These are the Big 3 Benchmarks of Performance in the Restaurant Industry:
- Same-Store Prior Year
- Location Side-by-Side
What are the merits of each and is doing a budget even worth it?
The most common financial and operational benchmark for a restaurant is comparing performance of the same store to the same time period of the previous year.
This is known as ‘Same-Store _______________” (you insert the metric you want – i.e. Sales, Guest Count, SPLH, Prime Profit, etc.)
Same-Store Prior Year is an important metric to be sure as it can alert an operator of things that have fallen out of the normal ratio for that same-store and thus where immediate action should/can be taken to rectify it.
Each location is unique to some degree and when all else is equal, the same-store performance the previous year is a great way to measure current year performance. However, it does have its limitations.
For example, one industry veteran told me his staff would commonly joke that if you wanted to make any poor performing period look good, just make the previous year look the same and no one would bat an eyelash. There is a need to look at your business through multiple lenses.
The second most common analysis in the restaurant world is comparing store performance to other restaurant locations within the same company for the same time period. This is referred to a Location Side-by-Side analysis.
This form of performance comparison is also helpful in identifying warning signs and opportunities across your multi-unit brand but the greatest benefit is an intangible one: it can drive manager motivation. People love to compete. They like seeing their store at the top.
Restaurant365 is one application that has taken this to the next level. They have an exciting feature that allows managers to see the P/L’s of other locations within the company without revealing which location they are looking at except their own. The manager can see where they ‘rank.’ This gamification of the data is helping promote excellence within the manager ranks and changing the tone of weekly manager meetings for the better.
The third benchmark restaurants use to measure performance is against a budget. There are many reasons people take the time to prepare a restaurant budget each year – and there are many people who purposefully don’t take the time. For those that do, it is often done out of compliance for an outside investor and completed by the CFO or accounting department. For those that don’t, a common excuse we hear is, “I don’t have the time to analyze any variances.
Besides, the minute I complete my budget it is obsolete and irrelevant because of the ever changing nature of my business.” There is some truth in these comments and realities we cannot deny.
Why then, go to the trouble of preparing a restaurant budget and who should do it? The best answer is because of what it teaches the person who does it and secondly, everyone from the restaurant manager on up.
The exercise of preparing a budget teaches you the business. In other words, it reveals how the business makes money or loses it. There are ‘levers’ in the business that when pulled, drive profits or losses. Restaurant managers who understand these ‘levers’ are in the best position to make recommendations to the company on how to control them.
Managers who help create the company plan as to how to use the ‘levers’ have more buy-in and ownership to the results. Luck will always be on your side when managers are fully bought-in.
In the end, is budgeting worth it? It is not only worth it, but when combined with same-store prior year and location side-by-side analysis, it is critical for all restaurant business hoping to maximize their return on capital.
Morgan D. Harris CPA, Co-founder, Restaurant365