Q: With the recent shifts in the economy my business has become unstable. As we navigate into the next season how do I create more stability?

A: Every The business landscape is changing for restaurants. As the economy shifts pressure has increased while creating new opportunity. Grocery stores continue to offer more hot, prepared foods, third party delivery has put more pressure on meal periods and high performance, and minimum wage along with a tight labor market has led to increased wages. We’ve come to a point where the best operators will survive and thrive while less experienced or poorly placed concepts will struggle. With a keen focus on the guest and employee experience a requirement, forecasting and planning is a discipline that implemented or improved.

Use big data

Start with current trends and forecast one week at a time. If sales have been up 5% over prior year consistently, don’t complicate things. Look at external factors such as weather, new construction, new competition, big events such as a game or eclipse. Add or subtract from your baseline trend. For example, if sales have been consistently 5% over prior year and there is a event for the upcoming week add or subtract the impact on the trend. The key is to stay big, forecasts fall apart when built from too much detail. The margin of error increases with every data point included in your forecast.

Spread the forecast by day

Use averages of the amount of sales typically done for each day. If Friday is 15%, Saturday 15%, Sunday 10%, etc. use those percentages to forecast sales for that day. When totaling every day, the dollar totals should equal the dollars forecast for the week and percentages add up to 100%.

Use the forecast for purchasing labor and product and cash flow management

If you don’t have it don’t spend it. For example, if sales were forecast for the week at $50,000 and target is to run 10% back of house and 8% front of house labor, there is $5,000 and $4,000 respectively to spend. Spread that out by day to set the daily budget and don’t exceed the budget for the week. If it does, go back and reduce the number of scheduled hours, typically at the beginning and end of each shift. Do the same for product. If forecast is $50,000 with targeted 25% product cost, budget $12,500 and spread that by day. This will keep inventory from building and create a smaller, tighter inventory as all waste will eat into inventory until waste is reduced or eliminated since there won’t be a large enough inventory to accommodate waste. Additionally, use the forecasted sales number to project cash flow. Sales, tax, tips, and payroll are collected/used in advance of payment, make sure there are two weeks of forecasted sales in the bank or risk running out of money especially toward the beginning of the month when rent, taxes, payroll, etc. are all due. Below two weeks of sales in the bank, the business is financially unhealthy and will ultimately need an infusion if improvement isn’t made.

 

Measure accuracy and improve it

The margin of error for a good forecast is +-4%. If $50,000 was forecast $48,000-52,000 would be the acceptable range. That breaks down to $571 per day variance which isn’t enough cause big staffing differences or purchase changes. For example, inventory may go up or down $500 for the week, an acceptable variance which can be made up the following week. Study why the forecast was off and use that as part of the big data set in the analytical stage of setting future forecasts.

 

Developing and applying an accurate forecast is a proven way to maximize profit and gain control of your business. If goals are set and met there aren’t any surprises. While forecasting is a traditional practice the results are tried, true and timeless.

 

For a more information on improving profitability and driving sales, contact AMP Services at rbraa@ampservices.com. Rick Braa is the founder of AMP Services, a seattle restaurant accounting and consulting firm specializing in helping companies grow profitability.