In today’s world, the ratio of restaurants shutting down with in a smaller period of time have increased as majority of those restaurants cannot sustain in the prevailing business environment. This lead me to write an article, pointing out certain important aspects to keep in mind while running a food business.

Many of us believes that to run a successful restaurant, we need:

Courage & Confidence ( To accept the uncertainty of any business ) Quality ( To become a unique identifier in the crowd. ) Time & Location ( To get the right location for the right audience. Eg: a Restaurant-Cafe near to a business hub brings more audience. etc. ) Ambience ( A perfect blend of a furniture which sets the tone for the perfect restaurant. A ‘too costly’ affair to ‘having a great ambience’.) Price and Menu ( Again a unique identifier either with a delicious cuisines or with standardize Pricing. ) Good Staff ( A customer oriented staff who can convince and up-sell items. Polite, courteous, interactive and well dressed staff are a key to make your customer remember your employees) Giving Loyalty to Customer & Getting Feedback. ( Constantly improvising by getting feedback and react on every comments which put it on review website.) Discounts ( Again a unique identifier to attract more customers. ) A Great Software ( A software who guide and tell what’s happening and what’s not at detailed level. I represent Petpooja — Point of Sale Software. This article is not intended for the same hence not going in details of the functionalities of the same by if you are interested go visit www.petpooja.com )

The above mentioned points are extremely important for any restaurant base. If there are any hurdles in the above points, there are good chances your restaurant will shut down.

But,

Surprisingly, what I saw from many of the restaurants who adopted mentioned points and started working with all their hearts and precious money, still shutting down their business. Reasons which I encountered are as below.

Lack of Trust between Partners.

This might be true for any startup, whether it would be a Technology Startup or a Restaurant Startup. But especially for Restaurants, clashing in initial investment, Branding and ownership of the entities, ego tussle, Different Menu choices, Acting and non-Acting Partners would be the basic reasons.

Being Wrong in Restaurant Mathematics.

{ You can download your own copy of below mentioned sheet from google drive.

Most of the restaurants which are either run by friends or understanding partners will not face the first problems which I mentioned. But they get trapped in understanding the Restaurant Mathematics. Though it’s simple calculation but not calculated right. Let’s Dig in the formula.

The amounts below are in INR (₹ = Indian currency) but they can be calculated in any local currency.

Financial Calculation

Initial Investment : Let’s take a scenario of investing ₹5 Lacs in setting up a very small restaurants to get it functional. ( Kitchen equipment, furniture etc) and need to pay it back (to yourself at least ) in 36 months. (without an interest.). So practically need to give a ₹13889 every month as part of an EMI Repayment.

Direct Expenses : Expenses such as Rental ( Calculating ₹30000 as rent to have a good place. If it’s a dark kitchen or only a delivery kitchen, this amount would get saved.). Adding three People to five people with a reasonable ₹15000 as a total expense. ( a less considering, entrepreneur will work at various levels. If not that expense will go up.) Now, reasonable other expenses such as repairing, delivery boy, bikers, staff expenses etc.

If you are having a franchise (with Flat fee structure or % commission of Sales would be added as a part of expense. )

Inventory Prices : An inventory which needs to be filled up early in kitchen to getting things ready. It’s all proportionate on the business. So being more sale consumes more inventory and if having enough inventory then sales can be increased. So as example if we need to have a sales of ₹60000 monthly with 100% profit margin on inventory procured, need a minimum ₹30000 of inventory in kitchen. Simple one.

Commission Charges : A lot of orders coming from third parties with their commission model. So a good deal to increase a business with a 80% of margin.(considering 20% expense from the calculated 100% profit. )

So now, the estimated cost coming up as ₹93889 as a fixed expense. So if things are working or not working, need to get this much amount of money any how. (if not from sales, would be from pocket. A hole in a ship. )

Profit Margin : Considering if I can prepare a dosa (with all inventory) at ₹20 and ₹10 extra for sambhar & chutney. I sell it at₹60 with 100% profit margin. (Cost ₹30 and selling at ₹60)

So now, based on the my setup, if I am able to curate a menu in such a way that my average billing is ₹100. then a daily 20 Bills would not be a break even.

With Total Sales of ₹4260 /Daily with 43 Bills will get a break even.

With above figure, If I am able to generate a sale of ₹4260 / Daily ( with minimum 43 bills or ₹100 approximately) I would at least reach to a break even.

Note: Inventory cost is getting increasing as when we are adding more sales.

So If more sales with a perfect profit margin calculation will able drive the ship comfortably.

With a margin of 200% things will reap the profit.

If things are planned well in advance, you can carry your Debts and Expense along with the projected sales, you can drive your team to achieve the target and push towards that. If things are not working as planned with the sales, then converting profit margin into discounts, promotions will surely put the ship to sail.

I am creating a tool for everyone to play with their own dynamics with lot of more details in the same and without any cost/asking for information. Below is a link to download your own copy and work out.

Do share your feedback or any comments regarding the tool.

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