.png)
I’m glad you’re here.
By deciding to access this free resource, you already have been searching for ways to be a more productive professional or business in the F&B Industry. Included in this article are 2 templates I regularly use for consulting projects. Before I get into the details of how these tools can help you build, manage and monitor your business better, I believe it is important to start with ‘why’.
This is not a fully comprehensive toolkit, but having these frameworks got me my breakthrough from a cook to a chef and eventually, a consultant and a business owner. This distillation of information came from more than a decade of trial and error. I want you to be as equipped as possible as you start on your next project.
So here are 3 Key Things You Need To Consider Before Starting F&B Businesses - A Free Starter Kit. Feel free to jump to the section that speaks to you.
Why Are You Embarking On This Daunting Journey?
If you’re embarking on your first business or have been a restaurant owner for a while, I am sure someone has told you that this is a brutal industry, or some statistics stating 8 out of 10 F&B businesses close within 5 years. Although it may not be entirely accurate, but the reality is not too far off.
If you are unfazed by the challenge, that means you have a calling within you that is too great to ignore. The Japanese Ikigai philosophy explains on a personal level on how we can achieve alignment. In this industry, we rely on a spectrum of professions to succeed and these professionals need to align with your purpose. That is why it is important for you to be able to articulate this clearly.
Today, 'people don’t buy what you do; they buy why you do it.’ - Simon Sinek. Strong clarity backed with effective communication will inspire 3 key stakeholders in a healthy business: investors, operators, customers.
In 2017 when I opened my Singaporean Soul Food Gastrobar (Provisions), it was entirely counter intuitive to my French culinary training. My purpose was straightforward, I wanted to elevate iconic Singaporean food from hawker fare to gastronomy.
This was well received because I was a Singaporean who brought a culinary approach that was fresh yet honoured traditions and memories of our childhoods. There were many other valuable lessons learnt through this journey which I intend to dig deeper into in the future.
The takeaway here: the concept you run is precious to you, but in the end it is the customers that put money in the till. Your ‘why’ has to be compelling enough for people to vote on your success with their dollar.
If this is your own business or you are consulting for someone, write down the ‘why’ or the objective and keep it to a couple sentences. Keep this vision and mission statement visible as you work through the next steps. You will naturally find out what you are going to sell once there is clarity no matter if it is a cafe, restaurant, bar or even a hawker.
The Big ‘How’
It Starts With The Menu.
Once you decide on your concept, the real fun begins - planning what goes on the menu. There are more ways than one to go about planning a food business, starting with the menu is a great place to make future decisions on location and staffing.
The menu is probably the most important touchpoint in the food business. A lot of what convinces people to pay for food depends on the proposition and price. Do not get tempted by aesthetic design now, focus on the actual product offerings.
Don’t Go Too Crazy, You Have To Make These Items Everyday.
A healthy menu size tops at 20 items that goes on modular rotation or adjustment periodically. In the early 2000s, I would recommend how many starters, mains, etc. to offer. Most concepts today no longer fit into those templates.
So here’s what I really recommend you doing, plan menus that are:
Delicious - for obvious reasons. Sell something you would want to eat/drink repeatedly even if they are experimental.
Have logical significance - these stories should align with your ‘why’.
Technically executable - Simple enough that you can make them yourself or manage it with the team you can afford.
Be As Accurate As You Can.
You should spend a lot of time developing your base recipes - this is your bible. Don’t be afraid of your recipes being stolen, there is an art to cooking that takes talent and time to master. If you find a cook or a chef who understands your recipes and executes them almost flawlessly, keep them.
I have never held back recipes from my team. This enabled me to unlock the team’s potential and grow together by building on operating models that allowed us to adhere to the concept yet push creative boundaries.
By lessening the burden to figure out a standard operating procedure, more time is spent on nurturing precious talent.
Consider What Goes Into The Bin.
In the template, there are markups on miscellaneous costs. This is important because you do not want to miss out on costs such as utilities and product trimmings. I find that a 10% markup on the base cost sufficiently covers unexpected loss of margins.
