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How to Operate A Restaurant

Food sales in the restaurant industry reached over 17 billion dollars in 1958. This represents a sales increase of more than 40 per cent since 1950. 

Despite this growing trend for eating out and a steadily expanding sales volume, the mortality rate in the food service industry is extremely high. One investigation after another has shown that from one-fourth to one-third of the restaurants that begin their existence in any one year were out of business by the end of that year.

What are the causes for failure? This question was asked of many highly successful food service organizations and operators in the country. Invariably they replied that a restaurant operator will fail unless he has a thorough knowledge of food. 

He should be able to design a profitable menu pattern, to purchase, receive, store, prepare, and serve each menu item in such a manner that he maximizes his profits and the satisfaction of his guests. 

He must understand and be able to control himself and his relationship with employees, customers, dealers and the community. 

He must have a knowledge of management, administration, organization, supervision, controls, accounting procedures, pricing, promotion, contracts and insurance protection. 

He should be aware of changing regulations concerning possible union tactics, food, health, wages, taxation, shifts in consumption income levels, population and costs, relocation of business areas and changes in competition.

Consequently, the significant causes for failure are:

1. Inadequate knowledge of food.
2. No understanding of people.
3. Inexperience and no knowledge of business.
4. Little awareness of a constantly changing environment.

Conversely, to succeed in this field the food service operator must be able systematically to control, forecast and budget food, labor, beverage, rent depreciation, and other operating costs, to promote his sales, to maintain good human and public relations, and to keep one step ahead of his changing environment.

Preliminary investigation showed that there is no single restaurant business or type of unit that is representative of the entire industry. Each food service operation has different problems requiring management decisions that occasionally vary constantly and provide different expectations of profit.

Because of this diversification there is no single idea or formula that can guarantee the highest profit for all operations. 

However, since food service units have the same basic problems of housing their physical equipment, purchasing, storing, preparing and merchandising their food, selecting, training and motivating a productive labor force, many of their basic problems have common principles from which correct solutions can be evolved.

This book represents the distillation of experience and knowledge of many owners and managers successfully running all types of operations: from drive-ins and diners to service restaurants, cafeterias and inplant feeding units, with sales volumes ranging from $80,000 annually to $1,700,000 a unit, located throughout the nation from Maine to Florida and across to Washington and California. 

To these restaurateurs and to the restaurant industry as a whole this book is respectfully dedicated.

CONTENTS

PREFACE iii

Chapter
I. THE RESTAURANT BUSINESS 

History of restaurants. Classification and size of the restaurant industry. Nature of the business. Kinds of restaurants. Requirements of the business. Restaurant profits.

II. LOCATION 13

Importance of a good location. Analysis of proper location in terms of the operator and his personal requirements. Analysis of communities, neighborhood. Traffic and its effect on location. The relationship of expected profits and investment to location. Competition. Cost and characteristics of the site. The value of diligence and patience.

III. SHOULD YOU BUY OR BUILD? 20

Advantages of building. Disadvantages of building. The advantages of buying. Disadvantages of buying. Three major considerations to think about before buying. Tax considerations in buying, leasing or trading. Determination of purchase price. Valuation of assets. Tax savings check list.

IV. WHICH FORM OF ORGANIZATION IS BEST FOR YOU? 31

Size importance, and relative potential sales of existing restaurant organizations. Individual ownership—definition, organizational procedure, partnership agreements, advantages and disadvantages. Corporation—definition organizational procedure, advantages, and disadvantages. Three rules for profitable decision.

V. THE PURPOSE AND USE OF CREDIT AND CREDIT INSTRUMENTS

 Basis of credit. Classification of credit. Credit instruments. Negotiable instruments. Promissory notes. Bills of exchange. Classification of drafts. Recommendations regarding use of credit instruments. Leases—definition, basis of validity, types, contents and check points. Mortgages—definition, definition of terms, deeds, major classifications. Check list of important considerations.

VI. HOW AND WHERE TO OBTAIN CAPITAL 58

Classification of capital. Four general sources of capital. Banking services. The bankers point of view. Basis of a loan. Use of financial statements. Use of collateral. Importance of looking ahead. Selection of a bank—progressiveness of the banker, the banker's approach to your problem, availability of credit, size, managerial policies. Sources in the Federal Government. Small Business Administration. The Federal Reserve System. Federal Housing Administration. Veterans Administration.

VII. HOW TO SELECT FOOD SERVICE EQUIPMENT 78

Reasons for failures in the industry. The problem of proper selection regarding number, size and type of equipment. Method used for accurate determination of equipment needs' 17 factors for analyzing comparative efficiency of equipment. Productions Capacities of Equipment. Miscellaneous light equipment utensils and ware. Minimum requirements for miscellaneous items.

