can increase that or decrease it. So, sales are going to go up, sales are going to go down, all other things being equal.
Or number two, how much does each guest spend within your restaurant? So, whether that is, you calculate that as you know per transaction, or if you’re a little bit more sophisticated, you’re going to do a sales per guest. So, those are really the only two. If you want to increase your sales, you got to increase one of the two, if not both: you have more guests coming in, or the same amount of guests, they have to spend more, or the holy grail, that’s getting both.
So when, if you can understand that, then you’re going to look at how you operate the restaurant. So, such things as, what is your menu price? What are you selling for that? So, we’ll often see restaurants with whole numbers. And it might end in point-nine-five, like, you know, 16.95, et cetera. And if you understand your menu pricing, the psychology of people who look at menus and how they look at them, you can understand that most guests look at the price that’s left of the decimals. And if you do whole numbers, then you’re kind of sort of stuck and you have to raise prices by a whole number, so understanding that psychology and how you price is very important.
But more importantly is you set your menu prices based off of ideal food cost, which comes from costing out your recipes. So, knowing that, how you execute your menu and knowing how you price your menu is one of the first things that you’re going to look at when it comes to sales and how operations influences your income statement. Secondly, you know, how’s your service, speed, and the guest experience? So, if you’re—what’s called throughput, which is the time from a guest walks through that front door all the way until they walk out, how many guests are you turning in any given time period that you might want to look at, sales per hours is one of the most common, as is sales per day. So, your speed of service is important.
If you’re a full service restaurant, you’re going to take a little bit longer than if you were, say, McDonald’s or other QSRs which have different types of time standards. And then, of course, the guest experience. If you’re a full service restaurant, are you coursing meals? Are you suggestive selling? Are you doing these things in the course of this guest experience that’s enhancing who you are as a concept, and also the potential revenue that you have coming in?
A couple other things that you want to look at are, how are you marketing the restaurant, what kind of promotions? So, we have to remember that marketing creates trial. Marketing does not create sales; operations create sales. So, you want to market to get people to come in and try your restaurant, and then you have solid operations that gets them coming back in over and over and over. And same for things like promotions, like daily specials, limited time offerings, those sort of things. So, how you market your restaurant influences that. Hours of operation, staffing levels as well.
Like you said earlier, we don’t ever advocate trying to cut your way to prosperity. Like you said, it’s really not possible because the more that you cut—and we’ll get a little into this when it comes to labor in just a few minutes—the more that you begin to cut back on your restaurant, whether in this particular case, we’ll call it hours of operation, the psychology of people, they understand when you’re closing, they don’t want to—most people—don’t want to be the last one to walk in, so if you’re closing at ten and you decide, wow, gosh, I only do about $40 from 9 to 11, so it’s not worth it. I’m losing money. I’ll close at nine. Well, they’re people are going to stop coming in, especially a full service restaurant, you know, 30, 45 minutes, an hour ahead of your closing time.
And so, you continue to cut back these hours of operation, thinking, I’m going to save money, but you really never do because you’ll continue to erode your sales. So, the hours of operation, and also the staffing levels, we’ll talk about that more in labor costs. And then finally, of course, in today’s, kind of, modern world, there’s third-party delivery. You could add that. You can add takeout, such things as that, as well as things like events, et cetera.
But I think focus on your menu and how you execute it, how you price your menu, the focus on your guest experience and your hours of operation and run a solid restaurant, then you’re going to get those guest count increases, which is really what you’re looking for.
Danny: That’s all really great stuff. And I think another really good metric to talk about, sales per man-hour and we’re going to talk about labor here in a little bit. So, you know, anything you can do to raise your sales per man-hour, you’re improving the efficiency of your space, your team, and a lot of that money is going to flow to the bottom because you’ve already paid for almost everything, you know, a lot of your expenses, right? So, a lot of that money just flows straight to the bottom line. And then, to reiterate all of this again, to sum it up, all the different sales channels, you know, what can you legitimately offer within the space to generate more revenue.
