Top 4 Tips for Financial Management of Restaurants

Rumor has it that the restaurant industry is a cut throat business, despite that there are still those who open up and thrive in this extremely competitive space. How do they do it? We all know that the most important thing about a restaurant—the thing that stands out and shapes a guest's experience—is the food.

While there are many factors that contribute to this success, supporting business objectives with sound financial management seems to be an underrated and overlooked factor.

Here are our top four tips for  optimal restaurant financial management:

1.Evaluate financial performance consistently

First of all, each restaurant must set a target return on investment or other targets for example sales growth or the number of outlets opening at a certain time in the beginning and then evaluate its achievements. Achievement evaluations should be carried out with appropriate measurement tools or agreed by top management, especially by the CFO.

For example, in the restaurant industry, the terms same-store sales growth and same-store transaction growth are known. The two terms are comparing a restaurant that has the same operating period of two different years, seen from the growth of sales and transaction growth. "This evaluation must be carried out consistently and periodically to see trends with company financial reports and analysis as the main reference. If something does not reach the target, we examine what can be improved. This is an important key so that financial performance can always be controlled, especially if it has many branches.

Businesses should not only have financial statements, but also understand what the meaning behind the numbers are. Does the number mean that the business is operating well or even that the performance is below average. And from that, top management can make decisions to optimize existing restaurant branches.

2.Ensuring growth occurs on an ongoing basis

In many cases, top management is too focused on the growth of outlets or turnover and overrides profits. In fact, there are many other aspects that can affect long-term business sustainability. For example, consumer loyalty, product innovation, to HR management. "Recruiting quality employees and training them certainly requires a lot of time and money. Therefore, as much as possible should make employees comfortable and at ease, because if the turnover is high, then it will also affect the performance of restaurant operations that have an impact on financial performance" said Akhmad Nurhidayat, CFO at SMI which operates Marugame Udon chain of restaurants.

Akhmad also shared that one of the negative effects of too fast growth that was not followed by careful business planning was cannibalism among outlets. "Do not let one business actually eat the turnover of another business branch because it is located too close or has a market segment in the same location," he explained.

3.Understand and review your expenses

One of the worst restaurant finances mistakes most restaurateurs make early in their journey is to run a high credit bill. While you get a cheaper deal on credit buys, restaurants tend to over-stock and lock money into supplies which are perishable and eventually lead to wastage. Hence, make stock and inventory management a priority of your cost control policies. It also helps to be prepared for known expenses such as rent, utilities, labor and have funds set aside for meeting these ongoing expenses.

4.System upgrade

Financial managers must stay up-to-date with the latest financial systems that can provide more efficiency, be it software, ERP systems, or SOP upgrades, to increase speed, accuracy, and cost efficiency and the resulting reports.

Global restaurant chains like Marugame Udon conduct various international transactions, especially for the purchase of supplies. "There are inefficiencies in sending money using banks overseas. The cost per transaction is very high, because most have to use a correspondence bank. Then, the transaction process also takes time, because it must adjust to the correspondence bank's operating hours. We explored the market and switched to Wallex which ended up reducing our FX fees by up to 50-60% and resulted in significant savings" said Akhmad.

Managing restaurant finances is complicated and takes a lot of on training and it is constantly evolving. We hope these tips will help set some basic tips and techniques that you can practice as a new restaurateur to maximize profit and achieve balanced growth.