Controllable costs are simply those expenses that can be adjusted or “influenced” by someone. These are costs that can be increased or decreased based on individual business decision. For example, turning the lights off at night can control the cost of electricity. If the closing manager forgets, then the cost goes up. If they remember, then the cost stays down.
Generally, restaurants are businesses with high overhead costs and a high potential for waste. Their two biggest expense categories are labour, food and beverage. Food and beverage expenses are categorized on financial statements as the cost of sales.
Owners, operators, and managers are constantly re-evaluating their inventory purchasing strategy and menu pricing strategy to offset operational costs throughout the business. Some of these operational costs are uncontrollable – like rent increases, third – party delivery, or minimum wage increases – while some are entirely controllable.
However, for a cost to be considered controllable, the decision to incur it is meant to reside with one person. If the decision instead involves a number of individuals, then a cost is not controllable from the perspective of any one individual. Also, if a cost is imposed on an organization by a third party (such as taxes), this cost is not considered to be controllable.
Also note that cost can be uncontrollable at the low level of an organization, because a front-line manager does not have such authority to incur or stop the cost. However, a more senior manager might be given this authority. Therefore, it is possible for cost to be controllable at the higher levels of an organization and uncontrollable lower down. For instance, the decision to pay for employee training may reside with a restaurant owner and not with the manager, so the cost is controllable for the owner, but not for the restaurant manager.
Nonetheless, it is important for businesses, especially restaurants, to know the difference between their cost types. Note that by focusing more on controllable costs, they can proactively – and more quickly – react to the information that financial statements disclose.
Even though the financial statements of most restaurants do not present raw numbers, it is the organization’s financial scorecard. A financial statement that separates controllable costs from non – controllable costs gives management a clearer picture of the entity’s financial health. Such a statement also allows management to compare monthly or annual trends and quickly pinpoint any unusual patterns.
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Major Controllable Costs in a Restaurant and How to Reduce Them
As the name suggests, a controllable cost is an operational expenditure that can be reduced with some analysis, strategic thinking, and an overall proactive approach. Here are top controllable costs in a restaurant and how you can reduce them.
Food costs remain one of the top controllable costs in any restaurant. As a restaurant owner, you should be consistently analyzing and negotiating with vendors to ensure you’re getting the best price possible. Always have it in mind that vendors price tend to be vary per location. You could be spending big bucks on an inventory item at location A, but have it under control at location B. Coupled with vendor relationship management, teach the back of house – specifically your prep cooks – cutting and prepping techniques that keep food items fresher for longer, and maximize the amount of product that is going onto plates rather than into a compost bin or landfill.
Electricity is another huge and major hidden restaurant expense. Although you might be able to limit some wasteful habits and appliances, switching to a cheaper supplier is the easiest way to save. Many states allow you to shop around. Have it in mind that making this change will require that you make a hefty one – time time investment to research and do your homework, but it could save you as much as 10% of your energy costs.
Let’s say, for instance, that your monthly restaurant electricity bill is $1,000; you could be saving $1,200 annually by re – evaluating your electricity provider. If electricity is a big cost for your restaurant, it is imperative that you consider ways to manipulate the light in your space through conscious restaurant design. The right wall colours, counter surface materials, windows, and positioning of lamps and overhead lights throughout your space can maximize the amount of light without increasing costs.
Late fees, tickets, and fines
Have it in mind that fines are a classic example of drops in a bucket – one might not seem like a lot, but fees can add up and deplete the budget for other areas of the business quickly. Some examples of fees you may encounter as a restaurant owner or operator are:
- License and permit – related late fees
- Parking tickets for a restaurant van or delivery vehicle
- Loan payments
- Late fees stemming from a water, gas, or internet bill
- Noise complaints
- Fines for over – serving patrons
- Fines related to health code violations
However, you can strive to limit and potentially do away with fees altogether with a little organization, judicious planning, and staff training. Payments that result from poor business practices – like over-serving patrons or noise violations – can be avoided by staying compliant with local law, you just need to make sure everyone on staff knows, and follows, all the rules. Additionally, based on your list of potential or recurring restaurant fees and tickets, enter any recurring fee due dates in your calendar and schedule reminders that let you know when bills are due, to stay ahead of them. A few minutes of planning can save you hundreds of dollars.
High – tech solutions to old – fashioned problems – like theft and heating and cooling – are getting ever – cheaper and easier to deal with. Even though limiting electricity usage can be hard, one exception is installing a smart thermostat that lets you to track temperatures, schedule heating and cooling times, and make critical adjustments from your phone or computer. Electric thermostats help you spend way less on electricity while maintaining staff and customer happiness. In addition, now may be the ideal time to invest in a smart video camera.
It is also advisable you become upfront with your employees about where the cameras are — you don’t want them to feel that you’re spying on them. You do, though, want them to feel that you’re keeping a careful watch on what’s going on in your restaurant. And that’s going to be easy to do when you can peek at the footage at any time or place from your phone. Coupled with preventing theft, the cameras also help with disputes between customers and staff, or between employees. A quick look at the footage can remove the confusion from potentially costly disputes and legal action.
Also note those monitoring employee hours with the aim to eradicate early clock-ins is not about nickel – and – diming anyone: It is about making sure you treat all your employees fairly – without allowing anyone to indulge in a loophole that can breed resentment and take money out of another employee’s pay check. Have it in mind that it will also help you predict and plan for your labour costs; proactive action could mean big savings. Note that the “early clock-in” loophole can cost a restaurant over $500 per employee in a year. Let’s say an employee regularly clocks in 12 minutes before their shift begins: If you pay $15/hour, that’s $3, a day – or $15 per week –, $780 per year.
Note that investing in a labour scheduling and employee management tool – depending on the size of your restaurant(s) – that integrates with your restaurant point of sale is one unique way to checkmate this cost in your restaurant. The best point of sale solutions will have a clock – in enforcement feature that prevents staff from clocking in before their shift starts. Often times, you can configure this setting to prevent clock-ins 20, 15, 10, or even 5 minutes before a shift starts.
Also note that Restaurant scheduling tools comes with many other benefits: They save your data so you can learn which shift models work best, they also let you to input individual employee preferences (second jobs, requested time off) so that shifts are easier to schedule and more likely to work out, and, if they are cloud – based, employees can view their schedules from home and pick up and drop shifts at their leisure.
Note that you can reduce the risk of unexpected restaurant equipment failure by conducting maintenance regularly, which will help you notice problems before they become big, expensive, and date-night-destroying. Have it in mind that some equipment providers offer yearly maintenance packages. These yearly maintenance plans tend to operate at the local level, so you’ll have to do a little research to see what’s available in your area.
In addition, in the event that something does go wrong, you’ll know exactly who to call. Also note that the plan will likely cover much of the cost. Think of yearly maintenance as insurance on your restaurant equipment.
All these costs and the approaches explained above aren’t a set of magic fixes, and controllable costs will differ from restaurant to restaurant. Although food costs may be a top concern for some, electricity may be in the top spot for others. It is very crucial to focus on ways to reduce overhead in your restaurant by taking a proactive approach to optimizing controllable costs.