And you know, we also talk about sales per square foot when we do financial feasibility. So, the higher your sales per square foot, the more productive your building is, which means, you know, you may be doing more takeout, or you have a banquet space, or you’re doing delivery or you’re promoting during slow times. You know, like Mondays are slow days; what can you do to drive volume there versus trying to do more on Saturday because you may already be maxed out in terms of volume potential. But what can you do earlier in the week to generate as much revenue and cash flow as you possibly can, right? So, a lot of good stuff there, sir.
So, let’s talk about, there’s some things to be aware of as we talk about food and beverage and cost of goods. So, you know, we always say it starts at the back door, so let’s start there and kind of work our way through because this is a big number, and it’s a lot of dollars we’re talking about generally, right? So, let’s talk about that for a few minutes.
Clyde: Okay. So, when it comes to what we’re going to call cost of goods sold, and this goes for whether it’s food cost or beverage cost—depending on your concept, et cetera, a beverage could be non-alcoholic, it could be beer or wine—there’s only five ways that you can control food cost. They are, how you order, how you store—how you receive and store—how you use the food, how you waste the food, and then how you manage that inventory. Starting with the ordering, you’re going to set up an order guide, and that should come through your recipes. You have two kinds of recipes: batch recipes or prep recipes, and then assembly or line execution recipes.
So, once you set up those recipes, and you’ve already been properly—and they’re good and they’re solid, et cetera, then you’re going to develop an order guide. Once you develop an order guide for your kitchen manager—or yourself, if you happen to be the chef or the kitchen manager—that order guide, you’re going to want to kind of flow with that order guide. There’s several things to understand. One is how much you’re paying for things. Now, there’s an argument to be made, especially from somebody like me, who says you should use a prime vendor because you’re going to get the best food pricing that you possibly can.
If you’re one of these people that kind of plays one vendor off another, or shops around, et cetera, you might get a decent price on a single thing, but in the end, you’re going to probably lose out. So, think about having a prime vendor and maybe even doing a contract if you can. But food prices are very important, so how much you’re paying for something. Second is going to be your par levels. So, you want to know how much you should have on hand of any given thing.
So, let’s just say you’re using Stanislaus full red tomato sauce, okay, and you develop a usage number over a period of time, and then you have what’s called a par level, and you keep it on there. So, let’s say our par level is 12 #10 cans, and you, when you’re going to do your ordering, you go down there and you say, okay, I’ve got eight. My par level is 12, so I should have four. So, that’s another thing. Is to pay attention to par levels, all right?
And then finally, if you just you—a lot of people just don’t focus on this ordering. They just sort of like, get it done. Oh, my gosh, I need to get the order done by four o’clock, and it’s 3:30, and they rush through it, they over order, order the wrong things, don’t pay attention to prices. So, all those things are in that ordering part.
Danny: Yeah. And if I can interject here a couple things, Clyde, I think when you get ready to place orders, you know, having an order guide where you write down, you know, obviously the item, the pack, but how much do you have on hand, what’s my par, and if you subtract one from the other, that’s what you’re ordering. And then, over time, you begin to see your usage history. We do a lot of operations work where people just walk around and write down what they’re going to buy, but they don’t know what they had on hand to be able to track it. And I think the other thing there that’s important, to your point about using and having a loyalty with a vendor that you trust, that you can work with, that doesn’t mean you don’t do comparative once in a while, but they can also often provide you with usage reports over six to eight weeks to give you an average usage, which just helps you make good buying decisions, and you’re not tying up a lot of dollars sitting on shelves, that you could be better utilizing for something else. So, I just wanted to get those in there before we move on.
Clyde: Yeah, I think those are good points. And just lastly on this ordering part, if you’re using one of the big players, such as US Food Services, Sysco, PFG, [unintelligible 00:24:40], IFH, people like that, they’re going to have modern, sophisticated tools such as online ordering. So, if you could—they provide you with handhelds or iPads and everything’s online. You put your order in, they’ll tell you exactly, you know, what’s out of stock, what’s not up, you know, what sub that you’re going to have to choose from, how much the order is. They also can put in there all your par levels and build your order guide for you. So, that’s another kind of thing that you should think about these new, modern tools that will help you instead of, kind of, just writing stuff on a pad of paper, sort of, using your phone.
Danny: Yeah, and that also helps you with paying. And you know because the invoices come through electronically. You can pay electronically. You manage [unintelligible 00:25:23] credits. There’s a lot of advantage to that, and so it should be taken advantage of, to the extent that you can. It’s all good stuff, Clyde.
