This is part three of my series on creating cornerstones for your cafe on how to launch and run a profitable business. You can read the introduction blog HERE, Cornerstone blog one, on Procedures HERE and Cornerstone blog two, on People HERE
In this piece we look at how to make sure you have your finger on the financial pulse of your business. How’s it’s health? Is it making (or loosing money) and what do you need to be focusing on to make sure your business is at least working towards the right numbers.
Profit is calculated using an incredibly simple formula, PROFIT = TOTAL SALES less TOTAL COSTS. Simple, yes, but definitely not easy!
When running a cafe the numbers can be very confusing but there is a formula (there usually is). To start with you need to work on a two fronted attack when managing your business finances.
- Managing expenses and then
- Increasing sales
Your first priority is to work on keeping your costs to an absolute minimum, a general rule of the numbers you need to know and keep to are;
- Rent and rates 10% of your turnover
- Staff and food 55%, the mix will be more for staff if prepping food on site, or, more for food if you are buying in
- Utilities 10%
- Other Costs 10%
This does not leave a lot of room for mistakes, so a percentage point out here and there can very quickly mean you are eating into profits or you may find there is nothing left for you at all when the music stops at the end of the year.
A good place to start is to think about how much you want to earn (the profit you draw from the business) let’s say it’s £40,000 or around $60,000 US, (This is just a round number I am not suggesting you can or will earn this much).
If this was your number, you’d need to turn over at least £270,000 or $400,000 to make it worthwhile. Could this be possible? If so, how many customers will you need to serve? And what are the rent and rates like (you can’t spend more than £27,000 / £40,000) or you’re already out of pocket. Is there a shop big enough available in that price bracket? As you will need at least 50 covers, so there’s a LOT to think about.
What if you were to blow out your expenses and eat into 10% of the profit because you’ve not been able to manage the costs? The result is that your profit will fall to only £13,500 / $20,000 which is not enough to live off.
The point is that any profit will disappear very quickly if you’re not on top of the spending and know what’s going on in your business every day.
A daily profit chart is essential so you know where you are. Here are the numbers you need to know. Break down every cost you have and divide it by the number of days you plan on opening for the year. This will give you a good place to start when assessing the true cost of running the business. Then you can track how your sales correlate with your expenses.
Weekly Stock Take – there are a number of reason for doing a weekly stock take
- You will know how much money you’ve spent on stock.
- You’ll have a cleaner store room as it will be easy to count.
- You’ll know if you have items you’re not selling.
- You’ll quickly see food you are wasting because it’s not being used and being thrown in the bin (you also need wastage sheets for this to work)
- You can quickly see if ordering is done correctly.
- It helps to reduce theft by staff as they know you are regularly checking.
Remember a pound in your wallet is worth so much more than the pound (or dollar) in the till. The aim is to be as focused as you can on reducing every cost you have without negatively affecting the customers experience of either service or substandard food quality.
The other way to make money is obviously through increased sales this is why you are going into business.
The are three main ways, other than by saving money to increase your cafe’s turnover. I have written about them previously HERE.
I will give you a brief run down on the three.
- Increase the number of customers or customer visits
- Increase the price
- Increase the average spend
Increasing your prices is the fastest option open to you which I would recommend doing every 12-18 months or so.
The other way is to increase the average spend in the business. Train your staff to offer customers sides dishes every time they serve a customer. The aim should be for bun or cake sales with coffee and tea in the morning and afternoon. For lunch sales it’s a good idea to offer some take away meal deals.
If you are more or a dine in establishment a great up-sell is to offer groups of two or more a tapas style sharing plate as a starter. Some of this menu could be cold and prepared by floor staff to reduce kitchen pressure. A tapas dish plus a main and pudding if you offer a three course deal can be a very good way to increase your average spend.
When you add hot beverages and alcohol sales on top (if you can get a licence to sell alcohol) then you could be pushing your average sales up very significantly indeed. The primary aim is to get staff into a habit of making offers to customers in a customer service way, not a pushy sales way.
If people feel they are being sold to they don’t like it, so make it a part of your customer service procedures and get staff to practice. A very good technique we used was once a table was finished we would clear the table and at the same time say “I’ll just grab you the dessert and coffee menu” this can impulse some people to buy a pudding they may not have had if you were not to have been presumptive.
Lets assume that you get an uptake at lunch time of people who may not have had any dessert which adds £20.00 /$30.00 to your daily turnover, this is £6240 / $9360 at the end of the year.
It’s the little things which will add up at the end of the year, be it because you have too many staff on shifts or wasting food. Or things like up-selling and increasing the number of customers you have each day that add the extra 10-20,000 to your turnover which can net a massive result on your profitability.
Know what everything is costing you and list it on a single spreadsheet. Show your staff the numbers they will be genuinely surprised at how much it costs to run a business. All they normally see is the hundreds or thousands going into the bank (your bank account) and they wrongly think that it’s all yours.
This is an introduction piece on my Profit cornerstone. I urge you to take time to make sure you are focused on the margins in your business.
This is a part of my series on the cornerstones for running a cafe or coffee shop the right way. If you would like to receive this and any future blog posts plus access to my podcast the Cafe Launch Blueprint you can register Below
Thank you as always for reading, have a wonderful day. Charlie
P.S all these number are hypothetical I urge you to do the work and find out what your costs of launching will be (they will be significant). If the numbers don’t add up it may not be the right place. Take your time, do not rush this process.