Discover effective strategies to manage restaurant expenses and boost profitability. Plus, explore the benefits of Summit's expense management software.
Running a restaurant can be expensive, with a long list of operating costs that add up fast. Restaurants must optimise food, utilities, and recruiting costs to keep the books balanced and the lights on.
Food prices naturally go up over time because of inflation, wage increases like the Progressive Wage Model (PWM) in Singapore or minimum wage hikes in the Philippines. This, along with rising taxes, makes managing expenses challenging. However, with the right advice and expense management software, running a restaurant can be less stressful and more profitable.
Our guide breaks down restaurant costs and offers tips to help restaurant owners manage their expenses and save on costs, as well as the benefits of expense management software. Let’s jump right in!
Understanding Restaurant Costs and Expenses
Restaurant costs and expenses are often confused, but there are differences between the two. Restaurant costs are one-time expenditures on material resources such as dishes or kitchen equipment, while restaurant expenses are recurring payments that generate revenue, like rent, payroll, and marketing. The terms are often used interchangeably, but we'll focus on ongoing expenses in this article.
Restaurant owners in Singapore and the Philippines must factor several monthly operating costs and expenses into their budgets. Rent and utilities, including electricity, water, internet, and telephone connections, generally constitute a smaller share of revenue but can be higher if your restaurant is in an expensive area.
Food costs comprise a larger share of revenue expenditures and labour costs (employees and management salaries). Insurance expenses vary by provider and type; property insurance can range from $100 to $500 monthly in Singapore. The exact SGD figure will vary depending on the size of the restaurant and coverage amount, but most restaurants opt for commercial property insurance coverage between $100,000 and $200,000.
Restaurant owners should also consider their monthly marketing expenses. Marketing is essential for ensuring reservations, foot traffic, and greater exposure to potential customers searching online for restaurants in the area via improved SEO. Also, consider breakage costs. Glasses and plates will inevitably break from time to time and need replacement.
Why Managing Restaurant Expenses is Important
Managing restaurant expense categories effectively is essential for running a healthy, profitable business. A detailed overview of your monthly costs and expenses will allow you to see which fixed, variable and semi-variable expenses take larger shares of your revenue.
With a bird's eye view, you can cut and expand investments in different areas according to your actual needs. Balancing your budget without managing restaurant expenses is more likely to lead to financial mismanagement and debt, especially during economic downturns.
Challenges Restaurants Face in Managing Expenses
Labour is essential to the success of your restaurant, but it's also a substantial investment. You can lose control of labour costs and harm your profits if you are careless. Labour costs are more than hourly wages and salaries, including overtime, bonuses, vacation and sick days, and payroll taxes. Cutting staff may be tempting, but it can easily backfire on you and harm customer service.
Likewise, rent and utility expenses can be challenging, especially if your restaurant is in a fashionable, high-foot-traffic area. Even if you are in a less desirable location, you could struggle with rising rent due to the revitalisation of the area you contributed to. You could also cut utility-like phone contracts, leaving your staff struggling to make customer reservations.
Tips and Strategies for Managing Restaurant Expenses
There are several strategies you can implement for restaurant cost control:
To reduce utility costs, consider switching to fluorescent or LED bulbs, which use less energy and last longer. Only run your dishwashers when full to reduce water, soap and energy costs and lower the dishwashing temperature. Apply the same practices to your washing machines and consider washing tablecloths and table napkins in cold water. Water flow regulators are also effective in lowering water bills.
Unless you own your property, rent is inevitable. However, there are innovative strategies you can employ to reduce it. Consider subletting your space to catering companies, food trucks, or pop-up kitchens outside your business hours to increase revenue. Consider downsizing to save money on rent and partnering with mobile takeout apps.
Expense management software can keep track of all the above restaurant expenses in a centralised, easy-to-use format. Good management software will give you a bird’s eye view of your income and spending on costs and expenses.
Summit Expense Management Software for Restaurants
When restaurants engage in proper expense management, their ongoing monthly costs will become more manageable, improving their revenue. To enhance financial management, Summit's Vendor Invoice Management and Employee Expense Management can seamlessly integrate into your existing accounting software, such as Xero and Sage.
If you want to try Summit's expense management software to gain better control of your restaurant's expenses, contact us to talk to one of our representatives. They will schedule a free demo and will be happy to answer any questions you have about our products.