Clyde: All right. So, that second part is, once you’ve placed your order, then you have to actually receive it. So remember, we’re talking about how restaurant operations influence—or should be influencing—all of your categories, whether it’s sales we talked about are now we’re getting more to expenses. So, you place your order and it shows up. It could be a key drop, meaning that it could come in off hours, that the vendor comes in, they open the door, they put everything away for you, and usually, you know, on the floor and/or in your walk in, and then you verify when you get there, or you can receive it in person, which is what most people do.
So, you want to have good receiving practices. And it’s just not hey, just put it over there. I’ll get to you. Just leave the invoice. You want to be checking off those items for both quantity and on certain things, such as fresh fish, produce, you want to check quality. You have to check absolutely everything. But you want to be looking at things and receiving things properly because once you receive that, food cost is—that’s it. It starts right there and it’s never going to get any better. Your food cost is ideal the second that you receive it and you sign that invoice, all right?
So, then you want to go ahead and store it properly. So, you want to date it, you want to label it, you want to rotate it, you know, using the first in, first out methodology, and you want to make sure you’re organized, all of your shelves are labeled. Everything goes in its place because the more organized you are, the more professional you are in how you receive and store your products, the more you give yourself a chance to have less waste, which we’ll talk about in a few minutes.
Danny: It seems like nobody has time to really thoroughly receive product, but really, you know, to your point, food costs starts there, and your loss and your waste and everything else. And you know, if you feel like you’re so busy, one of the things that we advocate, you know, just take two or three items per delivery and change it every time, and do a very thorough—I always use the example of lemons, right? You buy a 165-count lemon, take a box of lemons, dump them out and check the quality at the bottom, count how many are in the case, and make sure that you’re getting what you’re supposed to be getting, and then just rotate those items. Because the other thing that’s important is, in my experience, over many years, if the delivery people realize that you’re not checking in orders, they know that there’s a place where they may be able to drop things off that they can’t somewhere else because it won’t get accepted. So, you can, sort of, become the dumping ground for product is not at the same level of quality, if they realize that you’re not staying on top of that. So, I mean, I’ve had that experience, and it’s not fun, and it costs you a lot of money.
Clyde: Yeah. I think if you using the large vendors and you understand how they make money and how their business is run, you’ll kind of understand how you receive your product. When you place your order and you put it in by a certain time, let’s say it’s four or five o’clock in the afternoon, that’s the very first step for them. They receive the order, and then at night, usually 10, 11, 12 o’clock at night, they have these big, giant warehouses and they’re literally going to go through and pick your order, put it on a pallet and they’re going to take it out of all kinds of different places.
And these aren’t robots that are doing it. In some cases, they are, but most of them are pickers that are driving around forklifts and/or picking things by hand, and they’re doing a job, too, and sometimes they’re good performers, sometimes they’re not, and it’s all shrink wrapped on a pallet, put into a truck and delivered to you. And most of the guys who are delivering, they’re not checking it. It’s already done. Once it’s in their truck, it’s yours. So, it’s incumbent upon you to realize it’s your money and that you need to make sure that what’s coming in that back door is what you asked for and what you ordered.
Danny: Okay. What else with COGS, sir?
Clyde: The next thing is going to be, so we’ve ordered and received the product; now we’re going to use it. So, there’s two kinds of usage. One is prep. So, we take our raw ingredients and we produce things that we’re going to use later on. So, those could be work-in-progress, it could be speed scratch, it could be batch recipes.
So, if you’re going to make us, let’s say a spaghetti sauce, then you might have a recipe that says, okay, crushed tomatoes, salt, pepper, water, tomato sauce, tomato paste. Or, you know, oregano, whatever you might put in there, into your recipe. So, you’re taking all of these things and you’re producing something and putting it into a container that’s going to be used later on to finish on the line. So, the first thing you’re going to do is you’re going to use the raw ingredients to produce things to execute later on. So, paying attention to such things as portion controls, like the proper scoops, you know, proper ounces, weights, measures, all of those sort of things. You just don’t, kind of ignore what’s going on in prep.
