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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. Today’s subject: financing and cash flow, part two. I think we did a really good one the last time, part one, so I’ve invited Clyde back again. Say hello, Clyde.
Clyde: Hi everybody. How are you?
Danny: We are going to carry on—first we want to just do a quick recap on budgets, which is what our first part one on finance was all about. So, we talked about food and beverage costs, we talked about labor, overhead, the importance of menu planning and pricing and how that affects your budgets, your sales, and your bottom line, and then we spent a little bit of time talking about budgets and cash flow and how they work together, and then tying all that into service, speed of service, table turns, throughput, sales per square foot, cost per square foot. So, we covered a whole lot of stuff last time. So, I wanted to start off, you know, kind of not recap everything, but I wanted Clyde to talk about the basic examples of where you need to be with numbers to be profitable, and just some metrics and some things you can try to be focused on and work with. So Clyde, do you want to talk about that a little bit?
Clyde: Yeah, so for this particular article or sheet that you’re looking at right now, it really talks about a holistic professional approach to your restaurant or your group of restaurants, depending on how big you are. And you’ll notice that things such as people and marketing and all of those kind of operations, it really all ties together. If you have systems that are professionally installed with results-oriented people, and you motivate them and move forward, then you have a much better chance of meeting what I call the mathematics of a restaurant, and that’s just a really, a really simple equation. But this sort of gives you a holistic approach of how to think about your restaurant, in terms of how operations and people and systems and marketing all work together toward making you profitable, profit being a result of the things that are on the screen right now. So Danny, I think that, you know, the mathematics of a restaurant are a pretty basic equation, but people often don’t think of it in these terms.
So, it’s really a function of sales minus certain costs, and I’d like to be able to kind of walk everybody through that, if you don’t mind. Every restaurant wants sales, and the only way that you’re going to gain sales is through transactions, people actually paying you money for your products and services, and that going into your bank accounts. That goes for every company. Now, there’s really only two ways to increase your sales of what you’re doing now: first of all is increase the number of guests that you have, I.e., transactions, or guest counts, people coming through the doors, and/or—and both can be combined together—and/or the amount of money each guest spends within your restaurant or food service facility. So, there’s only those two ways.
So, if we take that basic number—and let’s just say that’s a hundred—like, as in a hundred percent—then from there, we’re always subtracting all of our expenses. The first main number you want to focus on as an operator is what’s known as prime cost. So, prime cost consists of two things: number one, your cost of goods sold. That’s an accounting term, but what it really means is, what does it cost for you to produce the goods that you’re selling to the public? That could be food cost, beverage cost, non-alcoholic cost, beer, wine, liquor, if you have retail, like a gift shop, or, you know, there are brands that have, you know, retail shops associated with them, whatever the costs of those are, are called the cost of goods sold.
And you want to try to keep that roughly, on average, around 30%, and this is just for a basic equation. The second is what’s known as your payroll or labor costs, depending on how you put it on your P&L or your income statement. So, you have two components of labor costs: the actual cost itself, that is hourly and management people together, plus all of the benefits, including payroll taxes, health insurance, whatever you might offer to people. And you should try to keep that somewhere between 30 and 32%. So, if you can get those two together, add 30 and 32 that’s a prime cost about 62% on average. Some are lower… some concepts are lower, some are higher, depends on what type of concept you have. That’s your basic prime cost.
So, if you took 100% minus 62, that would leave you about 38 cents for every dollar coming in left over for all the other expenses. I mean all of the other expenses that are associated with your operation, such as direct operating supplies. So, let’s just say that’s roughly about 12. So, that leaves you—or 13—that leaves you about 25% left over from there. From there, you have—and we sometimes call those variable costs—you then have two other costs that are associated with that as well underneath those lines: that’s the semi-fixed, or fixed expenses.
