As a restaurant owner, it is vital to do proper financial planning and know the break-even for your restaurant. Irrespective of the format, many restaurants fail not because of the food or services, they fail because of poor financial planning. Proper financial planning gives your restaurant enough liquidity to establish a successful business. With less capital expenditure, low initial setup costs, minimal staff, and equipment requirements, the dynamics of dark kitchens are more favorable than a dine-in facility. With the help of the strategies and tips mentioned in this article, a stable dark kitchen business can quickly reach operating break-even and generate profits.
Tips To Reach Break-Even Quickly For Dark Kitchen Business
Once you have estimated the total fixed and variable costs and expected sales for your cloud kitchen in a year, it is recommended to calculate the break-even point, which will ultimately indicate if you’re set to make a profit. A restaurant makes a profit only when the sales exceed the expenses.
The formula for calculating profit is:
Sales – (Labor + Food costs + Overhead)
According to industry experts, the dark kitchen model is more cost-effective than front-of-house restaurants.
“Cloud kitchens can break even and payback at a much faster rate, in less than a year and under 18 months, respectively,” says Rashmi Daga, Founder and CEO, Fresh Menu.
Follow these tips to reach break-even quickly for your dark kitchen business.
Forecast The Cash Flow
To generate high profits, it is first and foremost important to have a financial plan. With a cash flow forecast, you can gain insights about how to manage your cash flow better. Using a cash flow forecast will give a fair understanding of the cash inflows and expenses, so you can be better prepared to make decisions.
Forecasts are especially helpful when it comes to making future expansion decisions or deciding whether to cut down an expense for your dark kitchen business. Forecasting will also allow you to benefit from proper budgeting, which is very important for running a restaurant business. This would also help in comparing the actual figures to what you forecasted. If there are any discrepancies between the numbers, you can then easily analyze and audit the areas where maximum expenditure has happened.
Avoid The Credit Business
In the restaurant business, running a high credit bill is one of the worst restaurant finances mistakes most foodservice operators make. At times when the sales volume is low, and you have purchased inventory on high credit, it might end up costing you more by way of interest and fees.
In the initial years of running a dark kitchen, it is recommended to keep steady cash flow and avoid taking a lot of credit. Rather than procuring raw materials on credit from your suppliers, check if they are willing to offer a discount if you make an immediate payment. This will be beneficial for you and your suppliers, improving the cash flow situation at the end of the month for both.
Keep Payroll Under Control
Even though running a dark kitchen requires minimal staff, you must be vigilant about your restaurant payroll. When the order volume increases and you expand your business into multiple brands, there may arise a requirement of more employees.
Due to poor shift management, you may end up paying overtime to some employees even when it is not required. This is an extra expense that can be easily avoided. Make sure your kitchen is not overstaffed, and there is an appropriate shift management system in place. Also, create a clear staff policy about scheduling shifts to reduce the potential for overtime.
Keep Food Costs Under Control
Irrespective of the restaurant format, food costs generally account for a significant part of overall restaurant expenses. Bringing the food costs under control can have a major impact on your profit margins. One way to reduce food costs and wastage is by tracking and monitoring the inventory on a regular basis.
The menu is also a crucial aspect of controlling the restaurant food cost. To make sure that there is not much wastage, update and optimize your dark kitchen’s menu to eliminate any items that are not selling well and, in fact, leading to higher food costs.
Implement an Automated Accounting Process
Restaurateurs often tend to make a big mistake by tracking expenses from different sources manually. Reconciling bills from a number of different sources could lead to confusion. Therefore, invest in a robust cloud kitchen management system that automates the accounting process.
POS systems reduce reporting errors, provide a detailed analysis of your accounts, and come with a comprehensive reporting dashboard feature that makes business data easy to comprehend. They integrate well with existing accounting software platforms and streamline the reporting and accounting process of your restaurant business further, eliminating any scope for errors.
Reduce Maintenance Costs
Maintenance costs are often viewed as detrimental to a restaurant’s bottom line. For dark kitchens, kitchen equipment primarily requires the most maintenance. However, most dark kitchens perform maintenance checks on their equipment only when there is a breakdown.
On the contrary, cloud kitchen operators must perform maintenance on a regular basis to avoid unnecessary slowdowns or shutdowns which can incur huge losses and cause damage to your brand. Moreover, an efficient regular maintenance plan will extend the life of the equipment, avoid costly unexpected repairs, and bring a positive return-on-investment to your business.
Incorporate these useful tips into your dark kitchen’s daily accounting activities to quickly reach the break-even point and generate huge profits!