Next is, you know, you need to have those recipes in front of the prep people so they know. Even if they’ve been working for you for ten years, you don’t want them to freestyle. You want them to adhere to the recipe and use level measures and the right scoops and all of that. So remember, everybody, routine builds habit, habit builds consistency, and consistency is where results are. So, that’s why you’re always having those recipes available for yourself.
And then you have to have such things as prep sheets, production systems, things like that. How many are they supposed to make today? Is it a one batch? It is a two batch? One gallon? Five gallons? You know, 10 pounds, 20 pounds? How much are they making today? And that’s going to change by day or by week or by seasonality, as we discussed before.
And then, once you produce all of that, you date it, and you label it, and you put it into your cooler or onto the line. That last part is, how do you execute on the line? How are you going to use it the last way? So, if you’re going to make a burger, it might be a bun, so you receive the bun, you put it on the line, you might have a burger patty, so you’re going to salt, pepper, put it on your flat grill or your char grill, depending on your methodology. You might have lettuce, tomato, onion, so those are going to be on the cold side.
So, all of that is set up and ready to go, and that’s why we advocate using a line check before, 30 minutes before you’re going to open at lunch, if that’s what you do, or if you’re dinner only, or if you have dinner, you do a line check there because you want to make sure those line people are set up. They have everything’s proper. So, how you use the food that you ordered and received through either the prep system or your executional line is probably the most important of all the things we’ve talked about so far.
Danny: Right. Yeah, and you know, that whole thing about line checks, you kind of stole my thunder. I had that written down to talk about. But you know, that verifies quality. Because in other podcasts we’ve done, we always say we don’t want the guests to be doing a line check for you, right? You need to be doing it before the guests have something that’s bad.
And the other thing is, it helps make sure you set up and you’re ready to go, which affects throughput, which we talked about earlier, how many guests can you serve? And it also helps you manage your waste and your production. If you’re throwing a lot of things away when you do a line check because they’re out of date or they’re no good, that means you’re overproducing, which means then you have to readjust your par levels or your prep charts to make sure. So, you know, I always found that a line check is one of the best training tools there is. You accomplish so many positive things by really doing a great line check and making somebody fix a mistake versus you doing it because then everybody understands your expectation, right?
And then the other thing—just back to production real quick—the other thing I think people should realize is, account for shelf life, you know? We do a lot of work with people where, you know, they make things every day because it’s on the prep chart and it may have a two or three day shelf life. So, you say, well, why am I making it every day, as opposed to three times a week, which maximizes your efficiency without sacrificing quality, and again, it just gives you that productivity advantage and helps you with your labor, which is where we’re going to go next, right? Did I miss anything? You wanted to talk about inventory management.
Clyde: The last couple of two. So, you order, you receive and store, you use it, and then the next part is how you waste it. So, based off what you just said, you know, if you don’t rotate things, if you don’t understand shelf lives and you don’t have shelf-life charts out there, then you know you’re going to be throwing stuff away. So, it starts really, kind of, there. You might have expired product, improper storage, you didn’t rotate, you might even overprep, make too much, and then you have to throw it away.
And then, of course, you have theft and shrinkage. And theft could be as simple as guys on the line eating or people just, you know, taking stuff off the line and walking out the back door with it. I’m not saying, like, they’re stealing whole cases of burgers or something, but, you know, they just make a burger for themselves on the way out the back door. Or they make a sub sandwich for themselves, or tortilla or what have you.
So, you know, you have to watch how you waste your food as well because you could really be good on these first three that we talked about, the ordering, storing, receiving and using, and then just kind of blow it all with waste. So remember, this is a short margin business. We talked about, ideally, you know, 10 to 12% would be fantastic, and you could easily lose 1 or 2% in COGS in a heartbeat. Then finally, you want to make sure that your major inventory, and one of the best ways you do that is through your menu mix, understanding what you’re selling. So, running a menu mix at least once a week to understand what products are selling and what’s not help you adjust your par levels, it’ll help you adjust your production levels and your prep.
And you can do such things as taking a menu item off that’s just not selling. I don’t care whose menu you have, there are items that just don’t sell, for whatever their reasons are, and so you might want to just take that off. So, running that menu mix, and making sure that you’re taking inventories and understanding what you have on is kind of that last part, and all of this can really kind of affect this cost of goods sold ratio number we’re talking about. So, if you do your income statement and you think that you’re supposed to be at a certain level and you’re not, then you can walk back and lose that, then walk back and figure out where that is.
