Overcoming Challenges in Your Restaurant

Restaurants and food service businesses face several unique operational challenges that can cause considerable stress to business owners if not addressed appropriately. From variable consumer patterns to rising material costs, restaurants must tackle several moving parts to retain profitability. Apart from bare basics like managing payroll commitments and food shipment deliveries, food businesses must also pay close attention to their menus and the ingredients required to prepare them. In addition to these challenges, business owners must aim for tangible growth and improve their business performance over time to meet their goals.

Major Financial Challenges Faced by Restaurant Owners

Restaurants must often monitor the smallest expenses and incomes to run their business smoothly with adequate cash flow. Here are some of the issues and challenges that you might face as a business owner: 

Cash Flow Problems

Whether unpaid receipts or extended supply requirements, your restaurant might run into cash flow issues if expenses are not monitored and tracked effectively. With the cost of hiring and training employees also rising, business owners might find themselves in a fix regarding liquid cash in their establishments.

A cash flow crisis is also one of the most concerning and prevalent issues for food service professionals, as it threatens the restaurant’s day-to-day operations. Moreover, variable costs in both the supply and payroll departments can exacerbate cash flow issues. 

Calculating Profitability

Profitability often remains a concern for most businesses, given that food prices are rising. The increasing costs can potentially thin profit margins for restaurants. Apart from rising material costs, restaurants must also deal with other expenses such as maintenance, leases, and utilities to keep their business running. Since business owners must address and deal with all of these costs while maintaining profitability, calculations can often become convoluted and tedious.

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High Operating Costs

Running a food service operation can be expensive. Alongside high initial investments, operational expenses such as gas, electricity, exotic meats & vegetables, and payroll obligations cause restaurants to operate on large monthly budgets. Though inflation rates have slowed, prices in certain sectors, such as rent and leases, have remained higher. 

Inflated operating costs often force businesses to rethink their budgets and complicate budgeting. 

Seasonal Variations

Restaurants often see a seasonal rise and fall in customer footfall. This means they will have to deal with large fluctuations in cash inflows based on the month and season. 

Without professional support and pointed guidance on managing a balance sheet that accounts for seasonality, restaurants can quickly encounter monetary challenges that threaten their business's success. 

Apart from seasonal variations, restaurants can also witness variability throughout the day, with the evening hours being busier than the day’s earlier half. This also poses scheduling challenges for business owners and restaurant managers.

Marketing Costs

While marketing forms a key component of operating food service businesses, it is also quite easy to overspend on your marketing efforts. Advertising and marketing strategies can also be expensive, and many restaurants often choose to forego marketing entirely. Given that both extremes of the approach can land your business in trouble, it’s key to manage and choose an efficient marketing plan that suits your business’ character. 

Apart from promoting your business on various social media platforms, getting your sales and customer service teams to work together might also help you market your restaurant better.

Competition

Despite the high demand in the industry, competition remains fierce in the restaurant business. Without sufficient market and competitor research, businesses can be reeling under pressure to stand out and make a mark among potential customer pools. 

This is among the greatest challenges that restaurants face, and only detailed market studies and a solid business plan can preempt these concerns. Offering takeout options and delivery can also manage and mitigate competition to a degree, as they allow businesses to reach and market to a larger customer base. 

Equipment and Maintenance Costs

Restaurant equipment can be very expensive and often requires vast upfront investments to procure or lease. Due to their high-volume operations, restaurants require regular upkeep and maintenance to avoid operational problems that can result in hefty repair costs. 

Businesses must carefully analyze their options, purchasing only the machines they require while renting or leasing the ones that do not see frequent use. Owners must also conduct in-depth research to ascertain the most energy-efficient and durable equipment models to safeguard their kitchen’s arsenal against potential malfunctions and high utility costs.

Inventory Management

Restaurants often have to maintain and track a vast inventory, which can range from raw materials and kitchen equipment to packaged goods and spirits. However, a restaurant’s inventory usually contains only the items it requires to prepare the dishes listed on its menu. 

A challenge most businesses face when managing inventory is structuring and engineering their menu so that their inventory remains lean and cost-efficient. Business owners must carefully consider the items they add to their menu to avoid dealing with an unmanageable inventory with high maintenance costs.

Four Strategies to Overcome Financial Challenges in a Restaurant

Despite the many obstacles you might encounter when operating a restaurant, several solutions can help you mitigate these issues and build a prosperous food service operation. Below, we list four crucial strategies that can provide business owners with the necessary know-how to address financial challenges in their restaurant businesses. 

Improve Inventory Management

Restaurants must shift their focus to maintaining only an inventory of goods they require. Maintaining an efficient and dynamic menu can help with this endeavor. Businesses must frequently analyze the items on their menus that perform the best and worst and optimize them accordingly. By removing poorly performing dishes, your business can save on cost and space by eliminating the need to buy those raw materials. 

Following this, restaurants can replace these items with better prospects, ensuring their inventory remains stocked only with key necessities. 

Identify & Avoid Unnecessary Expenses

Apart from inventory management, keeping track of items not required in the restaurant is equally important. For this measure, identifying the existing and non-essential items in storage is equally important so your business doesn’t over-buy products, resulting in additional expenses.

Moreover, you can also run a cost-benefit analysis to identify parts of your business that offer the most returns on your investment while eliminating those that do not fare as well. Giving up unnecessary equipment, supplies, and raw materials can help your restaurant greatly avoid unnecessary expenses.

Improve Pricing

It is impractical to offer dishes for the same price when the costs of the raw materials used to make them are consistently increasing. While marginal increases to the preparation costs of your dishes might work, tricks such as reducing the quantity or quality might disappoint your guests, proving expensive to your business in the long run. 

Instead, intuitive methods such as psychological pricing, lucrative add-ons, and high-margin side dishes can add value to your customers' bills, helping you generate higher revenue per sale.

Effective and Accurate Cash Flow Forecasting

Forecasting cash flow is key to running a successful restaurant. Without seamless financial forecasting, your business can run into serious trouble, rendering it incapable of even meeting its operational costs. Variable costs, seasonal customer footfall, and payroll can all impact accurate forecasting efforts. 

Professional help or forecasting software can help you create granular forecasts for your business down to the week. Planning and generating these forecasts a few months ahead will allow you to remain vigilant and prepared. Though your forecasts might not be 100% accurate, they will still help you stay prepared, ensuring you have enough reserves to keep your business going.

Sum up 

The restaurant industry has faced several challenges since the pandemic and associated economic slowdowns. However, staying aware of the financial challenges and planning for them well in advance can help business owners stay prepared. The strategies mentioned in this article will help businesses recalibrate their plans and adapt to today's increasingly volatile consumer environment.

ABOUT THE AUTHOR

Anna McKenzie is a former financial analyst and advisor with a master’s degree in business administration. With 15+ years of experience consulting businesses of different sizes, verticals, and locals for better financial, operational, and marketing practices, Anna now works with FundKite to share her knowledge and educate through the company blog. Her favorite pastimes include reading about human resources and psychology.