Day Seventeen: Saturday November 17th, Variable Costs and Other Reasons To Jump Off The Fiscal Cliff
Been working on financials all day. Details get fuzzy and what was once the raison d’etre of why I decided to do this (ie. to bask year-round on a Caribbean island beach, with a pina colada as company) seems to lose a certain clarity. And looking at numbers all day is about as interesting as picking lint out of your bellybutton or as hair-raising as watching a car crash. I’m trying to get the pre-opening budget down to the penny- an impossible feat when I still don’t know what the menu will look like exactly. I know that bringing employees (especially kitchen staff) in during the last week before opening is a gamble, but I can’t afford to do it any other way. Between the Executive Chef (Shin Aoyama), Mrs. Moon, myself, and some Korean grandmothers from Mrs. Moon’s church, I am hoping that we can manage the menu ourselves…without any cost. I need to feel that Mrs. Moon’s church-going grandmothers are as capable as they are giving. I will meet with some of them tomorrow to work on staple items like kimchi flights, kimchi three-ways, kalbi and bulgogi. As for the cost of food itself, with two weeks away, my concern are with the perishable products, so best to just purchase exactly what we need to test for now.
These considerations aside, a great restaurant concept in a great location can only take you very far. None of it matters if the business is being improperly managed. This is true of any business, but when you throw in alcohol and an alluring social environment into the mix, things can fall off the rails pretty quickly. I refer to this phenomenon as UVC- “The Ultimate Variable Cost”. Of the many variable costs (controllable costs that shift with the rise or fall of revenue, like labour or food/beverage costs) that will determine whether you are in the black or red every month, this is the one that can potentially do you in. UVC drink away your profits, deceive stakeholders, blur the lines between work and play. The UVC can dissolve once-strong partnerships, cost money (and mortgages), and most importantly, jeopardize your dearest relationships. It’s about the failure of character and suspension of the very values that drive great companies. It happens when the going is good and, especially, when the going goes to hell. I know this from personal experience…
Moving on, there are other critical variable costs that have to be managed properly from the get-go. One of them is labour. With most people in the restaurant making minimum wage, it would appear that you didn’t have to think much about this expense. (Servers are paid $8.90 per hour in Ontario; the minimum wage for “general labourers”- including kitchen staff- is $10.25.) But no matter what, you still have to pay them minimum 3 hours worth of work even if they worked only 1. This forces owners to utilize their staff maximally. You have to work very hard to get the most out of your employees. Failure to do so means that it you are burning money that you don’t have. It will also highlight weakness in organizational skills which always hurts in the long run. I was thinking today about how to keep my current projected labour cost down to 25% of revenue by the end of the first fiscal year. That means that between Seoul Food and Yakitori Bar, I will need to generate over $22000.00 per week, which comes to $3142 per day, to hit that target. With my projected avg check between both restaurants during lunch at $9 per person (always before taxes and gratuities) and $24 per person during dinner (Yakitori Bar only), it means that, on average, I I will need 140 purchases during the day (until Seoul Food closes at 8pm) and 80 purchases during dinner (mostly at Yakitori Bar). No easy feat. Catering will be needed to carry a lot of the burden.
The other main variable cost is food/beverage. To offer a great value proposition to our guests, I will aim to hit 30% of revenue. Not everything will be marked up three times the cost of making it. For instance, I may charge $10 for a lamb yakitori plate that cost me $5 (50%) because I would like our guests to recognize its value. Other items, like kimchi poutine, might be priced at $7 when it only cost us $1.50 to make (21%). You want to move both proportionately to balance the scales a bit, but this is always a guessing game at the beginning…or Russian roulette.
So, without getting too much into detail (and pretending to be the accountant I am not), suffice it to say that I’ve been wanting to jump off a cliff today. Thankfully, there are none around my neighbourhood.