One last thing I forgot to talk about a little bit earlier, Danny, was this idea of ideal food cost versus actual food cost. So, when you cost out—everybody should be costing out their recipes, whether they are the batch of prep recipes or the line recipes, you should cost them out. You should know exactly how much a batch should cost you. And then, of course, that’ll move into a plate cost. And so, if your plate cost is $2.50 for a single plate, then you know that, ideally, that’s what it should cost.
Now, it doesn’t kind of work out that way because we don’t sell one of everything. There’s all kinds of different things. That’s called your weighted average. And we’re getting a little more sophisticated stuff here, but understanding what you ideally should have done at the end of the month versus what you actually done will help you kind of pinpoint in this cost of goods sold, what are these other categories that we have.
Danny: Yeah, and I think there’s also, we talked about some software pieces that you can use that’ll help you give theoretical costs, where every time you sell an item through the POS, it’s deduction form inventory to give you theoretical versus actual usage, projected versus actual usage on cheese on a pizza, let’s say, and if you’re way over on your actual usage versus your theoretical, you know what you need to attack, right? So, real quick, before we get into labor here. You know, I think security is also important. You know, you talked about security to the extent possible. You know, a lot of places, if you’re especially, like, a high end steakhouse where you have a lot of high-cost items, you know, having a lock-up in your cooler, so you can manage those sorts of things. So, we’re not accusing anybody; we just always like to say we’re eliminating temptations, okay? And you just helping maintain your costs, right?
Clyde: Yeah, we’re dealing with human beings, like you’re saying, so you know, we’re not saying that… you just have to pay attention to your business. You’re doing this for a living. You’re doing this to make money. It’s not community service, for the most part anyway. For most people, vast majority. So, some of this is hard work, Danny, but look, if this is what you’re doing for a living, everything’s hard work. There's nothing easy in the restaurant business, and there’s a lot of details that go on, and we’re working with perishables, and working with human beings, and working with things that change every single solitary day. So, yeah, it seems like a lot of hard work, but you don’t do the hard work, rewards aren’t really going to come.
Danny: Yeah. And this, again, is where, you know, to your point, it does sound really complicated, but they have really good systems that you train and you execute and you hold people accountable for, you know, like I said, those line checks, you know, like, one of the first jobs I had, it took, like, two hours to do a line check, but when I finally got my crew trained and they understood how, you know, to do things and hold them accountable, I almost didn’t have to do a line check because they understood the standards. And I did a line check just to stay on top of them, just to, you know, keep them on their toes, if you will, right? So, the other quick thing here, I wanted to say is, you know, P&L’s again, like you said, you’re looking in the rear view mirror. And inventory is important and certainly critical at the end of your period, whatever that is, but you know, you can also do weekly inventories, you can do a weekly key ingredient inventory. So, whatever you need to do to stay on top of your costs, you know, within the time that you have that you can do it effectively, I just wanted to bring that up too.
So, you don’t have to always be looking in the rear view mirror. You can be looking, you know, just last week, you know, again, if you did a key item or you did a weekly inventory. You know, you can’t let it get ahead of you because when you get into week three of your accounting period and you’re behind on everything, you know, there’s no catching up. Let’s move on to labor. We have about maybe five or six minutes left, Clyde. Labor is the other big one, so let’s talk about labor and how do you control it?
Clyde: Ironically, labor cost is one of the easiest to control because there’s only three ways of doing it. So, the first way to control labor is how much you’re paying somebody, whether it’s a fixed cost, like a manager’s salary, or whether it’s an hourly cost, that starts in the very beginning. You decide on how much you’re going to pay somebody. So, that’s the first thing. You have to decide on what you’re going to pay an individual for a given position, right? And we can get into competitiveness and all of that, but just understand that’s the first way. And you might do that, you know, once a year, twice a year, three times a year, depending on your value process, but that’s the first: how much you pay.