VIII. LAYOUT YOUR RESTAURANT FOR PROFIT 102

Value of a well planned layout. The problem of spare allocation to dining room and kitchen areas. Opinions of other consultants. The basic menu pattern as a major tool of analysis. Use of templates. Factors to consider in location of equipment within departments. Basic factor determining the location of departmental areas. The solution to traffic problems in the kitchen and dining room areas. Space requirements for the dining room. Determination of seating capacity in a cafeteria. Determination of seating capacity in a table service operation. The relationship of departmental function to departmental location.

IX. HOW TO PROTECT YOURSELF WITH INSURANCE 115

Three general classifications of protection. First group—mandatory protection, second and third group—selective protection. Description of protection offered by various type coverages 3-D, building, contents, fine arts, auto, rent and rental value, boiler, business interruption, extra expenses, engine breakage, electrical machinery, floater, sprinkler breakage and others. Protection, development and requirements of workmen's compensation laws. Variations in cost and benefits. Accidents and Health insurance— description, classifications and protection offered. The co-insurance clause. How to reduce insurance costs. Factors to consider in securing complete protection.


X. RESTAURANT PROMOTION AND ADVERTISING 126

What is promotion and advertising? Establishing a personality-atmosphere. Trademarks and themes. Upgrading the menu. Making the menu fit your restaurant. Giving the children something special. Successful promotion ideas. Effective advertising. How to capitalize on publicity. Putting motivation research to work. Identification of market. Summary.

XI. PERSONNEL ORGANIZATION 142

History of personnel organization. Changes in organization. Organization in manager-owner operations. Chains and their influence on organization. Restaurant jobs. Disadvantages of restrictive job titles. Uses of the inverted organizational chart. How to organize. Flexibility in departmentalization.

XII. LABOR COST 151

Labor cost and its relationship to survival. Two major considerations in control of personnel. Theory of labor cost control. Eight basic reasons for high labor costs. Six basic steps for effective labor cost control. Management's goal is profit. Employer recruitment and selection.

XIII. TRAINING EMPLOYEES 169

Training in the past. Management's responsibility for training. Kinds of training, if you are going to train. Levels of learning. Approach to training. Presentation of job skills. Training pointers. How to make a job breakdown. Training with pictures, training films. Teach more than the job. Summary.

XIV. HOW TO CONTROL AND MANAGE INDIVIDUALS 182

Human relations in Management. Motivating employees to do their work effectively. How to gain respect of employees. How not to gain their resentment.

XV. MENU PLANNING AND PURCHASING 189

Importance of food in successful operations. Planning a menu. Sales analysis. Cycle menus. Popularity index. Other cost considerations in menu planning. Three aspects of purchasing. Knowing your needs. What about pre-portioned pre-packaged items? How much should be purchased? Planning your ordering and receiving. Purchasing procedures. Purchasing forms.

XVI. RECEIVING AND STORING FOOD 200

Duties of storeroom men and stewards. Requirements of a storeroom man. Kickbacks in the industry. Importance of careful receiving. Procedure in receiving. Credit memorandum. Storage of food. Proper refrigeration temperatures. Storing of staples and dry goods. Summary.


XVII. RESTAURANT STANDARDS 206

What are "standards"? Types of standards. Use of standards. Setting standards for your operation. Flexibility of standards. Standard setting and leadership.

XVIII. CONTROL OF FOOD COSTS 211

Development of food cost control systems. Advantages and disadvantages of various food cost control systems. Seventy-five basic causes of high food costs. Reasons for restaurant failures. Problems of food cost.

XIX. THE PROFIT AND LOSS STATEMENT 220

Definition and purpose. Abuse of purpose. Three basic rules to increase the usefulness of financial statements. Explanation of format. Analysis of format. Determination of departmental productivity. Gross profit analysis. Departmental performance standards. Bar standards. Payroll standards. Use of percentages. Management index of effectiveness.

XX. LET YOUR PROFIT AND LOSS STATEMENT WORK FOR YOU 228

Importance and problems of planned expense programs. The break-even point—definition, formula for determining, problems of accurate determination, use of the profit and loss statement for determining break-even points, graphic analysis, increased cost variations, increased sales valuations, purchasing or building an operation.

XXI. THE DYNAMICS OF ACCOUNTING 238

History and evolution. Evaluation and misunderstanding. The purpose of this chapter. The accounting cycle. The journal. The ledger. Number of journals and ledgers needed. The trial balance. Debits and credits. The balance sheet. The profit and loss statement. Balance sheet.

XXII. SIMPLIFIED RECORDS FOR INCOME TAX CONTROLS 248

Purpose of this chapter. Flexibility and basic requirements of an accounting system. The journal. Posting to the ledger. Advantages of multi-column journals. Design of the multi-column journal. Test of accuracy. Installation of the multi-column journal. Analysis of format. Posting to the ledger. Explanation of some entries. Depreciation. Trial balance. Profit and loss statement. Balance sheet.

XXIII. WHAT OF THE FUTURE? 262

More people will eat in restaurants. Types of food services operations. Location of restaurants. Number of restaurants. More pre-prepared, portioned, convenience foods. Faster, better equipment. Automation. Centralized purchasing. Labor cost to increase. Imagination still at a premium.

INDEX 275