Editor’s note: A version of this post first ran on author Josh Kopel‘s blog. Josh is an entrepreneur, restaurateur, and host of Full Comp, a new podcast for the hospitality industry.
As we prepared to open my restaurant, Preux & Proper, in 2014, we spent months conceptualizing the layout, menu, and overall concept. We considered every single detail, from the silverware to the menu fonts.
After hashing out all of the specifics, we analyzed our costs to see how much money we needed to bring in to turn a profit. Surprisingly, it took over two years to hit that number. In the first year, we lost $250,000 and $60,000 in year two. The suffering we endured in the first 24 months of the restaurant was brutal and, as it turned out, totally unnecessary.
This pandemic is undoubtedly a curse, but it does surface opportunities that we did not have before. Preux & Proper has been highlighted by the press as a beacon of what a fine dining restaurant should be in terms of quality, sustainability, and value. And while that is a source of pride, I’ve always believed that the fine dining market was not our natural “home.”
I’ve always believed that things didn’t need to be this hard.
I’ve always craved a fresh start.
After being forced to close, we decided to move forward by working backward with a three-step process, using financial modeling that would help us determine a more sustainable path forward.
1. Set sales and profit goals
My partners and I agreed that we would only reopen if we could guarantee 15% net profit. We also worked under the assumption that we would only bring in 30% of our net sales figures from before the pandemic. We settled on $100,000 per month to keep the numbers fair and round.
New numbers = $100,000 net sales must net out 15% profit
2. Draw up new financials
We took our last profit and loss statement and reworked the numbers over and over until we hit our 15% net target with $100,000 in sales. From there, we knew what our cost of goods needed to be, our labor budget, and how much we could spend on things like rent, supplies, and so forth.
3. Envision a new dream
The new profit and loss statement serves as a budget. With this new framework, we tackle labor first. Labor needs to be handled first because the model created will define hours of operation, how and what we can produce, and the functional basics of the restaurant.
Based on our new financial model, we’re considering these operational adjustments:
- Reducing service to five days per week
- Scaling down to dinner service only
- Negotiating with our landlord to adjust our lease rates, requesting a significantly lower base rate paired with a percentage of our net sales
- Partitioning the restaurant to create less square footage, the goal being a smaller space that allows a smaller staff
- Reducing managerial salaries while also implementing a profit-sharing program
- Reducing our food and beverage prices in response to the current economic climate
- Embracing a more casual concept for the restaurant, creating a large reduction in ancillary overhead
- Focusing on beverages to improve margins
- Potentially moving to counter-style service where guests order at the bar
We’re also monitoring research from Cornell University that predicts that the dine-in only revenue model most restaurants previously followed will simply not work in the future. According to the research, profitable restaurants will have three revenue streams moving forward:
- Retail: Think farmers markets’ boxes filled with local produce and meal prep kits.
- Takeout and delivery: To-go menus are now essential and must adapt to ensure the items travel well.
- Dine-in service: The most labor-intensive piece of the puzzle, dine-in service may be by reservation only to maintain social distancing and ensure consistent revenue.
In short, every conceivable scenario is an option as long as it aligns with our financial modeling and our company’s ethos.
Like so many of us, I had believed that restaurants were the unicorns of the business world. Because we don’t function like most other businesses, I thought the rules of business didn’t apply to us.
I was wrong.
Having a robust financial model, with tailored goals in mind, lays the foundation for a successful restaurant and an overall happier life.
This is our opportunity to start over with a clean slate.
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