Number two, specifically for hourlies, is how you schedule that labor. So, when you know that you’re going to pay this person $18 an hour, you’re going to put them on the schedule for a number of hours, and you need to be very specific on that schedule: these are the hours and the days that you’re supposed to work. Here’s when you clock in, and here’s when you clock out. And once you do that, you’re going to get hours and it’s a simple calculation from there; it’s $18 times the number of hours that you provided on the schedule. So, you want to cost out your hourly schedules in every department for the week, understanding this is what it’s going to cost you. And then check back into remember that budget we talked about, okay, those goals. So, if my budget is 25% labor, then is this schedule going to meet the forecasted sales that I think and meet my labor budget? So, the second way is how you schedule people.
Danny: Yeah, and not to interrupt [unintelligible 00:41:44] I do is, we do a lot of work with people. They write a schedule and they put an in time, but they never put in an out time. So, there’s no expectation of you can manage productivity by giving people a certain amount of time to do a job, right, but if you never give them an out time, there’s no expectation. And I could take 12 hours, or I can take 10 hours because you didn’t tell me and hold me accountable for how many hours I have in order to get my work done before I can go home.
Clyde: Okay. Right, exactly. And then the last way is schedule accuracy. In other words, are they actually working the schedule based on what you just said? So, if I’m supposed to work from 9 a.m. till two, I clock in at nine, I clock in at two. That’s schedule accuracy, schedule integrity. If people are, kind of, just clocking in and clocking out whatever they feel like it, then what’s the point of a schedule and costing that, et cetera?
So, if you just understand those three basics, how much you pay somebody, how many hours you schedule them, how much does that cost, and do they actually work the schedule? Meaning, do they work it or well, I’m sick today, I’ll get Bobby to cover for me, and then that puts Bobby into overtime, for example. So, if you’re paying $18 an hour, that’s going to automatically be $27. In certain states, it’s different. California is a day labor state, for example. It’s after eight hours; you have to pay overtime.
And then there’s a lot of nuances inside of that, right, like, turnover rate and hiring decisions. Do you give employee meals? Are you paying insurance and things like that? But I think if folks just focus on those three prime movers in labor, they’re really going to do that. But one last thing.
Let’s go back to what you talked about earlier, and that is a major way to prosperity. Yes, labor is pretty easy to control, all right, so what happens is, you see that sales are kind of where they are, and people do this schedule and cut mentality. They’ll schedule people and then they’ll, sort of, cut them. And sometimes you have to be very careful because you can really start cutting that schedule back and then you’re managing your business down. So, that goes hand-in-hand with, you know, the hours of operations, and this idea that you really want to grow; you don’t want to keep cutting back.
Danny: Yes, it’s like we say, you know, you schedule your labor to either be successful or not, you know? And like you said, it’s very easy to manage labor. It’s also very easy to cut it, which can really be a detriment and can end up ruining your business. And I think the other part of labor, too, that’s critical, is really again, it gets back to systems, it gets back to training. If you have solid production systems and people understand exactly what they need to do within the time period that they’re scheduled, and you hold them accountable for getting it done, again, that’s all about productivity.
There’s a lot of instances where, you know—and we’re not trying to be ogres here, but you know, people clock in, they talk, they chat, they go around and say hi to everybody, and before you know it, they’ve been paid 30 minutes and they haven’t really started doing anything yet. So, just managing that productivity, I think, is really important. You know, in a positive way. Like I said, we don’t want to be ogres here.
And I think the other big part is, you know, I always really firmly believe that, you know, energy drives productivity. So like, if you’re a chef or a kitchen manager and you’re kind of moving slow that day, your crew kind of tends to move slow that day, so your productivity drops, right? So, just keeping the energy up, you know, good morale, having fun, everybody enjoys doing the job they’re doing, and I think that really leads a lot to, you know, improving your labor and just the ability, you know, the quality of the work experience. So, just real quick, let’s talk operating expenses. I know we talked about this on the last podcast. Talk about that and just kind of wrap things up.
Clyde: Okay. All right, so kind of skipping that a little bit, just really quickly about these occupancy costs. Remember, you signed a lease if you’re a lease type restaurant, and that’s going to be for a long period of time, so that’s a pretty fixed cost. You’re going to get insurance for that. That’s usually—a little bit different in today’s world—but usually property insurance and general liability, that’s pretty stable for at least a year, sometimes two. So, those are kind of like fixed costs. That’s what it’s going to be, so whether you do zero sales or a million sales in a month, you’re still going to have those.
