The Secret To A Profitable Restaurant

turkey and wine glasses toasting profitable restaurant

Every restaurant owner who opens a restaurant accepts the responsibility of running a profitable restaurant. This obligation to be profitable ensures customers, employees, investors, family – and the restaurant owner – can count on the success of the restaurant to meet their needs.

I don’t care if you’re a small restaurant with eight employees, of if you’re a large restaurant with 200. If you take care of you first, you make sure you make money, your family’s taken care of, your investors are happy, there are jobs for your employees and there is a restaurant for your guests. You can decide what it means to take care of all of these groups of people, but only if you have a plan to be a profitable restaurant.

Do you know how the chains make money? They use systems to plan for their profits. If you want to have any chance to make it in this business, you’ve got to do what the chains do. You have to put systems in place, impose your will, have targets and run your business based on systems, not just your gut. Don’t get me wrong, I believe that your gut, your experience, that’s important. But you need realistic targets to shoot for. You need to have systems in place for your team to follow, even when you’re not there.

Start the plan

Making a plan to be profitable starts with having a budget. Why are budgets so important and how do we create them? First of all, let’s back up a second. Let’s say I’ve got a profit and loss statement (P&L) in my hand. Usually you get your P&L around 15 days into the next period. What do you do with it? You go to the last page, look at the bottom and go, “Crap!” Right? You didn’t make the money you were supposed to. Whether you lost money or made money, usually restaurant owners didn’t make the money they expected. Your P&L is your report card telling you how you did.

To start your budget, we start with your P&L. We ask you for your trailing 12 months of P&L statements and figure out what your sales were for each month. We figure out your sales mix for each month (80 percent food sales, 10 percent bottled beer and so on). We can see your cost of goods sold (COGS) for the last year ran 38 percent, and we can tell pour cost ran for bottled beer at 28 percent, 22 percent for draft beer, 34 percent for wine and so on.

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Next, we look at your labor. Fixed labor expenses include management salaries, which for the purposes of this example are $15,000 each month. Then your variable labor shows cooks run 13 percent each month, servers about 2.5 percent, bar 1.5 percent and so on. Then we go line by line by line down your whole P&L statement and we find that rent is $10,000 fixed, but our paper supplies are running about 2.25 percent variable. Using this information, we build each month based off those fixed and variable expenses. We know the sales coming across, and we can build a template for your budget that says if you operate the business the same way you did the last 12 months, here’s what you’re going to make or lose in the next 12 months.

It’s important to point out here that I don’t care about fiscal year. I care about the next 12 months. That’s what you can control. So, you don’t say, “Oh my gosh, I have to wait until January to write a budget.” Nope, write it now.

Now here’s what’s wonderful about it. A P&L statement is the past. You can’t change the past. And if I try and run my business with a P&L statement, it’s like driving a sports car at 75 miles an hour with your front windshield blacked out and only using your rearview mirror. If you base your plans for moving forward in your P&L, you will crash. Instead, a budget rips off that film so that you can see out the front windshield. Yes, you need the rearview mirror to know where you’ve been, but you have to know where you’re going.

Moving forward

When you work with us at, we create the budget template for you based on your numbers. To start, we might suggest two clipboard systems and a budgeting system that usually guarantee a two-to-three-point reduction in food cost overnight. This is without inventories, without recipe costing cards, without other big impact systems. For the sake of example, based on the numbers outlined above, you’re starting at a 38 percent food cost.

Month one you’re going to set up and train your management team on the two clipboard systems and the budgeting system, which are the key item report, waste sheet and the purchase allotment system.

Month two you’re going to hold them accountable to those three systems, and lower your 38 percent food cost to 35 percent. Now, you still have to reduce your food cost way under 35 percent and to do that, you have to add in a new system and then another and another until you are able to hit your target food cost within one to two points every week.

The result

This is how you create a proactive plan and put it in place with your management team to achieve profitability. Imagine when you get that P&L statement and you put it up against the budget and see where you hit or missed. If you missed a number, you can pinpoint what system is in place that the managers aren’t using. Or if they are using all the systems and you still didn’t hit your number, what new system can you put in place to reach the goals.

The other benefit of having a budget and systems in place? If you are missing your numbers, even with systems in place, you are leaving money on the table. That is pretty easy to ignore when it’s not laid out for you in your budget and P&L. But once you see that, you can’t un-see it. Instead of accepting it, you can look for small changes to make over the remaining months that won’t impact guest satisfaction, product quality, your guests, or force you to work outside of your core values. You can proactively set new targets.

Running a restaurant is not just about making pretty food taste good. It’s really important, but so are keeping your doors open and taking care of your guest, taking care of your employees, you and your family. So, understand from this point forward you have a responsibility to run profitably. It’s not a hope, it’s not a prayer, it is reality. And the best way to do that is to use a budget.

David Scott Peters
David Scott Peters is a restaurant expert, speaker, coach and trainer for independent restaurant owners. He is the developer of SMART Systems Pro, an online restaurant management software program helping the independent restaurant owner remain competitive and profitable in an industry boxed in by the big chain restaurants. Download a free report to discover the #1 secret to lowering food and labor costs and running the independent restaurant you’ve always dreamed of. Learn more about how David can help you at