As the millennium neared, however, the family steakhouse chain encountered hard times, including a 1996 bankruptcy. The company shuttered stores and downsized operations to about 15 percent of its height.
In 2005, Pacific Equity Partners purchased the concept. Within two years, Pacific was seeking a credible buyer for the fledgling concept. Overvalued and in a downward trending economy, buyers stayed away.
By the time Kerry Kramp became Sizzler USA’s CEO in 2008, the company had endured years of financial losses and sagging consumer interest. The future seemed bleak, but Kramp stood determined to spark a turnaround.
Slowly, the new CEO began carrying out the brand’s rebirth. He spearheaded the redesign of stores, introduced new menu and operational features, and, perhaps most critical, instituted a number of best practices to push Sizzler toward more stable financial footing.
“It took two years to clean up the balance sheet, but we got it done,” Kramp says.
California-based Sizzler now has cash in the bank and momentum behind it, characterized by double-digit sales gains since 2008.
For Kramp and so many restaurant leaders, seeking smarter ways to manage costs, save money, boost on-hand cash, and access capital is imperative for a healthy restaurant. It’s true in any climate, but particularly the present, wherein rising expenses and stagnant traffic threaten to derail those who ignore finances.
“We can never stop talking about ways to improve our model and make it a more financially sound business,” says Chris Elliott, the CEO of Tampa-based Beef ‘O’ Brady’s, a family sports restaurant with 215 outlets spread across 22 states.
Indeed, wise leaders across the restaurant spectrum adopt Elliott’s mantra, making a mix of store-level tactical decisions as well as macro-view financial determinations to ensure a healthy bottom line.
As a cash flow-based business, so many restaurants operate hand-to-mouth. Taxed with any number of daily tasks and extinguishing fires big and small, it can be challenging for restaurant operators to dig into the financials and assess money’s entrance and exit from the restaurant’s books. Yet, many argue, this is the essential financial move for independents as well as chains.
James McGehee, a former CFO at three restaurant groups, says smart restaurateurs carefully track key metrics, such as food and labor costs, particularly as a percentage of sales, as well as occupancy charges and operating expenses. The ideal store-level cash flow sits around 20 percent.
McGehee says understanding these key numbers can help operators better grasp an eatery’s productivity. He advises: Read the numbers and pivot as necessary.
“The people who do well adjust quickly, changing staffing or purchasing habits constantly to account for the current data they’re reviewing,” says McGehee, who now heads the financial practice at Results thru Strategy, a restaurant consultancy group based in Charlotte, North Carolina.
When Elliott took the reins of Beef ‘O’ Brady’s in mid-2010, one of his first decisions was to install a back-of-the-house management system in restaurants. Now present in over half of Beef ‘O’ Brady’s 215 outlets, operators access data detailing food and labor costs and spotlighting strengths as well as flaws.
“With thorough data, you can go from running your business out of a checkbook to fine-tuning every line of the profit-and-loss statement to maximize profit,” Elliott says. “If you don’t do this, I’m afraid you’re leaving money on the table.”
In adjusting to the numbers and looking to dispense capital more effectively, many operators turn to a leaner workforce, which includes cross-training staff members.
At Grub, an independent eatery in Hollywood, California, co-owners Denise DeCarlo and Betty Fraser trained one of the restaurant’s part-time, lower-skilled employees in food preparation as a back-up measure. During busy times, the restaurant saves in overtime costs that would otherwise be devoted to one of the higher-paid kitchen workers.
“This not only helps with payroll, but provides one of our employees with a new skill,” Fraser says.
The cross-training concept can just as easily be applied to management.
At Beef ‘O’ Brady’s 27-person corporate office, most employees wear multiple hats. The chief development officer, a trained chef with an MBA from Duke University, runs the company’s product development as well as its purchasing. The chief operating officer is both the company’s point-of-sale expert as well as its information technology guru.
“This provides such efficiencies in overhead and gives us the ability to put our money elsewhere,” Elliott says.
To empower and involve staff, says Anna Eddy, an operations expert with Results thru Strategy, operators should provide staff a glimpse of the financial numbers and the restaurant’s goals. By then connecting the restaurant’s profitability to staff members’ lives, operators can gain valuable insight into cost-saving measures and efficiencies.
In one such instance Eddy encountered, an operator asked his kitchen staff about potential improvements. One staff member mentioned wasted bread, as it was the vendor who was controlling the product’s rotation and often disposing of bread well before necessary. By bringing that effort in-house, the operator saved money without sacrificing quality.
“It’s unbelievable what some of the staff will come up with,” Eddy says.
As another money-saving measure, many operators adopt a simple idea: ask.
From garbage collection to food costs, Kramp believes in asking questions about expenses, albeit in a way that creates collaboration rather than defensiveness.
