Eating out has evolved into a habit, not a luxury. Americans eat over 47 percent of all meals away from home. Baby Boomers spend more on food away from home than any other demographic group.
There’s no question that changes in lifestyle have evolved to less home prepared meals. Whatever the reasons, the restaurant industry will grow. Recent projections suggest that the restaurant sales will exceed $408 billion. This is a tremendous business segment of the U.S. economy. Unfortunately with all the size and influence of an industry group of this magnitude, there is no silver lining when it comes to lending.
Within the restaurant industry, debt providers continue to focus on:
- Stable and predictable cash flows.
- Strong concept/brand (franchisor if applicable).
- Seasoned management with operating history.
- Quality and condition of restaurant and location demographics.
These statistics affect the value of your business both in terms of a potential buyer and debt providers that may hold the keys to future development plans. Brokers further elaborate and suggest that the following factors have an influence on value:
- Length of time in business.
- Remaining lease term.
- Will you offer owner financing?
- Recurring cash flow.
What are the right benchmarks in measuring your outcomes? Clearly, value is tied in some manner to annual sales and recurring cash flow. Sales and cash flow are something that is attitude-based. It will be what you expect it to be or allow it to be. Remember that feelings come from your thoughts, and you have the power to change your thoughts. When you change your thoughts you change your attitude and infect those around you. Of course, this works regardless in both negative and positive aspects. So, choose your attitude and choose to manage the direction of your business in sales and cash flow.
Improving cash flow is always easy. There are endless opportunities to improve cash flow through reducing waste. Consider the following ideas, and develop your own cost savings opportunities:
- Split inside lighting into two circuits and only turn on both circuits at night.
- Buy air-conditioner filters in bulk and then write dates on the side of the filters, which enables you to monitor that filters are being rotated.
- Make store deposits into a business savings account rather than checking. The fees are regulated to exclude the transaction-based charges.
Although these ideas clearly affect your profit both in the short and long term, once implemented, there is no future gain or revenue enhancement to be achieved. Other examples that may have more of a long-term positive impact on cash flow include dealing with your management and hiring practices for employees. Dealing with your levels of insurance coverage, managing your loss history profile, your deductible limits and assuming some responsibility in lieu of your insurance carrier.
Worker’s compensation, hired and non-owned coverage, general business coverage, all are expected to decrease in the next 12-18 months. This is relief we all need. Increasing your deductibles on worker’s compensation and being responsible for the smaller claims yourself has proved to be a significant savings to most operators. The key is that you have an agreement with your insurance provider that outlines the procedures that you and they will follow. An example of how to do this is you will continue to submit all claims, but you can designate the ones you intend to cover by notating “for reporting purposes only” on the claim form. This truly saves you money.
Another big savings has been the designation of your higher worker’s compensation category employees to lower compensation classifications. Generally, all workers are classified in their highest risk category. An inside worker is higher than administrative/clerical staff to the tune of 400 percent higher rates. A delivery driver is about 400 percent higher than an inside worker. There has historically been an inequity in operations where drivers fulfill dual roles. Again, you were required to classify your workers in their highest risk category, regardless if this only represented 20 percent of their total time. This is a significant negative for lower volume businesses. It is now an acceptable practice to pay worker’s compensation based on the individual role. Unfortunately, this requires significantly more recordkeeping, but the payoff justifies the burden. You must clock a person in and out of roles to support this outcome. You cannot simply do an allocation. So, for those individuals that minimally change roles this is not applicable, but where you might be in a position to modify the work responsibilities for someone for 15 or more minutes at a time, then you should consider this option.
Knowing that cash flow is the basis on which the value of your business is determined, why would you not make the effort to improve can? For example, we recently made a presentation to a group of restaurants and expanded on the cash flow to value interrelationships. Although our message was strong, supported with significant data, far too many participants question the reasonableness of our data. You must also challenge yourself to not discount the message of this article; these are sound, proven suggestions.