Understanding your cost structure & how it can help your Restaurant Finances

Watch our video or read the article below to understand how identifying your cost structure can help your Restaurant.

Operating Costs

Your operating costs are those costs which you incur in order to operate your Restaurant. Your operating costs can be broken down into;

  1. Fixed Costs

  2. Variable Costs

  3. Semi - Variable Costs

Fixed Costs

Fixed costs are those costs which you will generally expect to incur on a month to month basis.

For example, your Restaurant will have fixed costs such as Rent, Business Rates and other fixed costs expenses.

Go ahead and list all the fixed costs you incur in your Restaurant!

Variable Costs

Variable costs are those costs which are less predictable because the costs your business incurs are in correlation with the output of your Restaurant.

For example, food is a variable cost. The more sales your Restaurant does, the higher the food cost will be and if your sales are lower then you should expect your food cost to be lower. That is why food cost is a variable cost because it correlates with the output of your Restaurant.

Semi-Variable Costs

Semi-Variable costs are a mix of your fixed and variable costs. Typically for Restaurants, this will be your staff costs.

For example, your staff costs will be made up of fixed salary i.e for the managers. However you may also have staff on hourly pay. This element of your staff cost can change depending on the demand for your Restaurant.

Why identify your costs?

Identifying your costs can help you better manage your Restaurant finances. See below.

  1. Understanding your cost structure will allow you to identify patterns and trends which will help you better manage your Restaurant's finances.

  2. You can work out your break even point. Your break even point is the sales your Restaurant needs to generate in order to break even.

  3. Your cost structure will allow you to better manage your cash flow. You cannot manage your cash flow if you do not understand what costs your business is incurring.

  4. Laying out your cost structure will allow you to understand which costs are controllable and which costs are not uncontrollable. This is really useful when you need to make changes in your business.

Get in touch if you would like a better understanding of how your Restaurant costs are calculated and how you can use this information to run a more profitable Restaurant.

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