Every business needs to respect the golden rule to survive: it must make more money than it spends. In other words, its sales, or revenue, have to be higher than its costs. Revenue is the income from sales before expenses and costs are taken out. Cost is the price of the goods, labor, and any other bills that need to be paid. If your costs are higher than your sales, you are losing money. If that goes on for too long? The business will likely not survive. Understanding how to control costs is literally a survival skill.
The four main categories break down as:
- Food costs
- Beverage costs
- Labor costs
- Overhead costs
Food, beverage, and labor costs are all controllable. This means that they can change according to the volume of business. When the operation is busy, those costs are likely higher to match the increased sales. Likewise, when business is slower, it is important to lower food, beverage, and labor costs to suit the lowered volume.
Overhead costs, on the other hand, are not typically controllable and are considered fixed. This includes things like rent, electricity, or salaried employee labor costs. Fixed costs are predictable and make building the operating budget a little easier.
The secret to controlling costs is to stay within the operating budget. This means keeping a close eye on the money coming in through revenue, and the money going out to pay the staff, vendors, and other bills. Controlling costs is a constant juggling act of reviewing profit-and-loss statements, managing invoices, tracking labor, and considering daily sales. Many costs are controllable and can be adapted to fit revenue – the demand should fit the need.
To recap, the following tools are critical to controlling costs:
- Operating budget
- Profit and loss report
- Invoice tracking (for food, beverage, and overhead costs)
- Labor management (schedules and time clock reporting)
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