Semi-fixed might be things like utilities, marketing, those sort of expenses. And then fixed would be insurance, occupancy costs such as rent and [unintelligible 00:06:24] and all of that. If you have those combined, the fixed and semi-fixed, about 15%, specifically the benchmark of no more than 10% in all occupancy costs together, that should leave you about a 10% roughly, plus-minus 10% cash flow. That’s your target. So, if you want to look at absolute terms, if you can maintain those cost percentages, the more that you increase your sales, the more you’re able to leverage the semi-fixed and fixed costs, and therefore increasing that 10% at the bottom line. So, it’s really kind of a basic, basic equation, Danny, but a lot of people kind of don’t think of it that way.
Danny: Yeah. And it’s really good. And I just wanted to add two things here. So sometimes, when you’re talking cost of goods, right, some people add disposables, like a lot of fast food, QSR will add the cost of the packaging for the product as part of the cost of goods. So, some do, some don’t; that’s a decision that you want to make. And then, just to be clear, cost of goods, normally, when you look at it, you know that’s cost of goods as a percentage of, like, if it was food cost, it’d be food sales, not total sales. But when we’re looking at prime cost, it’s the total of all those costs into total revenue to get you to that 55 right? So, I just wanted to make sure.
Clyde: Yeah, and just to comment more about normally a lot of QSRs will price out their menus with that disposable costs in there because that’s their primary container. They very rarely use reusable and/or washable wear. So oftentimes, that’s why they’ll include it in that.
Danny: Yeah, and so that’s why, as we go through these podcasts, it’s an awful lot of work to get the ten cents on the dollar in profit.
Clyde: [laugh]. It is, it is, you have to be very careful with all of your expenses without being—using a not so—kind of a derogatory term, without being cheap. You don’t want to be cheap in your operations. You want to be professional everything you do, but you also want to be able to both manage sales and costs at the same time.
Danny: Yeah, and you don’t want to hurt the guests by—you can’t cut your way to prosperity, right? So people—
Clyde: Exactly, right.
Danny: —[crosstalk 00:08:39] labor. I’m going to cut this and cut that to make more money. And it just becomes a cycle of cut loose, cut loose, cut loose, so you hit rock bottom and you go out of business, right?
Clyde: Yeah. Yeah, that’s called ‘managing down your business.’ So, you manage down the business by continuing to cut labor, which seems to be easy to do because you could physically see the people versus cost of goods sold, it’s a little bit more difficult, and also, you know, changing operational hours, all of those things that’s called managing down a business, and you can’t save your way to prosperity, like you said.
Danny: Yeah, exactly. Yeah. And it really, you know, we always advocate, you know, top line first. If you can fix and keep guest counts coming, you can fix a lot of stuff below, but you can’t fix below to get more profits. You got to just raise the top, right? So that’s—
Clyde: Right, yeah. Raising the top definitely helps you leverage those semi-fixed and fixed costs, for sure, such as management cost and occupancy costs and utilities. They’re rarely going to change based off your sales, and the more you can increase your sales, the lower those percentages come.
Danny: Yeah. And a very large percentage of that, you know, just flows straight down to the bottom, which just really helps you, which is why we really try to help people maximize revenue first, and then take a look at where we can save a few pennies here and there, legitimately without sacrificing the guest experience, right so.
Clyde: Yeah. Yeah, you always want to drive that first because that’s where sales is. It’s in the guest experience, the quality product that you sell, the service that you provide people. They’re going to come in for the experience, not necessarily for just a cheap price.
Danny: Yeah. Yeah, and I know the last podcast, we talked a little bit about compensation and bonus plans, and that’s why we always, very strongly advocate that you always bonus on revenue and guest count first, and then everything else takes care of itself. Because if you create a budget based on cost first, people are going to manage to their bonus, and then you end up sacrificing your business. So, anyway. All right, Clyde, very good sir.
So, we’re going to move into cash flow, just as a point of reference. Why don’t you, if you can, if you had to do a basic definition of cash flow, I know that sounds crazy, right, but we use terms that sometimes I’m not sure if people really thoroughly understand, unless they have a decent accounting degree. So, if you were going to describe, in very layman’s terms, cash flow, how would you describe it, Clyde?
