Cost to Run a Restaurant?

A decathlon of all the administrative bullshit,” says Irene Li, chef and owner of Mei Mei, a Chinese-American restaurant in Boston. “I have always thought to myself that the version of Top Chef that I would want to watch would be chef-owners plunging a toilet, cleaning an overflowing grease trap, balancing a balance sheet, and running payroll as fast as they could.” In other words, “and obviously, people would be bored to death by that show,” as that is exactly what it is.

Li has been giving a lot of thought lately to what it takes to maintain a business like hers. She was named one of Zagat’s 30 Under 30 and a semi-finalist for James Beard’s Rising Star Chef award six times before winning Eater’s Young Gun award in 2016. However, she did not intentionally enter the field and finds “all the administrative garbage” fascinating for its own sake.

When Mei Mei first opened, daily success was determined by whether or not there were enough dumplings to last till lunch and whether or not the bank account was empty. As a result of Mei Mei’s policy of making its financial records available to employees for the past two years, everyone from the dishwasher to the line cook has a thorough understanding of the restaurant’s financial health. This means that everyone in the restaurant knows exactly how much money is coming in and how much is going out, including the costs of everything from salaries to utilities. Not only does everyone contribute to the company’s bottom line, but they all do it in different ways. The team has the authority to explore and evaluate potential new suppliers. They can also make temporary price adjustments to the menu items if they so choose.
Li claims to have noticed an improvement in the three years after she began doing this. As a result of Li’s explanation, the line cook who questioned the $9 price tag on the Double Awesome menu item (an oozy egg sandwich) now understands that the price tag includes everything from the eggs to the pesto to the scallion pancake breading. As a result of one employee’s calls to the electric company for reimbursements when the power went out, another’s negotiations for better alarm rates, and still another’s efforts to seek a cheaper linen provider, everyone on staff had a complete picture of what goes on behind the scenes at the restaurant. “There’s buy-in because their fingerprints are there,” Li says.

Li can’t afford to simply provide her colleagues with basic financial data anymore. She thinks everyone should be aware of this.

Li argues that the sector’s “reluctance to discuss money” is a major barrier to progress. “Money isn’t spoken at all in our culture, and I’ve found that this holds true even among the other restaurant owners with whom I’m close friends. We discuss HR issues and health reviews, flaws and all, but never the company’s finances. That’s the last hurdle we need to clear before we can finally agree on how to improve our performance as a team.

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Fortified by the support of her closest loved ones and a slew of apprehensive “wows,” Li settled on 2020 as the year to initiate the discussion. It was a busy Friday night, and we sat down in the midst of the restaurant to go over Mei Mei’s 2019 profit and loss statement, which will soon be available to all customers.

Where are we, exactly, and what are we looking at?

A company’s profit and loss (P&L) statements detail the company’s financial performance over a specific time frame. Overall, the equation you’re looking at is basically just sales minus costs, which is the profit. Li broke down the various line items in her profit and loss statement into four main categories: revenue, COGS, direct labour, and finally, pages and pages of overhead.

Several target ratios can be found in the literature on the most important costs for a restaurant. Most businesses strive for a total cost of goods sold and direct labour of 60% (for Mei Mei, those numbers are 20% and 40%, respectively), as well as 30% for all other expenses, leaving 10% for profit. She went on to say that the typical profit margin for locally operated eateries is around 6%. There is no need to stress; there is no test.

Companies need to generate a profit and loss statement every year. There is often a quarterly check at most eateries. Every four weeks, everyone at Mei Mei pitches in and digs in.

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