Three steps to creating a winning restaurant team through financial transparency

Three steps to creating a winning restaurant team through financial transparency
By Matt Rolfe
July 19, 2013
Three steps to creating a winning restaurant team through financial transparency

Many of us have sat on the edge of our seats at a sporting event, counting down the seconds while a slim margin of victory divides two teams. The giant scoreboard displays two important factors: 1) How many points does it take to win? 2) How much time do we have left? Coaches adjust game plans while players dig deep for the motivation to win. Great businesses conduct themselves the same way.

The problem in hospitality is that most managers are not provided with a compelling scoreboard. Instead, they are buried with so much historical information that they’re looking in the rear view mirror and not through the front windshield. This is how so many businesses wind up in the ditch.

Several years ago, we adopted “Open Book Management” at Barmetrix. This approach provides financial literacy and transparency to all staff. We offer access to complete historical reporting and perform forecasting exercises together. A 360-degree view of the business is shared with our team – data on profits, salaries, bonuses, even labour margins are clear.

After seeing the profoundly positive results of transparency within my own business, we begin assisting our clients, hospitality operators, in kicking off the practice of open book management.

It has been our experience that clients convert to this practice at their own pace and comfort level. Typically they start slowly, but build momentum as they are blown away by the results. Commonly, we address the following concerns:

Dispelling some myths

Myth: If my staff knew my profitability, wouldn’t they take advantage of me?

We have surveyed thousands of staff and have learned that they believe their employer’s profitability is five to 10 times more than it actually is! So the opposite is actually true.

Myth: Won’t the transparency create jealousy and animosity?

Unfortunately, those two things may already exist in your business, and if anything, this process reduces them. Transparency lets people know where they stand and what it takes to get to the next level.

Myth: Why bother educating staff when they just leave anyhow?

We believe it is better to have educated staff that might leave than uneducated staff that stick around!

Little room for error

Many Canadian hospitality businesses struggle to earn a five-per-cent net margin. That is a lot of work for a low return, and those sorts of margins leave little room for error creating huge risk.

I have worked with hundreds of managers and am always surprised at how few actually have their finger on the fiscal pulse of the business they run. Most can’t tell me the break-even point of their company on a weekly basis – the point where their business tips from loss to profit.

Recently we hosted a workshop with some of Canada’s leading operators, and only 20 per cent of them knew this piece of data. What sets apart the most profitable businesses that we work with? You could find out their break-even point from their dishwashers.

Getting started

I urge you to pull together at least your leadership team, if not your entire core group of staff. The more people who understand these numbers, the more focus and momentum you will have in your business.

Step One – Educating your team on your break-even point will allow them to truly understand what it takes to keep the business running. Most staff members are shocked at how much it costs just to keep the doors open.

Step Two – Add five per cent to your break-even number to display what the average hospitality operator in Canada is making. I can almost guarantee that your staff believes you and other operators are making significantly more than you are. Almost all of your staff know someone or have worked for someone who is no longer in business; let your staff connect with the sensitivity of this number.

Step Three – This is where the exercise gets really fun. Show your staff the impact on the business if you can deliver revenues 15 per cent over your break-even point and what the impact would be on your profitability. The fact is: Increasing your sales by 15 per cent over your break-even revenue requirement can triple your profitability when factoring in 35 per cent cost of sales percentage.

For example:

  • Weekly Sales Required to Break Even = $15,000
  • Average Weekly Profit @ 5% = $750
  • Average Weekly Profit @ $17,000 in weekly sales = $2050 or 15%

You can easily scale up profits by adding only a couple of thousand dollars of sales each week! How? After making just $750 on your initial $15,000 in sales, your profitability on the final $2,000 is $1,300 (again, assuming 35 per cent cost of goods).

Once your staff understands how many costs are fixed (rent, insurance, full-time labour, etc), they begin to realize how adding 15 per cent in sales translates to high-margin profits.

Some will ask: Why would my staff care if the business makes more money? Great employees want to work for great businesses, and great business make great profits. They’re with you because they personally connect with your brand and believe in your concept. And good servers also know that repeat guests, high bill averages, and smooth table turns directly affect the dollars in their pockets, too.

Harness the power of your team

Our industry is quickly adopting a positive view of transparency. Gone are the days of suffering alone in the back office, trying to figure out how to make the numbers work. The people with the opportunity to have the largest impact on your operation are your managers and staff. They are the key to increasing your revenues and your profitability.

When you implement this strategy, keep three stages in mind. Stage one is making everyone aware of the situation and the opportunities. Stage two is harnessing the engagement and ideas that flow from everyone in your organization. Stage three is realizing a 15 per cent opportunity – if everyone believes in the business and contributes to the cause.

See also:


About the author

Matt Rolfe is the CEO of Barmetrix Global, a hospitality coaching and consulting firm dedicated to helping their clients increase profits through improved inventory control, staff training and engagement exercises and retail pricing strategy evaluation. For more information on Barmetrix franchise opportunities or services, please email mrolfe@barmetrix.com or visit www.barmetrix.com.

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