Clyde: Cash flow is the amount of money that flows into your bank account or bank accounts and the amount of money that flows out of your bank or bank accounts on a daily, weekly, monthly, quarterly, yearly basis, however you want to look at it. Some look at it daily. Some look at it weekly. Some look at it monthly. So, cash flow is the actual monies coming in and flowing out on a daily, a weekly basis, let’s say, versus something like an income statement, which is a scoreboard, it’s past tense, versus cash flow is actuality, what’s actually happening.
Danny: Yeah, and I think, you know, another thing that’s really important, you know, is operational continuity, so that operators always understand what’s coming in, what has to go out. But you want to touch on that, as far as, you know, you want to keep good vendor relations, you know, obviously you want to keep the landlord happy. So, you want to comment on that for us, Clyde?
Clyde: I’m not old school in terms of P&L’s, also known as income statements, and reviewing those, and in using those as benchmarks for future performance because it’s past tense. Many times it can be 7, 10, 12 days after the fact when people come in. So, I look at what I would term more new school. I’m more concerned of, using the analogy of driving a car, I don’t want to look out the rearview mirror—an income statement—to drive my car. I want to look out the front, the windshield, and that’s what cash flow does. So oftentimes, cash flow will determine whether you’re going to be able to stay in business or whether you’re profitable, and it’ll also help you plan out such things as CapEx when you have money in the bank.
Danny: And then you also have to factor in seasonality, you know, the holidays coming up, and I guess cash flow helps you, A, see where you are, but also potentially project what you’re going to need to accomplish those types of things, right, whether that’s marketing, more labor, whatever it is to execute those kinds of things, right?
Clyde: Yeah. So, operators are really good at accounting, bookkeeping, making an income statement or a balance sheet, but I think that operators should be much more concerned about where their cash flow is and projecting their cash flow out 6, 8, 12 weeks. I think this one’s probably a 12 or 14 week cash flow extension. You want to understand where your money is going to be and touching on that seasonality. You’re going to have good weeks and bad weeks, but a lot of times, they’re—especially full service restaurants—you’re going to have this dip, or what’s called valleys in your business.
Sometimes, you know, July and August, not as good. Sometimes January, February, not quite as good. But then you’re going to have peak times. And being able to project out where you think you’re going to be from a cash flow standpoint—in other words, cash money in the bank—is one of the most—in fact, I might say it’s the most important thing for any accounting department, and also any CEO or owner-operator. It’s probably the most important thing as far as I’m concerned.
Danny: Yeah, no, very good. Yeah and then just to touch on that, you know, another thing that we really advocate is when you’re having a manager meeting or a team meeting, using those numbers to let people know, you know, the condition of the business. You know, there’s different thinking. Some people like to keep all of that secret. I think we always try to advocate, hey, let everybody know where we are. Get them engaged, get them involved, and get them caring about your business. So, what do you think about that, Clyde?
Clyde: I think that to a certain level, let’s say general manager on up, you should be as transparent as possible in terms of where you stand as far as cash in the bank is concerned. On a lower level, assistant managers, on down kitchen managers, you know, maybe shift leads, you should also be transparent, but you want to move more toward that scorecard. What happened in the past? Here’s what we did. Because a lot of people want to know how they did, but I think being transparent to the unit manager, district manager, regional manager, on up, knowing cash flow is extremely important to them because you trust them to operate your business and you’re trusting them with a single unit or multiple units. They should know where you stand.
Danny: Yeah. And I think it’s a really good training opportunity, too. There’s a lot of guys or girls that become managers, didn’t necessarily go to a business school or a restaurant school. They’re kind of learning their way up. So, it’s a really good ongoing opportunity to train, teach, and then maybe it’s a manager that becomes a regional manager because they understand the business side of things, not just the guests and service and food cost side of things, right?
