Cut costs without cutting quality

As American Express OPEN^SM culinary advisor, Richard Williams provides guidance and expertise to American Express OPEN, the small business division of American Express, to help create a robust set of online resources specifically for small business owners in the culinary industry.

When restaurant operators are faced with challenging times in the business cycle, the need for an operating budget becomes more critical. An operating budget helps set achievable goals for both revenue and expenses. While the previous year’s actual operating history is a good guide for developing a budget for the coming year, a realistic assessment of market conditions that will affect the restaurant’s future business is essential.

American Express OPEN Culinary Advisor Dick Williams has put together these helpful tips on budgeting:

• On equipment. Consider leasing equipment rather than buying it. When cash flow is reduced in an economic downturn, it may be prudent to lease equipment thereby spreading the cost over several years.
• On employees. Write job descriptions for all positions in the restaurant so that employees know all of their duties and can be held accountable. Detailed job descriptions help in overall restaurant management by focusing on duties to be performed by each employee during the times they are scheduled to work.
• On schedules. Schedule labor by considering peak demand periods. You should stagger shift start and end times to coincide with typical guest flows. Be sure to consider positions in the front-of-house and back-of-house.
• On food. Date stamp all product upon delivery. In times of rising food prices, it is important to eliminate waste and spoilage by making certain that the product delivered first is always used first. Establish a first-in, first-out system of stock rotation.
• On inventory. Take inventory with your chef and bar manager monthly. This allows the restaurant manager to be aware of all product on hand. It reduces the opportunity for inventory manipulation by staff. This is especially important if the chef or bar manager is offered incentive compensation for meeting or exceeding budgeted cost ratios. You can establish a perpetual inventory system that tracks purchases and sales on a daily basis and calculate the food and beverage cost to date. It takes approximately 90 days to establish this type of control system with fairly accurate results.
• On payment. Consider non-cash ways to make purchases. Credit card rewards, savings programs and frequent flier points can be effective cash substitutes, as can bartering. Cards also help manage cash flow by allowing an extra period of repayment for short-term needs.

Dick Williams is culinary advisor for American Express OPEN. A 40-year veteran of the food services industry, Dick also serves as the managing director and founder of HVS Food & Beverage Services and as restaurant manager for the Buckhorn Exchange in Denver.