Restaurant Prime Cost can be described as the most critical number a restaurant owner should know to operate a profitable restaurant. Restaurant Prime cost should get extensive attention on the profit and loss statement because the category is highly volatile.
Today’s restaurant industry is faced with increasing labor wages and an explosion in food costs. These factors stress restaurant owners’ net profits because it’s expanding the Restaurant Prime Cost.
What is Restaurant Prime Cost?
The formula for Restaurant Prime Cost is: COGS + Total Labor = Prime Cost
Restaurant Prime Cost should be reviewed monthly and, at worst quarterly, to monitor any changes that can negatively affect the Profit and Loss statement. Many successful restaurant owners actually calculate and evaluate prime restaurant costs weekly.
Dallas Restaurant Broker Dominique Maddox says, “the first items I review on a profit and loss statement is the Cost of Good Sold “COGS” and the total labor cost total percentage cost. Prime cost should be 55%-65% or less (total sales)”.
Breakdown of Restaurant Prime Cost:
Cost of Goods Sold:
The cost of goods sold (COGS) in a restaurant includes the price of all products, materials, and condiments used to create a dish or drink.
Total Labor Cost:
Total labor cost includes employees’ wages and benefits. This category contains hourly employees, salaried employees, payroll taxes, and employee benefits.
Restaurant Broker Tips:
-Training managers to be proactive in monitoring food loss, employee scheduling, and comps.
– Provide proper training for new employees
– POS System and technology should be up to date with inventory count
-Increase food prices
-Review restaurant numbers weekly
-Owner/operator or General Manager operated
To learn more about EATS Broker consulting services or to receive a complimentary restaurant valuation, contact Dallas Restaurant Broker Dominique Maddox at 404-993-4448 or by email at firstname.lastname@example.org. Visit our website at www.EATSbroker.com.Read More
Every restaurant owner wants to know, how can I sell my restaurant fast? The art of selling a restaurant is different than selling a residential home. The element they have in common is both a restaurant and a home need preparation before hitting the market for sale.
When selling a home, you can usually expect an offer within 1-3 months before owners start to panic. The average time to sell a restaurant is 6-8 months. Restaurant Brokerage Firms will usually ask for a 6-10-month listing agreement, some companies will require a 12-month listing agreement.
Dominique Maddox an Atlanta Restaurant Broker and Founder of EATS Restaurant Brokers says, “ restaurants with good books and records, goodwill, and location sell the fastest. The best sellers to work with are the ones that prepared their restaurant to sell for the highest and best price.”
EATS Restaurant Brokers provides a checklist of the items to be prepared and available before listing restaurant for sale:
List of fixtures and equipment – only items owned by the seller. Fixtures belong to the landlord. Broken equipment should be repaired before listing for sale. Restaurant equipment that does not work should be removed from the building.
Three years of profit and loss statements– is one of the financial statements of a company and shows the company’s revenues and expenses during a particular period. Once a buyer has signed a non-disclosure and qualified financially, they want to see the financials for the restaurant.
Time kills deals and buyer enthusiasm towards buying a restaurant. One of the biggest mistakes a seller can do is list a restaurant for sale and not have financials available for buyer review.
Three years of Federal Income Tax Returns for the restaurant- the tax returns should be the same ones filed with the IRS. Banks will request a Form 4506-T, Request for Transcript of Tax Return before approving a buyer for a bank loan.
The original lease and lease-related documents- besides financing the lease can be one of the most complicated parts of selling or buying a restaurant. Some restaurant owners have never reviewed the language in the lease they signed.
It is important to have a copy of the original lease and other docs associated with the lease, available for buyer review.
A copy of the franchise disclosure document (FDD), if applicable- A franchise disclosure document is a legal document that is presented to prospective buyers of franchises in the pre-sale disclosure process in the United States.
Restaurants can sell quickly but the real fact is that restaurants will take 6-8 months to sell. To improve the odds of selling a restaurant quickly, restaurant owners should treat the restaurant like a home. Prepare the restaurant for the market, collect and gather all docs before hitting the market. Once you do find a ready, able, and willing buyer, all the docs needed for closing are available to share.
For more information on the restaurant market and other available consulting services or restaurant valuations, contact Dominique Maddox at 404-993-4448 or by email at email@example.com. Visit our website at www.EATSbrokers.com
People ask me all the time What is a Restaurant Broker? Restaurant Brokers are specialists trained to facilitate a restaurant transaction between sellers and buyers. On a daily basis Restaurant Brokers are working with professionals in the Restaurant Industry. Some Restaurant Brokers know the financials of a business better than the restaurant owners due to years of daily experience reviewing restaurant financial statements.
Unlike some brokers that sell everything from a dry cleaner, gas station, to an automobile shop, Restaurant Brokers deal exclusively with the restaurant industry.
Some of the beneficial services Restaurant Brokers offer buyers and sellers during the sales process include:
– Restaurant Brokers work on 100% commission and take their fee as commission out of the price agreed upon by seller and buyer. Broker and seller have a separate commission agreement signed. This means the benefit of the broker’s experience and knowledge without personal cost.
– Restaurant Brokers help the buyer client with analyzing the seller’s financials, collects sales tax filings, tax returns, leases, equipment list, utility providers, and does an introduction to the landlord for lease assignment.
– Every restaurant broker has a network of local vendors a buyer may need during the purchase process. These professional relationships were built over the years and help the buyer with a stress-free closing.
– A Restaurant Broker is a skilled professional who provides a restaurant price valuation based on the financials provided by the sellers. Restaurant Brokers know the guidelines for qualifying business for bank lending to help sellers get the most for the business.
– A Restaurant Broker is skilled in negotiation and document handling. Restaurant negotiations are complex, a Restaurant Broker can negotiate an agreement that works for everyone.
– Selling a restaurant can be a process that takes 6-9 months, the whole time a Restaurant Broker is screening buyers, pre-qualifying buyers, answering questions about your business to buyers, and marketing your business.
-Most importantly a Restaurant Broker only gets paid at the closing table when the business is sold. The commission ranges from 10%-15%, but the broker puts up all the money to market the business, spends the time with buyers, and only gets paid once the deal is closed. For the seller, this is professional representation without putting upfront fees!
A Restaurant Broker is a professional that can help you buy a restaurant, sell a restaurant, or lease a restaurant at a price you can afford.
EATS Broker is a full-service Real Estate Business brokerage practice focused on the restaurant industry. The company specializes in selling Restaurant Franchise Resales and Restaurant Sales. We also help clients with Restaurant real estate site selection, Tenant Representation, Franchise Consulting, and Business Price Evaluation.
For more information on the restaurant market and other available consulting services or restaurant valuations, contact Dominique Maddox at 404-993-4448 or by email at firstname.lastname@example.org. Visit our website at www.EATSbroker.com