Clyde: Yeah. A lot of operators are really good at opening a restaurant, closing a restaurant, servicing the guest, having great food, serving a great drink, but on the other side, this financial side, a lot are kind of—they get confused as to what’s good and what’s not so good. They’re told, “Hey, we need sales,” or you know, “We need to cut costs,” but be able to translate that into numbers for them in the way which they can understand is very important.
Danny: Yeah. And then the other thing, a lot of times, if you have a manager working for a chain, let’s say, another really good example, basically all they know is to send numbers into corporate and corporate does everything else. So, they don’t really understand how a P&L works, how cash flow works, what it means, how to interpret it, react to it. So again, it’s just a really good tool to keep your team engaged and learning, right?
Clyde: Yeah, yeah. I think looking forward is much more important than looking backward. In my opinion. A lot of old-school executives will take an income statement, let’s just say it was—we’re about November 21st today, so let’s just say last week you got October’s P&Ls, and they’ll send them out. And then they’ll say, why does food cost high? Why is labor high? Why is this? Why is that? Why are sales down? Why are sales up?
And that’s rear-view thinking because that period is over. You’re already halfway through the current period, and they can’t react. So, I’d rather see people, especially executives, move toward more of a projection, where you think you’re going to be in November, rather than worry about what happened in October.
Danny: Yeah. No, I agree. And then at your weekly managers’ meetings, you’re doing the same thing, so everybody’s anticipating volume, what can I spend? What can’t I spend? Which kind of gets us to the next point, which I think is really, really critical, is being able to protect yourself for unexpected, an air conditioning condenser blows up, and you got to be able to save some money to pay for those unexpected expenses, right, to keep you running?
Clyde: Yeah. Yeah, exactly. I mean, you might have a restaurant or a group of restaurants in which you have plenty of money on hand, a lot of cash on hand, but that’s not the case for everybody. Some people, they just have the bare minimum; they’re getting by. And in this day and age, there’s a lot of folks, especially since Covid, I understand that was five years ago, but especially since Covid, there’s a lot of folks who are really kind of just staying open through debt service, through financing. You know, there’s some rough times out there. So, having an understanding of where you are from a cash-on-hand basis currently, and then understanding where you will be four, six, eight weeks out, your cash is extremely important because you don’t want to get surprised.
Danny: Well, yeah, and if you know where you’re going to be, or at least you’re projecting it, that allows you to move some money, you know, put it into savings or set it aside for those rainy day scenarios, right?
Clyde: Absolutely, absolutely. That’s a very good point.
Danny: Yeah. So, then again, that plays into the next opportunity which is, if you can move some of that money or you understand where you are, are there other growth opportunities, which I think, Clyde, is a really interesting thing to think about, if you’re an entrepreneur and you want to grow, right?
Clyde: Right. Right, for sure. I think that the best way to grow, at least in my thinking, is to try to do what I call self-funding growth, and that is to take your cash flows—again, we’re talking about money in the bank, money out of the bank, money into the bank—take those cash flows, put it aside and build up maybe let’s just call it an easy thing, like a savings account, wherein if you want to grow to a second place, either through purchasing another business or through renovation or even constructing from warm shells, let’s say, it’s always good to have cash on hand, even. If you think you’re going to leverage through debt service, you’re going to get much better terms by having cash on hand. But self-funding your growth is really the way to go, especially interest rates where they are now, with prime costs being where they are, and even SBA loans, you know, between nine-and-a-half and 10% for their regular conventionals.
Danny: Yeah and let me just maybe digress here for just a minute, something I was just thinking about. You know, there’s a lot of companies also, if you’re on net-15 payment terms with a vendor, and you have enough cash flow, before you pay the vendor, you take the money that’s owed and you move it into short-term investments, so you’re kind of using your money to grow. You know, if you have the cash flow, in order to accomplish that, right?
Clyde: With interest rates anywhere above 3%, you should be using money market funds with an ACH and/or checking privileges, through that. That way you’re going to earn at least 3% of all the money that you have in there. And that can be beneficial for you because 3% is a lot of money, especially if it’s free. Most people just use regular operating accounts, and you know, they’re not getting paid to have their cash on hand.