I know many seasoned professionals should know this, but if you are just starting out in the industry and intend to improve yourself, then knowing your margins is vital. When I was working in a fine dining restaurant, I was tasked to cut a bluefin tuna while it was partially frozen. I was daunted at the task but I was also racing the clock so I made a huge mistake.
Never fillet a frozen fish. This fish cost SGD$1,300, I left $300 of usable meat on the bones. Clearly, not every product is the same so you will have to account for every type of ingredient you are working with. The other way to work around it is to order in processed parts.
Managing margins is an ongoing process. I found that the easiest way to monitor this is just to look at what is being thrown away. Wastage is bad and that applies to everything, not just food.
Learn The Language of Business - Accounting
This entire segment can be a course of its own, what you see here only scratches the surface of accounting for your business. Knowing how to make sense of these numbers will help you work like a true professional who wants to make a business work, that’s because accounting is the language of business.
I have met many owners and F&B Directors who did not receive formal education on accounting. You do not necessarily have to spend time and money on a diploma or MBA in finance to be an effective business leader if you can read these performance dials of your business. If you took the route of vocational skills training, understanding these concepts will position you in favour of a promotion.
Generally, there are 2 perspectives when we look at P&Ls. Forecasting and monitoring. Forecasting is a planning phase that involves running a simulation of numbers while assuming viable targets are met. Sometimes when the business is already running, data from the past performance will be taken into account for the budget planning for next year, that can be called budgeting. Monitoring sounds self-explanatory, but there is an art to ensuring due diligence in bookkeeping without seeming to appear like a micromanager. We will focus on forecasting.
Now that you have a sense of your Costs Of Goods Sold (COGS), the next step is building a comprehensive dashboard for you and your stakeholders to be convinced. The graph below shows you in a nutshell the reality of what things cost if you’re based in Singapore.
If you are not at all daunted by how potentially slim profit margins can be, then let’s continue this crash course into Profit & Loss. Here are terms you will need to familiarise yourself with:
Revenue - Any money that goes into the till.
COGS - Cost Of Goods Sold (Already explained)
Staffing - How much you spend on staff.
Amortisation - Depreciation of big expenditure.
ODC - Other Direct Costs
GOP - Gross Operating Profit
This is a complex spreadsheet, but do not let it frighten you. I broke down my process into 3 parts. Pricing, Participation, Capital. For this exercise, I will make a plan for ‘My Dream Cafe’ with a period of 3 years. The set up cost for this concept is S$114,000 covering renovations, branding and equipment.
Pricing - Position Your Prices That Matches Your Concept.
In general, dine-in customers are familiar with food prices that are 3-4x of COGS and drink prices that are 4-5x COGS. That means a $10 sandwich should cost you about $2, a $5 coffee should cost you about $1.20.
This varies depending on the establishment you are running. We will stick to a cafe concept for context. Sometimes what you think people should pay is lower than what the market rate is but the location has a crowd that is ready to spend more. Not every price set is based on material cost, there is a value proposition to every concept and product. There will be a special course on pricing strategy later on.
There is a quick way to forecast with indicative prices. You simply have to do some research on your competition. Study the price points of the concepts that inspire you and do a deep dive into the neighbourhood you intend to set up shop in.
Once you have these numbers, fill up the ‘Menu Costing Table’ under the red ‘Menu Specs’ tab. I filled out a mock up menu with prices with a mock up competitor. Based on these mockups, we are assuming that this competitor doesn’t have an all-day menu programme. We are also assuming that it makes sense to meet this need in this neighbourhood. Setting the price higher also means that this cafe has to offer more value per dollar spent.
Participation - Have A Balance Between Optimism and Pessimism.
Make Realistic Assumptions On Who Will Turn Up.
The establishment’s maximum capacity is an arbitrary number. The common mistake most will make is to assume that there will always be paying customers on the seats. Against better judgement, there is a tendency to assume a full house because we are eager to earn back the amount spent on tables and chairs.
At this point you should look up and remind yourself of your ‘why’ statement. If your purpose is to deliver a customer-centric experientially-elevated cuisine, you probably will not run an all-day diner. You may only open for dinner.
