Q: I’m currently working hard on bringing my costs in line. What are some areas below prime cost on which I can focus?

A: Operating expenses below prime cost generally run close to 30 percent of sales. These buckets of expenses generally include direct operating, general and administrative, occupancy, utilities and other income/expenses. Choose the most meaningful expenses and focus on reducing them. Here are some ideas of where to start:

Perform routine maintenance on all equipment.
Spend repair money wisely. Deferred maintenance is a way of life for many restaurants yet underspending repairs always leads to replacement issues later where equipment or leaseholds need to be replaced rather than repaired. If you’re spending less than 1 percent of sales, and your restaurant is more than two years old, you’re spending too little. To get ahead of equipment failure use a computerized maintenance management system (CMMS). This software works by entering in the make and model of equipment. Most equipment has a maintenance schedule of what and when to clean, service and replace. This type of software prepares an easy to follow schedule to keep equipment in top working condition. A more time consuming and less expensive option is to use spreadsheet. The important activity is to make sure you have a schedule clearly posted and assigned to staff to maintain equipment.

Treat linen like cost of goods.
Great cost of goods management includes proper purchasing, receiving, storage and usage. Manage linen with diligence. Inspect linen when it is received and refuse items that are torn or worn where you could get charged for damaged or replacement in the future. Store linen inventory properly, and if you have large stocks of inventory, rotate your linen stock regularly to avoid light damage and reduce wear and tear. Make sure it is stored in a well-lit, dry and warm place with a locked door. Linen theft and abuse is a reality. Be sure to use the proper linen for the proper job such as colored towel in the kitchen. Make sure all staff don’t misuse linen or have access to too much. Lastly, count linen often to make sure you’re not being overcharged. There are countless stories of vendor abuse and paying for more than what was used.

Bid out credit card fees annually.
Typical credit card statements are confusing for the most experienced of operators. Work only with credit card processors. Many of the new POS systems are offering free or inexpensive POS along with imbedded credit card processing. These fees are more expensive, and the restaurant pays for the POS system several times over by overpaying for credit card processing. POS system companies aside, the two most popular programs are interchange fees plus a fee for each transaction and/or a percentage of sales and a flat percentage fee. The former is the traditional approach. Shoot for a number such as interchange plus $0.05-$0.10 per transaction and no percentage depending on the size of the restaurant (AMEX will be separate.). The latter is a program where the restaurant is charged a flat percentage fee of total sales ranging from 1.8 percent to 2.5 percent of sales depending on size and number of locations. The higher the number of debit transactions, the lower that number can be negotiated as debit transactions follow a different and less costly fee schedule.

Reduce utility costs with better technology.
Telephone, Internet, cable and basic utilities can cost upwards of 4 percent of sales. To combat higher expenses, uses available technology. Use a CLEC (competitive local exchange carrier) company for phone and broadband service. These service providers of telecommunications and broadband work with as much as 86 percent of the Fortune 100 and can work with any size company. When partnering with a CLEC, you won’t be stuck in a long queue waiting for service on vital telecom issues, you’ll get quick responses, easy to understand billing, better costs and technology. In other utility areas, automate restrooms with automatic flush for toilets, automatic soap, water and paper dispensers/air dryers. Automate the lights to go off when no one is in an area of the restaurants, and remind staff to use common sense by turning off everything when not in use.

By studying, questioning and applying current technology and behaviors to operating expenses, you’ll save 3-5 percent without much effort.

For more information on improving profitability and driving sales, contact AMP Services at [email protected]. Rick Braa is the co-founder of AMP Services, an accounting and consulting firm, specializing in helping companies grow profitability.