Danny: Yeah, you’re sort of using somebody else’s money. They’ve had yours a little bit, right? So, let it sit somewhere, making nothing, hold it for 10, 12, days, invest it and then pay your vendors. And you know, it’s harder and harder, I think—and again, to digress for a minute—used to be where you paid on time, or you paid within seven days. You got a one or 2% discount with your vendor. I’m not sure how much of that really goes on anymore. So, if you’re going to use the terms, make some money at it, right?
Clyde: Yeah. Yeah, the quick pay discounts are few and far between. You’re much better off hiring a supply-chain expert and having that person take a look at all of your spends and then possibly negotiating two kinds of contracts, a master distributor agreement, which is a, normally a cost plus markup, and/or working directly with manufacturers, like french fries, for example at Lamb Weston, and negotiating with them and having a straight FOB price to your distributor. So, you’re better off, like, working in that regard and then understanding the marketing rebate money. Quick pays are pretty much gone at this point.
Danny: Yeah, you don’t see them too much, yeah, yeah. And just a quick example, we just finished with a client, Clyde, you and I and our supply chain guru, and we saved them, I don’t know, forty-some-thousand dollars in really auditing their supply chain. And that’s something, you know, if you’re an independent operator, focus your time on that and see where you might be able to get opportunities, again, rule one, without sacrificing the experience at the expense of saving a few pennies here and there.
Clyde: That was really good for that client. It was $44,000 over about four different items in their cost of goods sold spend, and they were very appreciative of that because it was just money there, and they didn’t even realize that they could save that kind of money. So, it was very good for them.
Danny: Yeah, that’s what outside eyes can do for you. So anyway, hey, let’s get back on topic. So, there’s an interplay between budgets and cash flow. I want you to spend some time talking about that, if you would because that’s critical. Because, you know, we want everybody to budget, but how does it work in reality, with your cash flow scenario?
Clyde: Budgets really should be used as more targets, more… goals, more goal-oriented. And you shouldn’t really, in this business, go more than one, maybe two quarters out because nobody really knows what’s going to happen at this time next year. I mean, no one knows. You want to put together budgets, usually for targets, incentive award programs, or goals and objectives for your operating people, that sort of thing. And if you have debt service, or you’re looking into debt service loans, banks specifically, are going to ask you for their your budget because they still think old-school.
Cash flow is something different. So, a budget is a goal. Cash flow is the reality of what’s happening in your business. So, if I have $1,000 in the bank, for example, and in today, I do $1,000 in sales, I’m going to get either cash deposits by my manager or I’m going to get the batch of my credit cards bashed into my account. So, you would think, “Okay, well, I have 1000 I’m going to get another 1000. I’ll have $2,000 in the bank.” Well, that’s not necessarily the case because you have to always understand that you’re going to have these continuous rollouts of expenses. You got rent and you’ve got utilities, a lot of things that we have on this particular example. I mean, I got pest control, we have labor, we have cost of goods sold.
You got to pay your vendors. So, you’re always having continuous money out, especially when you talked about the 15 days. So, let’s just say you’re using Sysco—we’re not advocating Sysco, but we’re just use them as an example—you order product, it comes in to give you an invoice. You don’t pay it that day, meaning money doesn’t come out that day, unless you’re actually on a COD basis or an ACH basis, but most people have some kind of terms, 10 days, 15 days, something like that. So, when you have a $500 invoice from Sysco and it’s net 10 days, then you’re going to want to project out, using a form like this one, out that ten days so you’ll know that $500 is going to be coming out.
Even though you think you have $2000 in the bank, you really kind of don’t. And what happens is that people look at their bank accounts every day and say, oh, I’m okay. And then all of a sudden they got these large bills and money coming out of the bank because they forgot that they paid those invoices.
Danny: Yeah, got to watch it every day. It’s like personal finance. You always got to be planning, you know, you got to run the gauntlet and get everything covered and paid for, right? So.
