#1 Challenge: Not Having Enough Capital: Decrease Restaurant Overhead

Not Having Enough Capital
One of the biggest challenges a restaurant entrepreneur will have to overcome is capital, but particularly, a lack of it. Lacking an appropriate starting capital to run a business may bring a bigger negative impact in the long run. Essentially, business owners should see to it that there is a sufficient amount of resources to keep the business active until it can establish itself in the industry. But running a restaurant may demand much more than expected, so responding to unexpected cost increases should also be kept in mind for a smoother start.

Reducing Overhead Costs In Your Restaurant
Restaurants are big business operations that need an even bigger cost to run. The largest expenses on such business operations commonly go toward paying overhead costs. Take the time to review and monitor your business records regarding the costs in your rent, advertising, equipment, and utility bills. By looking for any cost-saving opportunities wherever possible, you can save and lower your expenses and improve profits in your establishment at the same time.

How To Reduce Overhead Costs
Most of the large expenses of your restaurant factor into the establishment’s fixed expenditures. Fortunately, there are some possible ways you can reduce overhead costs. You can start by negotiating with suppliers and landlords or opting for newer appliances. You will come to see that all these will have a big impact on your bottom line.
To reduce your restaurant overhead cost, take the following steps:
Monitor and record your restaurant’s overhead cost
Negotiate to lower the rent bill of the establishment
Save money on appliances and equipment where you can
Maintain smart practices to cut down your restaurant utility bill
Try out low budget business advertising ideas for your restaurant

What Is Overhead Cost?
Overhead cost refers to all ongoing expenses that come along with operating a business, such as building rents, restaurant utilities, business advertising, and salaries. Overhead costs only apply to costs that are not directly related to producing goods and services, so the costs dedicated to items such as ingredients and other raw materials do not fall under this category.

How To Calculate Overhead
A restaurant’s overhead cost is commonly calculated on a monthly basis, although you can also choose to calculate your overhead costs per day, week, or year. Once you have your records ordered and sorted out, you can begin making comparisons and considering important decisions to reduce that amount and save the most you can.

1. Keep a List of Your Business Expenses

To begin calculating your overhead for the month, you must start by creating a comprehensive list of all your expenses. A great trick is to keep the list in order by splitting it into general categories that include things like rent, taxes, salaries, utilities, equipment, administrative supplies, maintenance, and marketing. Then, simply add up all of these values to determine your overhead costs for the month. For more clarification, check out this example below:

Rick and Richard’s Pizzeria Overhead Costs – September 2020

Rent: $8,500
Taxes: $2,000
Salaries: $4,000
Equipment: $3,500
Utilities: $2,300
Repairs and Maintenance: $700
Advertising and Marketing: $300
Total Overhead Costs: $21,300

2. Determine Your Restaurant’s Profitability

Once you have your overhead for any given month, you can use it to formulate the profitability of your restaurant. One useful metric is your overhead as a percentage of your sales. You can use the following formula for calculation: Overhead / Total Monthly Sales x 100 = Overhead as a Percentage of Sales

If the percentage is below 35%, it’s a positive sign that your restaurant is running efficiently as it is, but if it’s anything above 35%, you should take a look at your expenses and start to consider business decisions to cut costs.

Regardless of your restaurant’s profitability, it is just as important to track your overhead costs on a regular basis. Many expenses, like rent and salaries, are mostly constant and will not lower down much over time, but some costs, such as utilities, repairs, and advertising, can change greatly in a short period of time. Keeping track of your restaurant overhead costs each month can give you a clearer statement about the progress of your business performance.

How To Lower Your Rent Bill
Rent is one of the largest monthly expenses for most restaurants. It can be difficult to bring a notable change to your bill, but there are still a few things that you can do to reduce restaurant overhead due by rent bills:

1. Renegotiate Your Lease

If your establishment is on a monthly lease agreement, you can talk and negotiate with your landlord about your lease contracts. Your business is a stable source of income for your landlord, so you may be able to come at a possible deal that works for you and your restaurant.

2. Sublease Your Restaurant Space

Subleasing your kitchen space is becoming a more popular and available option nowadays. Before work hours or later in the business day, you can choose to rent out your location as a commissary kitchen to other smaller businesses, like food trucks and catering companies, that need a space for food preparation.

You can also rent your space part-time to pop-up restaurants. These are business establishments that especially operate temporarily in parks, galleries, warehouses, and even private homes. Since pop-up restaurants operate in such locations, many times they tend to look for available kitchen spaces from another restaurant to prepare their food, which you can open for availability during your restaurant’s off-hours.

Save Money On Appliances And Supplies
Appliances and supplies are also a major cost in your restaurants, and maintaining a few old appliances can add thousands of dollars to your overhead. You can try the following tips and tricks:

Buy Newer Models – Many modern appliances feature energy-saving settings that may cost less than regularly repairing old appliances. You do not only save on repair costs but also on utility bills as well.

Choose Energy-Efficient Models – While energy-efficient appliances may be more expensive than any and most standard restaurant equipment, the money you will save on utilities, in the long run, will cover for the discrepancy.

Pick from the Scratch and Dent Section – You can find brand new equipment sold at affordable discounted prices because of minor scratches or dents. Such small damage doesn’t affect performance and customers won’t usually notice any of your back-of-house equipment.

Check Out Combination Ovens – Combi ovens have three unique cooking modes – convection, steam, and a combination of the two, which allows you to cook a variety of dishes all in one appliance. Because combi ovens feature a range of cooking options, you can replace several costly equipment and appliances, all with one purchase.

Try a Commercial Steamer – Commercial steamers allow you to steam your food anytime you wish with the push of a button. For establishments with limited cooking space like bistros and cafes, smaller models are also available, like microwave steamers, that do the same job while taking up much lesser space.

Add a Commercial Dishwasher – Depending on your usual number of dirty dishes, commercial dishwashers can serve to be a great investment. Dishwashers can replace some of your dishwashing staff as well, allowing you to reduce your employee salary and labor costs.
Try Sous Vide Cooking – The sous vide process involves vacuum sealing your food and boiling it at a set temperature. Because the temperature is regulated carefully, it doesn’t need to be constantly watched, allowing your staff to move and work on other tasks.

How To Lower Your Utility Bills
Using energy-saving appliances is an excellent way to save on utility costs, but some other steps are also available for you to cut those bills two-fold:

Thaw frozen food in the refrigerator rather than running it underwater.

Always turn off lights in areas that are not in use. You can further reduce your bills by opting for affordable energy-efficient lighting, like smart LED light bulbs.

Buy equipment like pre-rinse spray valves and faucet aerators that control the amount of water you use when washing the dishes in the station.

Only give your customers water if they request it. Wasted glasses of water when combined in a span of one month can add up to a notable amount.

Don’t overstock your supplies in fridges and walk-in coolers. These appliances work by circulating cool air, but if the fridge is too full, the air can’t circulate properly. This makes the machine work harder to maintain the cool temperature, costing your electric bills even more. Avoiding this practice can also help you reduce food waste and food costs.

Run and finish one large load in the dishwasher machine rather than doing several smaller loads in batches all throughout the day.
Turn off your dishwasher at night. Many high-temp dishwashers have a water tank with built-in heating settings that keep the water hot at all times.

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