Finances can be complicated to say the least. For many people, simply managing a household budget is a struggle with keeping track of the cost of groceries and paying the mortgage each month presenting its fair share of hurdles. Business finances are often even more problematic particularly where restaurants are concerned. While several figures factor into restaurants’ budgets, they’re broken down a few basic categories, each with its own set of vital components.
Cost of Goods Sold
Cost of goods sold, or COGS, is the overall cost of the foods and drinks on your menu. This aspect entails all the expenses of the ingredients you use each month. Though this alone is a significant outlay for some restaurants, it can often be mitigated without sacrificing quality by shopping around for more affordable vendors.
As you might imagine, labor cost is the amount of money paid out to staff members each month. Holiday pay, training, education reimbursement, healthcare coverage and other expenses fall into this category as well. It’s essentially all the costs related to employees.
This figure comes from the costs required to keep the restaurant up and running. It includes dishes, pots and pans, utensils, restroom and cleaning supplies and everything else needed to make the establishment operate efficiently and effectively. Rent, employee payroll, foods, beverages and utilities aren’t factored into this aspect.
Rent, property taxes, business insurance and utilities come into play here. All the costs pertaining to the building itself are considered occupancy expenses. Any upgrades made to the property could be included here, but redecorating, upgrading appliances and certain other elements would fall under operating expenses.
Prime cost combines the costs of labor and goods sold. Financial experts note this figure offers the greatest opportunity to find ways of reducing expenses and offsetting fixed costs, such as water, electricity, gas and rent. It’s also where a number of accounting mistakes are usually found.
All these aspects determine the amount of money you’re paying out each month. They’re weighed against the amount of money coming into the establishment to determine the cost-to-sales ratio. This provides a bit of insight into how well the restaurant is doing overall. These are basic factors, but they’re vital when it comes to budgeting. Don’t hesitate to read more and learn just how all these expenses can affect the success of your establishment.