Clyde: Yeah, I actually use this exact form for my personal finances.
Danny: There you go. All right, I like that. Multi-purpose.
Clyde: Yeah [laugh].
Danny: [crosstalk 00:26:16]. All right, so let's move on to, you know, there’s practical impact between cash flow, restaurant operations, and you know, you can use cash flow for a lot of different things. So, we got a list of things here I wanted you to go over. So, why don’t you go ahead and I’ll jump in where it makes some sense. If you don’t mind?
Clyde: We have to remember that there are expenses and then there are such things as sunk cost and there are fixed use capital usage. So, inventory is a good example of what I would call a fixed capital usage number. I know that sounds strange, but you buy $1,000 worth of food that you think is going to last you a certain period of time, but what happens is you have to pay for the entire $1,000 worth of food. So, if you use only $200 of it, that should mean, essentially, that you have $800 sitting in inventory, even though, in cash flow, the $1,000 came out of the bank account. This is why we advocate everybody taking at a bare minimum, a monthly inventory so that you use the equation of beginning inventory plus purchases minus ending will actually get you your usage.
Believe it or not, in our work, as you know, Danny, there are so many people that believe that purchases is all they need to do and they never take inventories. And that really kind of affects their cash flow because when you have a big bill coming out, then it’s going to affect both your income statement, that scorecard I was talking about, and also what’s affecting your cash flow. So, it’s important, from that standpoint.
Danny: Just to jump in real quick. I think there’s also a way of managing your cash flow and your cost is to set some spending limits and say, you know, again, if I’m doing $1000 in sales, I need a 30% food cost; I could spend $300. So, you try to manage what you spend to me to hit that target. You know, and so basically, bottom line is, it really makes you think before you buy, you know, obviously I’m not suggesting that you run out of product, but you want to keep that inventory as low as you can because that’s just cash sitting on a shelf somewhere, right?
Clyde: Yeah. Yeah, exactly. I think that—and we’re specifically talking about things such as food and beverage, moving into that cost of goods sold category we spoke about earlier. It’s very advantageous for you to look and analyze your accounting through this lens of inventory. In the other expenses, these variable expenses, commonly called direct operating expenses, paper, chemicals, things like that, then using such thing as a declining budget or a declining checkbook is really good for the unit operators, giving them $1,000 to spend, and every time they spend 50 bucks, it goes down, or $100 and things like that. So, there are some other tools that you could use as well.
But the other thing I wanted to also mention is that I know this is going to sound obvious, but not everything comes out at the same time. For example, you take in sales tax every single day. And again, for a lot of people, they just have a single operating account, and it just comes into their operating account. But we have to pay sales tax on the 20th. It’s due on the 20th in every state in the union, in the United States, so you have this big lump sum coming out.
And a lot of people don’t really kind of plan for that. But this cash flow projection, you’ll see it coming out. You’ll notice on here that I have those sort of things. There’s also utilities, insurance, you know, those sort of things are, you know, once a month, and usually on a calendar date. And if you’re in a 13 4-week period, it’s going to kind of change which week they’re coming out. And then of course, payroll is going to be variable based on whether you pay once a week or once every two weeks.
Danny: So again, Clyde, are those opportunities where, if sales tax is coming out on the 20th can you use that money until you have to pay for it to make a little bit of money, right? So again, escrow accounts, or money markets, or whatever, as a holding fund versus just letting it sit in your bank, right?
Clyde: Yeah, I agree a hundred percent. I always advocate an operator having three separate bank accounts for each unit. One is going to be your regular operating account, which you’re going to have all your income coming in and then your normal expenses going out, another account for your payroll. So, when you’re ready for payroll, if you’re using a payroll service, or if you’re going to do it yourself, you transfer that money, including all the payroll taxes from operating, into the payroll account, so you know that it’s not in there. You’re not going to overspend.
