The Biggest Restaurant Fixed Costs You Should Watch Out For
Picture this: You’ve always dreamed of opening your own restaurant, a place where your culinary creations can come to life. You’ve spent years perfecting your recipes, honing your skills, and envisioning the warm and inviting atmosphere of your dining haven.
The day finally arrives, and your doors swing open to eager customers. But behind the scenes, a hidden danger lurks – fixed costs. These are the expenses that don’t change no matter how many people dine at your establishment, like rent, labor, utilities, and insurance.
If you don’t keep a close eye on these fixed costs, they can slowly chip away at your profits, eventually leading to financial ruin. It’s like having a leaky faucet in your kitchen – if you don’t fix it, it’ll keep dripping until you have a major flood on your hands.
So, how do you tame these fixed costs and keep your restaurant afloat? The answer lies in understanding them, recognizing their impact, and implementing strategies to manage them effectively.
Let’s walk through a few of the biggest restaurant fixed costs to watch out for, and a few strategies to keep them under control.
Strategic Location: Finding the Sweet Spot
Rent is often the largest fixed cost for restaurants, accounting for about 6-10% of total revenue. Therefore, it’s crucial to choose a location that aligns with your target audience and offers the best value for money. In today’s environment, with all the rising labor and food costs, keeping your total facility costs (rent, utilities, insurance and repairs) under 15% is the goal we push our clients to, which means your rent needs to be in that 6-8% range.
Consider factors like foot traffic, proximity to your target customer base, and the cost of similar spaces in your area. Opt for locations with high visibility, ample parking, and a vibrant atmosphere that resonates with your restaurant concept.
Optimized Labor Scheduling: The Engine of Efficiency
Labor costs are a major expense for restaurants, with the fixed part typically being the head chef’s salary. Effective scheduling is essential to minimize costs without sacrificing service quality.
Use staff scheduling software to optimize labor allocation and create detailed schedules that match staffing needs to customer traffic patterns. Consider cross-training employees to handle multiple roles, reducing the need for multiple staff members during slower periods. The head chef should manage labor and purchasing to ensure that costs are controlled.
Energy Efficiency: Powering Profitability
Utilities, such as electricity, gas, water, and garbage removal, can add up quickly, often accounting for 2-4% of total revenue. Embrace energy-saving practices, such as using energy-efficient appliances and lighting, switching to LED bulbs, unplugging unused electronics, and implementing proper ventilation systems.
Conduct regular energy audits to identify areas for improvement. Replace old, inefficient appliances with energy-saving models. Implement smart lighting controls that adjust based on occupancy and daylight levels.
Tailored Insurance Coverage: Shielding Your Restaurant
Insurance premiums, typically between 1-3% of total revenue, are essential for protecting your restaurant from unforeseen events. However, it’s important to shop around for competitive rates and choose insurance policies that provide adequate coverage for your specific risks.
Evaluate your restaurant’s unique risks, considering factors like property damage, liability claims, and employee injuries. Compare insurance quotes from multiple providers to find the most competitive rates and coverage options.
Continuous Monitoring and Optimization: The Path to Long-Term Success
Effective fixed cost management is an ongoing process that requires regular monitoring and adjustments. Regularly analyze your fixed costs, identify areas for improvement, and implement cost-saving strategies. Collaborate with your team to brainstorm creative solutions that enhance profitability without compromising quality.
Establish regular financial reviews to track your fixed costs over time. Identify trends and patterns, and pinpoint areas where you can further optimize your spending. Encourage your team to suggest cost-saving ideas and implement the most promising ones.
Getting Restaurant Fixed Costs Under Control
Remember, fixed costs are not insurmountable obstacles; they are opportunities to optimize your restaurant’s financial health. By implementing these strategies, you can transform these silent killers into allies, propelling your restaurant towards sustainable success.
And while it’s possible to manage fixed costs on your own, partnering with an experienced restaurant accountant can provide invaluable support and expertise.
Here at U-Nique Accounting, we help restaurant owners with:
- Comprehensive Fixed Cost Analysis: They’ll delve into your financial data, providing detailed insights into your fixed expenses, identifying areas for improvement and potential savings.
- Strategic Cost-Saving Strategies: They’ll collaborate with you to develop tailored cost-saving strategies that align with your restaurant’s unique needs and goals.
- Expert Cash Flow Management: They’ll ensure your restaurant maintains a healthy cash flow, enabling you to cover expenses, meet financial obligations, and invest in growth opportunities.
- Compliance with Tax and Regulatory Requirements: They’ll stay up-to-date on all relevant tax laws and industry regulations, ensuring your restaurant remains compliant and avoids potential penalties.
With the guidance of a skilled restaurant accountant (like us!), you can effectively manage fixed costs, optimize profitability, and achieve long-term financial stability for your restaurant.
If you don’t currently have an experienced restaurant accountant that you’re happy with, we’re always happy to help. It’s what we do!
Book a complimentary call with one of our restaurant accountants by scheduling an appointment down below.
Until next time!