Are you sitting comfortably then I begin. This might be a cliché nevertheless your ability to interpret trading results determines your success or failure. To effectively understand operational ratios you need to interpreter financial data. To effectively do so you need to have something to compare your results against usually internal budget and management objectives.
Below is an example of fictional restaurant budget plus trading results. The outlet has seating for 64, is open Monday to Saturday, between 9:00AM to10:00PM with a beverage licence.
The first worksheet (below) Budget Input illustrates budget and three months trading data.
The second sheet (below) Results calculates trading results below variance percentage against budget, below that the percentage of food/drink sales of total sales below this the average spend and finally below this the average seat turnover.
Below the Excel Financial Analyis button workbook has two worksheets.
- Input worksheet allows you to enter your own figures.
- The Operational Report worksheet calculates Input worksheet.
So what can we learn from the data?
- Given the seating capacity an unadventurous budget nevertheless sales targets are met.
- Customer spend compares well to the number of customers served.
- Food costs are higher than variance consequently
gross profit is below budget expectations currently at £1,415 to date (-3.36%).
- Beverage costs are lower than variance than sales. In other words
sales exceed budget between 5.81% and 8.25%, to date over three months £825 (+8.87%). Beverage represents a higher proportion of total sales (food sales varied -0.23% over the same period).
- Food stock turnover fluctuates slightly below budget this suggest purchasing isn’t corresponding to usage.
- Labour costs are between 13.11% and 16.79% over budget (+14.65% or £2,865) implies a possible over staffing problem.
- Overheads figures show an increasing trend to exceed budget from 1.32% to 4.63% (+2.97% or £405).
- Results to date are below budget expectations. Net profit is declining –20.52 and – 35.63% an accelerating overall trend of –27.62% below budget. The
factors reducing net profit are labour, food and overhead costs.
- Food sales are stagnant whilst beverage sales exceed budget. Staff, labour and overhead costs require investigation.
- To achieve budgeted net profit goals there is a need to either reduce costs or increase sales.
- Provided the budget is realistic and costs can be positively redressed there is little need for change. However without knowledge as to whether customer expectations are in align with the restaurants offering plus the type of business environment in which the restaurant operates it’s not possible to make further judgement.
To be able to make a more insightful assessment the following information is required.
- Previous trading results provide insight as to trends.
- Knowledge as to how the budget is formulated i.e. appropriateness and accuracy.
- Examination of customer demand i.e. menu and beverage match to customer wants.
- Analysis of food management, cost, purchase and control plus the match to demand and purchasing i.e. food waste and degree food prices fluctuate.
- Identify the reasons for beverage sales increase and higher gross profit such factors can indicate problems as much as shortages.
- Investigate staffing cost the reasoning for budget excess with a view to matching budget labour cost.
- Analysis of the business environment.
- Assessment as to high variance in actual overhead costs against budget (1.32% to 4.63% overall 2.97%).