Then the same for sales tax. I always advocate, especially with smaller operators, to move sales tax that they collect every day into the savings account. And this is, like you said, it might be a small amount each day, but it’ll add up over time and to get 3 or 4% on your money in the savings account where you’re collecting it every day, and it’s sitting there, it’s very advantageous.
Danny: Hey it’s almost like free money, right? It is—basically, it is free money, right?
Clyde: Oh, yeah. Yeah. It’s called the float, and that’s the way, one of the many ways, but probably the primary way that banks make money, is the float, the arbitrage between what they get money for from, let’s say, the Federal Reserve and the overnight markets to what they charge you for a loan. So, they might be charging you for a home mortgage at 6.5%, but their cost of their money is really 4%, and that 2.5% percent is what’s known as the arbitrage or the float. So, you should take advantage of that as well.
Danny: Yeah, exactly. Yeah. And to your point, you know, when you talk about these things, a lot of people listening are probably thinking, “Well yeah, I know that,” but it’s really kind of nice the way you’ve encapsulated this, so it all makes sense, and hopefully it gives you some opportunities to save a little money or earn a little more money on the money that you’re using. You know, using your money as many ways as you can, right? All right, so you gave us some strategies to optimize budgets and cash flow. There’s some bullet items here in our notes, and I’m hoping you could take a few minutes to talk about that before we wrap things up for this edition.
Clyde: You want to make sure that you’re using professional accounting software to be able to track where you are. So, you’ll see that this on the screen right now, is—or was—just a basic Excel spreadsheet. But there’s software out there, whether you use something like QuickBooks—which is really not necessarily set up right for restaurants—but QuickBooks, or if you use a professional service like RASI, or if you use Restaurant365, let’s say they, almost all of them have projection tools. So, you want to kind of make sure you’re tracking where your money is, whether it’s a simple spreadsheet like this, which I usually start clients off with, or whether you’re using more sophisticated tools. That’s one thing.
The second thing you want to think about is what I call revenue diversification. So, just having a restaurant opening the doors and hoping people come in based off of your either marketing, which is just trial, when you market, you’re asking people just to try you, or whether it’s day-to-day operations, you’re really only focused on a single revenue stream, and there’s often others that you should consider, whether it’s catering or delivery or merchandise, things like that that can diversify your revenue stream in case one doesn’t go so well.
Danny: Yeah, just to say there, Clyde, I think as many sales channels as you have or at least viably can execute, the better your sales per square foot value is, which means productivity of your building is increased, and again, most of that flows right through to the bottom-line profits.
Clyde: Right. Right, right. So, you definitely want to diversify your revenue stream. That’s why full-service restaurants usually will have a dining room and a bar because that helps them diversify and helps the individual guest transaction value. You also want to make sure you’re optimizing your cost. And that doesn’t mean buy the cheapest products.
What it means is that making sure that you’re implementing, you know, portion control, you’re getting you’re negotiating bulk discounts, like we talked about with [MDAs 00:34:56] and MOV pricing with manufacturers, making sure that all of your equipment is very energy efficient, so that you don’t have—I mean, if you have old equipment and it’s leaking gas or it’s not very—you know, especially air conditioners or refrigeration that’s constantly being repaired, you don’t really see it, but it’s in your utility costs. And again, I would advocate cash flow forecasting, forecast where your money in the bank is going to be four, six, eight weeks out at a minimum because that’s going to help you understand where you are as a business, versus the rear view mirror of the income statement. And then, as you mentioned before, having that emergency fund, where if you have some excess cash flow—I’m making these numbers up—let’s say you have $100,000 in the bank and you’re comfortable with $50,000, take some of that extra money that you have and put it into that emergency fund, and take advantage of some of that float, like you were talking about.
Danny: Yeah, absolutely. Yeah, and I think the other one, again, I know we’ve talked about it quite a bit in episode one, and now here again is, really thinking about how you staff, how you schedule your labor, and really budgeting that, again without sacrificing, you know, great service. But we do a lot of operations efficiency work, and many times we run into our clients, they never change their schedules, right? No matter what, everybody works the same days, the same hours. Yeah, and so just really managing the hours, and again, without sacrificing service or creating a scenario where really great people don’t get enough hours and they have to move on. But every week, every period, however frequently you think you need to, really evaluate the hours that you’re spending to maximize that productivity. Again, without—and still deliver great experiences.
