Your P&L Is A Rearview Mirror, NOT A Windshield

Your P&L Is a Rearview Mirror, NOT your Windshield

Why Restaurant Operators Need Daily and Weekly Dashboards to Manage Profitability Before Month-End

By Jamie Galler | Restaurant Advisor

A restaurant's profit and loss statement is one of the most important management tools an owner has.

It tells you whether you made money. It shows where the money went. It allows you to compare food cost, labor, operating expenses and profitability against prior periods, budgets and expectations.

But a P&L has one significant limitation:

It tells you what already happened.

By the time you receive last month's financial statement, every sale has been rung, every employee has been paid, every case of food has been purchased and every dollar of waste has already occurred.

You can learn from it. You can't change it.

That's why I think of the P&L as a rearview mirror. You absolutely need to look at it—but you can't drive the restaurant by staring at it.

First Things First: You Need a P&L

Before talking about dashboards, there's a more fundamental issue.

Many independent restaurants don't produce an accurate, timely monthly P&L at all.

Some owners rely primarily on their bank balance. Others know sales and perhaps food and labor percentages but don't have a complete picture of whether the business is actually profitable. Still others receive financial statements so late that they're of little practical use.

If your restaurant doesn't produce a reliable monthly P&L, start there.

At a minimum, an owner needs to know how much revenue the restaurant generated, what it cost to produce those sales, how much was spent on labor, what other operating expenses were incurred and, ultimately, how much profit was left.

You can't manage a business indefinitely without knowing whether it's making money. But once you have a P&L, don't make the opposite mistake and wait for it to tell you how you're doing.

Your Dashboard Is the Canary in the Coal Mine

Coal miners once carried canaries underground because the birds could provide an early warning of dangerous gases before the miners themselves recognized the threat.

That's how I think about a good restaurant dashboard.

It should warn you that something is drifting off course while you still have time to do something about it.

Suppose your monthly P&L eventually shows that labor cost was three percentage points over target. That's useful information. But wouldn't you rather have known during the first week of the month?

Perhaps sales were below forecast but schedules weren't adjusted. Maybe overtime started creeping upward. Maybe managers weren't making appropriate cuts as business slowed. Maybe productivity was declining.

A weekly—or in some cases daily—dashboard can identify those trends before they become a month-end surprise.

The same principle applies throughout the restaurant: average check begins declining, comps start increasing, purchases are running ahead of sales, covers are down, waste is climbing or overtime is increasing.

These are signals. The objective is to see them early enough to respond.

Don't Build a Dashboard With 50 Numbers

Technology makes it easy to collect enormous amounts of restaurant data. That doesn't necessarily make the restaurant easier to manage.

A dashboard containing dozens of metrics can quickly become another report that nobody reads.

The objective isn't to measure everything. It's to identify the relatively small number of metrics that materially affect the performance of your restaurant and that management can actually influence.

• Sales

• Covers

• Average check

• Labor dollars and labor percentage

• Sales per labor hour

• Purchases

• Food cost

• Waste

• Comps and discounts

• Overtime

Some should be reviewed daily. Others make more sense weekly. The exact dashboard will differ from restaurant to restaurant. What matters is that the information is timely, understandable and actionable.

A Number Without a Target Is Like Playing Darts Without a Dartboard

There's another problem with many restaurant reports: they provide numbers without telling anyone what those numbers should be.

Suppose yesterday's labor cost was 31.2%. Is that good? Bad? Exactly where it should be?

Without a target, the number provides very little management direction.

It's like playing darts without a dartboard. You can throw all day, but you have no idea whether you're hitting the target.

Now suppose management knows the labor target is 28.5%. Suddenly 31.2% means something. You're 2.7 percentage points over target.

Now there's a management conversation to have: Why did we miss? Was sales lower than forecast? Did we schedule too many hours? Was there overtime? Did we fail to make cuts? Was training affecting productivity? Most importantly: what are we going to do differently today?

That's when reporting becomes management.

Actual → Target → Variance → Action

A useful dashboard should help management move through four steps:

Actual: What happened? Yesterday's average check was $42.10.

Target: What should have happened? Our goal was $44.00.

Variance: How far did we miss? We were $1.90 below target.

Action: What are we going to do about it? Perhaps managers review server sales by employee. Maybe beverage or appetizer sales are down. Perhaps the pre-shift meeting needs to focus on recommendations and suggestive selling.

A variance should create a conversation, and the conversation should lead to action.

Otherwise, you're simply collecting numbers.

This Is Also About Your Managers

In my last article, Beat Yesterday, I wrote about the ledger book I was handed when I took over my first restaurant—a Beefsteak Charlie's in Whitestone, Queens.

Inside were three years of daily sales, covers, average check and labor. Embossed on the cover were two words: BEAT YESTERDAY.

The lesson was simple: your managers should know the score. But knowing the score requires an owner to create a scoreboard.

If you expect managers to control labor, give them a labor target. If you expect them to grow average check, show them average check. If comps are a concern, measure and discuss comps. If sales are below plan, make the plan visible.

You can't hold people accountable for results they can't see—or targets they don't know exist.

Don't Wait Until the Month Is Over

A good financial management system doesn't choose between a P&L and an operating dashboard. You need both.

P&L: Did we make money?

Dashboard: Are we on track?

Targets: Where should we be?

Variance: Where are we off track?

Action: What are we going to do about it?

The P&L remains the ultimate financial scorecard. It tells you whether all those operating decisions ultimately produced the desired result.

But your daily and weekly dashboards give you the opportunity to influence that result while the month is still happening.

That's the difference between reporting performance and managing performance.

The Operator Challenge

Pick five numbers that materially affect the profitability of your restaurant.

• Do I know yesterday's or last week's result?

• Do I have a clear target for each one?

• Does my management team know the result and the target?

• When we're off target, do we know why—and take action?

If the answer to any of those questions is no, that's where I'd start.

Because your P&L may tell you where you've been. Your dashboard should help determine where you're going.

Want a clearer view of the numbers driving your restaurant's profitability?

The Practical Creative helps restaurant operators build practical measurement systems, identify performance gaps and turn operating data into measurable financial results. Schedule a complimentary discovery meeting at thepracticalcreative.com.