As surging food costs remain a significant source of frustration and expense for restaurant operators, many start there. Fortunately, manufacturers and distributors have largely responded to the operators’ plight with increasingly collaborative efforts.
Ask vendors how they can help reduce costs, streamline delivery, or create new menu opportunities, perhaps those with more favorable commodity costs. Ask if rebate programs are available.
Don’t ask, don’t get, says Ron Green, founder of Another Broken Egg Café, a growing Louisiana-based chain with 18 restaurants across seven states. Green’s tactful questioning has lowered Another Broken Egg’s expenses with key vendor partners, including Sysco and Coca-Cola, as well as the company’s produce providers.
“It’s important to let your partners know where you’re at and what you need to be productive,” Green says, noting that his coffee vendor of 15 years has responded to his diplomatic and sensible requests time and again.
The inquiry should just as often be self-directed, particularly when it comes to return on investment. Sizzler’s Kramp believes wise operators prioritize projects and critically analyze the checks they’re writing.
“Always run through the ROI and take every dollar to be precious,” Kramp says. “Ask yourself: If I’m going to spend this dollar, am I getting the appropriate payback?”
As an added cost-savings measure, operators should look at real estate. Given the tumult in commercial real estate, many landlords are eager to keep tenants and more open than ever to renegotiating leases. For an operator in a shopping center or multi-tenant property, operators can highlight the traffic they bring to the center, which offers negotiating leverage or provokes deals, such as a landlord assist on a remodel.
“But you can’t bluff it because a savvy landlord may ask for your financials,” says Ed Levine, CEO of California-based Vine Solutions, which provides financial advisory services to restaurants. “If you can make the argument that more balanced real estate can put you in the black, then you have a solid argument.”
In many leases, Levine adds, a tenant can request a financial audit of the landlord’s insurance, tax, and common area maintenance fees. As property values have declined in spots across the country, urging landlords to challenge property taxes can produce cost savings.
“You certainly have the right to examine if the landlord is using money wisely,” Levine says, adding that a cost-scrutinizing tenant helps to breed a more transparent landlord.
Additionally for renters, Levine says now might also be a good time to investigate purchasing the building. With real estate costs down in most spots and the Small Business Administration offering a number of attractive financing options for property purchases, restaurants can make a long-term play to diversify their income and eliminate the controlling thumb of a landlord, who often wishes to pass along every expense to a tenant.
“Buying the property won’t offer any short-term help to your cash flow, but it’s a smart long-term play,” Levine says.
Of course, a property purchase will generally demand excess capital and, in many instances, a loan.
In any economic climate, banks view restaurants as risky ventures. On the heels of a recession, traditional banks’ trepidation has only escalated. Yet banks remain the most commonly targeted source of capital for many loan-seeking operators — and the most finicky partners for even the most qualified candidates.
In seeking loans — whether to buy property, renovate, add new equipment, or gather working capital — financially savvy operators adopt two key principles: turning to alternative lending sources and opening as many financing doors as possible.
Microlenders, or community development financial institutions (CDFIs), are gaining attention from many operators needing up to $250,000. Many of these nonprofit entities, often well linked to a region’s Small Business Development Center (SBDC), are filling the role that banks historically played.
Claudia Viek, CEO of the California Association for Micro Enterprise Opportunity, says traditional banks have all but stopped lending amounts under $250,000 to small businesses regardless of their credentials.
“So if a restaurant needs $100,000 for a remodel or to buy new equipment, they should consider the nonprofit lenders in their community,” Viek says. “CDFIs usually have more flexibility with their collateral requirements and offer reasonable terms, [though] businesses still need to show positive cash flows.”
As an added benefit, many of the CDFIs also provide small-business coaching and other professional resources—legal, accounting, and marketing among others—to further spur economic development in a given community. From this, operators can gain additional cost savings.
As Dane Boryta and his wife, Liz Ferro, worked to open their San Francisco eatery, Bottle Cap, last summer, the couple’s own personal savings and contributions from family were enough to purchase the property and outfit the space. Still, the couple needed an additional $100,000 in start-up funds for operating, inventory, and equipment.
After being turned down by a traditional bank, Boryta began looking for funding in a variety of corners. He first began working with Safe-Bidco, a California-based small business assistance fund. Simultaneously, he turned to his local SBDC, which quickly led him to Valley Economic Development Center, a nearby CDFI.
Boryta counts his decision to pursue multiple lenders as one of his wisest moves.
“If you only rely on one source and it doesn’t come through, then you’re jeopardizing the whole operation and your dream,” Boryta says.
As each lender has unique stipulations, terms, interest rates, and timelines, Boryta believes opening up multiple financing doors allowed him to pick the lender best suited for his needs and vision.
“If these lenders don’t act within your time frame, then it just ends up costing you more money,” he says. “