Clyde: Right, right. So again, related back to a to from an accounting or financial standpoint, we’re again talking about this income statement. So, when we have an income statement, it says that you ran 30% labor. Let’s say it’s 10% front of the house, 5% in management, and 50% in the kitchen. That’s just a scorecard of where you were based off of what schedules you ran, vis-à-vis the sales you produced in that given period, which was behind you now. So, having targets is really important.
And as I think we talked about the last time, if you’re a single operator or a smaller operator, I would advocate making sure that you actually cost out your schedules prior to posting. Either you’re doing it the analog by putting it on a wall, or you’re sending out, via some of these more sophisticated push notification services, you should cost out the schedule because oftentimes we’ll just do that set schedule, like you said, Danny, and then we sit there and say, “Oh well, sales aren’t as good, so I’ll just cut people.” So, that’s known as the old schedule-and-cut. It’s much more proactive to cost out that schedule ahead of time, knowing how much you’re going to spend, and then that can give you a revenue target as well.
Danny: Yeah, and you know, some of our other podcasts on leadership and such is, you know the importance of communication, ongoing manager meetings, so in that meeting, you’re really talking about what’s coming up, and you know, should I buy more or buy less? How’s my labor looking? What’s going on seasonally? What’s going on with promotions? And again, to your point, Clyde, which is really a great one, I think one of the best we’ve had here is, looking forward instead of looking backwards. Because, you know, ten days into the month, you can’t change anything, whereas you can project where you think you’re going to be, at least, during every week, if you have a weekly managers meeting. And it keeps everybody tuned in and aware of what’s going on.
Clyde: Yeah. Well, generally, I think, Danny, that people will perform much better in an encouraging environment versus a discouraging environment. The more that you can encourage them to move toward their targets, the more tools that you can give them, the more transparency that you have, you’ll be amazed at what good people will want to do. Most people want to do a good job. Most people want to know what the rules are. Most people want to understand what they should be doing. And in an encouraging environment, people will, they’ll perform.
Danny: Yeah. And again, that whole thing back to transparency, I heard that more as you know, we’re encouraging collaboration via transparency. And then, to your point, everybody feels like they’re contributing, they’re involved, and they really get jazzed by wanting to do the best they can for themselves and your business, if you’re the owner operator or you’re the leader, right? So, good stuff.
All right, Clyde, I want to thank you so much for your time, [unintelligible 00:39:56] all your experience. That’s it for finance for now. I think we should, at some point, Clyde, go through this again and talk about P&L and really define what everything on a P&L means. But I think there’s a lot of people, especially if you’re thinking about getting into the business, that would really benefit from a little bit of a line-by-line breakdown of what should be on a P&L and a chart of accounts and what it means and how you should categorize things so you can efficiently run your business. I think that would be a fun podcast to do if you’re—
Clyde: Love to do it. Love to it, Danny.
Danny: So, I just want to say, thank you all again. If you have questions for us, we are going to be doing a podcast here, hopefully in the next month or so, where we’re going to answer your questions for those people that are listening in, and if your question is chosen, we want to give you an incentive to send in a really great question that will benefit everybody, send it to info@therestaurantroadmap.com, along with your comments. If your question is selected, we’re going to offer a 30-minute consultation. Could be Clyde perhaps, it could be some of our other consultants to help you answer that question based on what it is and who would be the best person on our team to reach out to you.
So, if you have questions you’d like answered, info@therestaurantroadmap.com, send them along. Love your comments, feedback, give us some topic suggestions, and we want to keep this going. We really are looking to help you guys out there be the best that you can be. So, once again, Clyde, I want to thank you very much. This has been really informative. And take care everybody, and we’re going to talk soon. Okay, 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.