When you have decided your operating hours, it’s good to look at your competitors who have been naturalised in the neighbourhood you intend to be. This may look like a 50% capacity on weekdays while weekends are booked for two rotations. We have a saying in the industry, ‘Your weekend revenue must cover your operating costs, weekdays are where you make money.’
During this phase of planning, I like to work nearby or in the establishments of the competition. Real-time data is very useful to make judgement calls. This is when you determine the average check of what is comfortable for the organic crowd.
In the example given, the cafe is planned for 50pax at maximum capacity. The real estate agent sold the tenancy as a 20,000 footfall average daily because it is close to a train station. After surveying, a more realistic number would be an average of 25 persons for lunch, 15 for tea time and 35 for dinner.
Test Your Menu.
Another common mistake people make is averaging the entire cost percentage to assume COGS%. If you have already gone this far, I would encourage you to take it one step further. It is important to know the actual cost based on what people will pick from your menu.
Take your mock up menu to as many people as you can find. Then ask them what they will order for brunch, lunch, tea time and dinner. This is also a good time to test effective menu creative design. You will find out two things: your actual food cost based on meal times and if your menu offers enough options and intrigue.
Sometimes you may find yourself having to go back to the drawing board with the menus. It is better to adjust things during the planning phase as compared to adjusting after you have started your business. I have seen many restaurants still holding stock of raw goods from an initial plan and eventually they end up in the bin.
Other than the above two things you will find out, this is a great time to test if the user interface and experience of your menu design. When prototyping, go with the lowest cost to produce. In today’s time, you probably will not need to design and print physical menus so spend more time in how customers will view your menu on their smartphones.
Capital - How Much Money Will You Need, How Long Will It Last?
As an owner or a manager, it is important that you look at costs and expenditure as investments. Profit means nothing without the context of its investments. $1 earned from a million dollar revenue with a cost of $999,999 is profit, but does it return you the financial and non-tangible value after doing all that work? I have seen loss making concepts sustained by other means just to maintain a brand presence.
I would like to return to why you decided to start a business in the first place. Did you build this business to be involved in the work daily or to scale quickly and make a quick buck by selling the business? Whatever the purpose, your concept needs money have a fighting chance against the marketplace.
On top of your set up costs, it is safe to have at least 6 months worth of operating costs in the bank. In my example, the operating cost of this concept is S$73k monthly. I will need S$438k in the bank for a peace of mind to tackle issues with optimisation as you run your business.
That may sound like a lot of money to raise for investments but this is necessary. Without the financial legs to run the long game, stress will eventually consume you and it will be difficult to stay objective as you make future decisions.
Where are people going to spend their money?
It is very easy to forget about putting ourselves in our customer's shoes. I made a mistake of taking up a spot because the rent was cheap - there was a reason for it being cheap. Looking back, I would be willing to pay twice as much for a more suitable location.
Do not believe any real estate agent when they boast about their footfall. Those numbers do not matter to you once you know your value proposition. If you are transitioning from a well-known online brand to the retail space, the considerations should serve your existing customers with enough blueprint to scale the continuous online sales.
The journey to your concept matters as much as the actual experience. Ultraviolet Shanghai only reveals the pickup point and keeps its destination secret, which works for them. Most mid-tiered to high-end restaurants tend to cluster in trendy spaces where spenders want to be seen. Affordable daily choices congregate where customers commute to daily - markets, train stations, heartland malls.
Rushing into signing a lease agreement will be unwise. Take the time to make the journey down by several means of transport and consider its costs. Observe the neighbourhood and its natives, be bold and ask if you are meeting a need. Most importantly, size up your competition versus your concept’s value proposition.
Conclusion
As owners and leaders of your businesses, you need to make informed decisions constantly. These spreadsheets are merely blueprints, dials and indicators. But when you understand the cold hard facts that numbers reveal, you will be able to tinker according to red flags raised instead of making reactive rash pivots.
I found it very useful in my career because more energy was spent on the human aspect of the businesses I was involved in. These spreadsheets revealed the problems but the real challenge is convincing teams to work more effectively or adjust habits. People make the business work.
This is why it is important to start with 'why'.
If you found this useful and would like to dive deeper, join our Discord Channel - The Altimate Network where you can connect with me and other professionals.
コメント