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Managing expenses is easier than managing Revenues-P&L

A profit and loss statement is one of the most followed tools for measuring the financial performance of a unit in the majority of the Food and Beverage industry.

It simply has two parts, an upper one that breaks down the sales - -revenue of a restaurant / F&B Unit. In most cases, it includes but is not limited to (Food, Beverage, Tobacco, and miscellaneous components that contribute to the line of "Total sales".

The 2nd part of this statement details the expenses, starting with COGS (Cost of goods sold ), Labor cost, Rent, and other expenses which include a dozen different expenses that are under what is called operating expenses and that are direct expenses that are related directly to sales volumes in a way or another.

P&L starts at a unit level and in one complex entity such as a hotel's F&B operations a combined P&L for the whole F&B department will be the sum of all units' financial performance, and in cases of regional offices having units in different areas/regions, the combined P&L details the total performance of all units for each period of a financial year.

Usually a director / Head of F&B meets on a monthly basis with each unit's manager in order to discuss their financial performance in comparison to their budgets and in case figures are below budgeted revenues, an action plan will be asked from the respective manager.

Coming to our subject, when the performance of a unit / complex/regional office is declining Vs. last year's same month or Vs. the previous month, the first unintentional advice/order that goes naturally from management to their teams/unit heads is to start managing expenses,. they start asking their teams to reduce their spending and ask chefs to substitute ingredients with lower-cost ones, mostly start micro-managing each line that is under " Operating expenses which normally should be anything between 5-8% of total sales " before they start touching the line of "Labor cost which should be anything between 20-25% normally " and might stop hiring/replacing any staff that leaves, at extreme times they will start making some high salaries manager redundant and try to keep this expense line as low as possible. Wherever "Rent " expense is possible, this is when the leasing manager will start connecting with landlords to ask for rent reduction / Free-of-rent period options to keep their profit levels stable and avoid going into losses.

In most cases, the above is the path to controlling A P&L when sales are going down, instead of Giving priority to strategic solutions that could tackle the sales part of the business which is no doubt more difficult to manage than going to control expenses, but shall we ask the question why is it more difficult?

To understand the reason we need first to list most of the points that could lead to a possible decline in sales and here are some that come to my mind :

1- Increased competition - Indeed, we cannot control the fact that more competitors will come into the game which will result in the cake slices getting thinner.

2- Quality of offerings/service: Consistency is key for any entity to remain competitive and to gain the loyalty of its customers, the moment when products or services become inconsistent, this will result in sales decline as customers will no longer come back to visit your units.

3- Lack of management's knowledge and reaction towards market changes (changing dynamics, demographics, trends, customers spending power, etc...

4- National / International crisis - Pandemic, economy, instability, etc...

5- Outdated promotional plans, un-inviting environment such as a place that needs renovation, uncomfortable seating, etc...

6- Lifetime of a concept! very few pay attention to this point and consider refreshing their brands/concepts and they think if a concept is successful it has to grow sales YOY as a natural result of the concept's success, but in reality, it is not and major spending to refresh a brand/ concept is needed every couple of years ( before used to be 5-6 years but in our super competitive days it might be every 2-3 years ).

Looking at the 6 points above, we can see that the answer would be yes, it is easier to control expenses to keep our profit levels in line with budgeted ones as the alternative would be to spend time, money, and effort and plan correctly to resolve each of the reasons that lead to sales drop and increase sales again, but also we notice that in 90% of the cases to increase sales, it takes planning from top management / Owners and not to ask a restaurant manager / Unit manager to adjust the situation and find new plans to increase sales when sales is on continuous drop! I would say the 10% could be related to training staff & planning for attractive promotions whenever sales are dropping due to one of these reasons, but another reality is that few owners / corporate managements have proactive investment spending plans to keep their business performing better than competition as naturally they tend to expect sales to keep growing with the least investment/spending possible ...

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