Dubai-based restaurant (Photo Credit: social media)
New Delhi:
Running a restaurant is an endeavour full of its own set of challenges. However, the crisis induced by the emergence of the pandemic and subsequent uncertainty that still looms over various industries have made restaurant operations trickier than ever. Revenue generation is the ultimate goal of every restaurant and an effective way of keeping your restaurant business profitable is controlling the expenses. But how does one do that in uncertain times like this?
According to Dubai-based restaurateur Sanjeev Nanda, in order to stay on top of expenditure it is important to revisit all the factors that impact the spending pattern and formulate a strategy that minimizes expenses while working on increasing the revenue at the same time. Nanda, who runs restaurants in Dubai including Miss Tess and Billionaire Mansion, advises adopting a well-rounded expenditure plan.
Factors impacting expenses
If we look objectively at the monthly expenses of a restaurant business, there are three major components involved – labour cost, inventory, and miscellaneous operational activities. A careful assessment of where and how much money is being spent on these three components can give you a fair idea of the overall monthly expenditure. In the expert opinion of Sanjeev Nanda, any expense that doesn’t fit these categories needs to be scrutinized and if possible, eliminated. Labour costs can be reduced by avoiding overstaffing. The restaurant must, however, always refrain from not paying the employees enough. An adequate number of employees getting paid fair wages provide better outputs than a horde of staff that’s not satisfied with the salaries. Planning ahead for known expenses like this can help your business avoid overspending while maintaining the quality of food and service.
The lure of credit bills
One of the biggest and most common financial blunders that most restaurants make is running the business on credit bills. Yes, credit can help you cover big expenses, but only if you can settle the account by the end of the month. If not, then this could be the costliest decision you ever made. Running a high credit bill gives you a false sense of finances, and can latch onto the entire revenue your business generates, leaving you in deficit. To avoid this mistake, Sanjeev Nanda suggests refraining from high credit bills especially if your restaurant business is in nascent stages. Buying ingredients on credit might get you cheaper deals, but this can also lead to over-stocking, locking up your money, and ending up wasting it on perishable items. Therefore, it is a better bet to buy only what you can pay for upfront. In case you are still sticking with credit, Nanda advises budgeting your expenses and enforcing payment deadlines for the unavoidable credit payments.
Preparing for the unknown
If there is one major takeaway from the crisis created by the pandemic, it is to always be prepared for unpredictable factors that might affect your business. The best way to do that, according to Sanjeev Nanda, is by setting up an emergency fund. It should be created in a way that it can keep your business afloat for at least three months. An emergency fund can help you cope up price fluctuations and unfavourable market situations, thus saving you some big bucks that you might otherwise end up spending on necessary but overpriced items.
