I took over a restaurant that exceeded $5 million per year in revenues it’s first full year. When I became the manager I didn’t know a whole lot about running restaurants. I did know how to read a profit and loss statement. This $5 million was not making it to the bottom line. Expenses were excessive and understanding the numbers was almost impossible as the information was anything but accurate.
I realized the full extent of the financial riddle when I took my first inventory. The entire management team (about 10-15 people) were there all night to get it done. When we manually calculated and added everything up the next day. I wasn’t sure if it was sleep depravity or true inventory variance that caused the ungodly food cost.
“This can’t be right” is all I kept saying.
I sent people back to recount. I made new Excel spreadsheets.
I was merely spinning my wheels because I had no idea if the prior month’s numbers were accurate as a starting point.
Systems Must Be Accurate and Consistent
This was the beginning of my journey in discovery. We had no consistent systems.
None of any kind!
Our purchasing policies weren’t documented. There was no dual control. Cash registers didn’t balance on a regular basis. Food cost were not being calculated prior to pricing new items for the menu.
All of this was prior to my subsequent training as a Counselor, however, I knew the symptoms I was feeling were anxiety and the taunting of depression (a post on outrunning depression). I would take my piles of paper to an outside table and try to soak up the healing rays of the sun.
It was outside of our ability to transform this 9000 sq. foot restaurant with 140 employees into an automated, systematic, and effective operation.
- We were desperate to keep the sales because we still were not making money, so we didn’t have time to stop and get systems in place.
- Even the small policies and processes I could put into place in my sleep were still impossible to get all 140 employees to embrace them and change. Policies and procedures was not part of the cult.
- Configuring and adding inaccurate, corrupted data to our new automated systems poisoned the integrity of the information from day one.
- Teaching creative chefs and cooks how to be consistent, concise, and conscientious was like trying to teach a dog not to wag it’s tail.
We were too big, untrained, and ill-equipped to transition to automated, efficient, and profitable without creating chaos.
By the time we got our act together it was a day late and a dollar short. The restaurant achieved a positive operational cash flow, but could not cover the debt reduction payments from the initial capital investment.
We were in a circular that wouldn’t resolve. I could create a positive cash flow, but then we lost sales. When we grew sales, we were so crazy busy that our systems went out the window.
This was against my entire corporate upbringing and I knew was doomed.
Foundational Policies and Procedures Are Necessary Even For Small Businesses
Corporations are criticized for their bureaucracy and policies, and yes, for the most part they overdo it. But there has to be a middle ground.
Having been on both sides of the equation, the lesson for small business owners is:
- Start now. Don’t wait until you are big to begin to develop structure and systems.
- Determine the information you will need to manage a much larger business and start tracking it now.
- Write down the procedures, so that as people change, the processes and information will stay consistent.
- Concentrate on the most important systems and ensure consistency and integrity of execution.
- Check. Create reports and review systems to make sure that the systems and information are being maintained consistently.
Planning For Success
This is what I call planning for success. Setting your business up to support growth and success is much easier than trying to put it in place when you are busy and growing with little time to stop and develop infrastructure.
Without it, you will eventually hit an internal ceiling to your growth. I have experienced it personally and I have helped many small businesses course correct before it was too late.
There are many reasons why so many small businesses fail. Don’t let the reason be you!
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