But these other ones that you’re talking about, these operating expenses, these what we often call, you know, the day-to-day controllable expenses, you know, they’re variable with sales and variable with space design. So utilities, for example. You know, do you have a kitchen on/off schedule? Do you have the most efficient kind of equipment that you’re using? And you know, what are your temperatures set for your AC and your heat? And is your HVAC in balance and its right pressure and those sort of things, and you get them regularly checked? You know, same with your refrigeration.
So, you know, just kind of pay attention to utilities. A lot of people just, kind of just sort of say, okay, I’m just paying this number kilowatt-hours, and they sort of ignore it. Then there’s a lot of other kind of ones that are a little bit easier because you have the discretion to decide on whether you’re going to spend the money there or not, such as supplies, paper supplies, chemicals, marketing, paper supplies—we just mentioned that—repair and maintenance, all of these sort of stuff that you have to do to continue to have your restaurant operate. And some are quite correlated to sales, such as paper and chemicals and things like that, and others are kind of more discretionary, like credit card fees or marketing or repair and maintenance. There’s more decisions involved in there, but don’t forget these because they can add up to, you know, 15 or 20% of your sales pretty quickly.
Danny: You know, I think the other thing that people can really get good at, or better at, or don’t forget to do, is just constantly challenge everything. And we all work in a business where we kind of get blinders after a while. You know, like, I always tell our clients, you know, our client could come in and do an assessment or an audit of Synergy, and I’m sure they’d find a lot of things that we could do better that we don’t see because we’re in it day-to-day. So, try to get yourself to think outside the box as much as you can and just really analyze, you know, should I be locking up my linen, you know? Am I turning off the equipment? Do I put in some piece of technology that controls when the thermostat kicks on and off?
Constantly challenging your numbers because every challenge may save you a few pennies here or there, and that just all flows straight to the bottom and gets you to that 10% or higher. And it’s just, it’s a game of pennies, as we keep saying, so you just got to really manage it all, every day, without sacrificing the customer or losing sight of the reason why you’re in business, and that’s to take care of the guests because that’s the biggest thing because that’s your top line. Any final thoughts, sir, before we wrap it up today? That was a great job.
Clyde: Yeah, thank you. Yeah, I think, just generally speaking, if you have the right concept, in the right market, in the right spot in the market, and then you focus on setting up systems, controls, and operating properly, you have a real good chance of beating that hurdle rate we talked about. You know, 10 to 15% in the restaurant business is really good, so if you have a million dollars in sales, you know, that could be, you know, $100 to 120,000 of profit in your pocket. And it’s not like you have to have an MBA to go to school for, you know, six years to do the restaurant business. I mean, you don’t have to have much of education. It’s really more about rational thinking, common sense, and kind of these street smarts and understanding. So, just focus on what you’re doing each day, and I think you’ll do fine.
Danny: Yeah, and have fun at it. And when you need help, hire us, we’ll come in and we’ll help you with anything that you need help with. So, thank you so much. This has been a really great podcast. I think, a lot of great information. You know, your brain power is immense, and I greatly appreciate it. So again, let me say, if you have questions, ideas, information, ideas on podcasts we can do for you, email us, info@therestaurantroadmap.com. Visit us at synergyconsultants.com to look at our previous podcast, and we’d love the opportunity to talk to you about how we can help. So, with that, I want to thank you again, Clyde. Everybody, take care, and we’ll talk to you soon. Bye-bye.
Clyde: Bye-bye.
Danny: Thanks for tuning in. We hope today’s episode gave you valuable insights you can put into action. If you have questions, want more info on today’s topic, or need support with your restaurant-specific challenges, we’d love to hear from you. Reach out anytime at info@therestaurantroadmap.com, and visit synergyrestaurantconsultants.com to explore our services, sign up for our newsletter, and catch up on past episodes. Don’t forget to follow and subscribe on YouTube, Spotify, Apple Podcasts, LinkedIn, Instagram, TikTok, and Facebook so you never miss what’s next. Do you have feedback or a topic you’d like us to cover? Contact us. We’re here to help make the world a better place to eat.