Enterprise Insight:
FINANCIAL ANALYSIS Part I: THE MEASURE OF BUSINESS SUCCESS

How do you measure success for your business? This is a question all operators should be asking. Many operators measure business success by how long the line is in the store. Successful operators measure business success by how profitable they are at the end of each month in addition to happy guests. Can lines out the door and financial profitability be mutually inclusive? Yes, they can!

Lines out the door represent you have a following and you are hitting your stride with your core guests. What this does not represent is whether or not you are a financially viable business. For financial viability, many factors must be looked at in order to manage your business effectively. The main factor / cost that affects all hospitality enterprises are prime costs. Prime costs include 2 pieces of your business, food cost and labor cost. We call these two costs prime costs because they make up the costs directly associated with the output of producing and selling your products. These two costs together should be less than 65% of your sales at any given time. When thinking about what products to sell, we want you to think about two things. 1) What labor is needed to produce and sell the product and 2)What ingredients / finished product must be bought, in order to produce / sell the finished product. For example, lets suppose you are considering selling scones. You can either produce the scones from scratch (which will increase your labor cost and decrease your food cost) or you can buy the scone from another company (which will reduce your labor cost and increase your food cost). Weighing these two variables between labor costs and food costs will determine what type of product you sell, how much staff you need and what selling price is needed.

We encourage you to always look at these two costs and end of day reports. Knowing this secret sauce, gives you the empowerment to manage your business towards financial success.

Happy Costing… TaraPaige Group