Forming an LLC is the legal entity choice of many restaurant owners and for a good reason. This guide will tell you in simple language what you need to know about choosing an LLC business structure for your restaurant; the strengths and weaknesses, the steps to file for an LLC and how to make sure that an LLC is the best legal business structure for your restaurant. Whether a startup or sole proprietorship, if you're looking for increased liability protection before you decide to form a Limited Liability Company, get up to speed with this extensive and easy to understand guide.
How to Choose Your Restaurant’s Hours
There are three ways to approach setting hours; each has additional factors. You should look at the problem from every angle to make a decision that’s best for your restaurant business.
If you’re looking for a place to start developing an idea about restaurant hours you can go with your gut. However, please back up your intuition with facts before doing anything that costs money!
Stakeout - An important part of your location research before signing a lease is to do an old-fashioned stakeout. Watch the street all day and take account of how many people are there and at what times. Do this for a few different days. Try over the course of the year to get a sense of the flow. Set restaurant hours of operation to match the flow of people.
Formulate a theory and chat up other restaurant owners in the area to use as a sounding-board. “I noticed that most people are in the area between 4:30 PM and 7 PM, is that when you’re busiest?”
Customer feedback - If the restaurant is already open, maybe you’ve seen people tugging on the door an hour or two before service? How about guests saying “These soups are so good, it would be great if you served lunch too!” Maybe that’s the start of considering some new hours.
Seasonality - If business consistently drops off early during the winter, the extra utilities and labor cost of staying open just may not be worth it. Likewise, if people flock to the area during a season, you’ve got to take advantage of it! Look at what other restaurants are doing in the area and take a cue.
Additional Indicators - Don’t forget to look online, read comments and feedback left for your restaurant if you’re open as well as for other restaurants. If you haven’t opened the restaurant yet, do you see anyone complaining about not enough quality places open during certain hours? It’s so important to do research on people’s opinions!
Your restaurant concept will determine restaurant hours of operation because, in order to have a concept, you need to have some grasp on the following, each one will influence your hours.
Type of service - Counter service or sit down? The type of service you choose determines how many guests you can serve during operating hours.
Menu - What type of food do you plan to serve? Hopefully, you’ve done a lot of research on food costs and profitability, as well as negotiations with suppliers to get the best food costs. The type of food and drinks your menu is built on will have an influence what the most appropriate hours for service are. What? No shrimp cocktails for break
Chef - The menu should be a reflection of the best that your chef has to offer. Leveraging their skill as well as making food that brings joy to your chef’s heart helps develop a long and healthy business relationship. If your chef is amazing at pastry and desserts maybe breakfast and dinner are the best meals to serve? Consider the cuisine your chef is most experienced in and build a concept around it, including hours.
Location - Your location dictates many aspects regarding hours including seasonality, laws and zoning regulations, how much prep space you have and of course, the people nearby. When you are choosing a location, make sure you do so with a goal in mind. Part of that goal is having an understanding of the type of food you want to serve and the best hours in which to capture your target customer’s attention.
Target Customer - While all of these factors are inter-related, at some point, you’ll get a clear picture in your head about who your target customer is. And really, that’s what it’s all about. Serving the needs of your target customer largely determines everything about your restaurant concept, especially the hours of operation.
I may be looking for a Latin nightclub atmosphere at 3:30 PM, that also serves waffles, but I doubt anyone else is. Along with menu, type of service, and location keep your hours of operation consistent with the expectations of your target customer!
Use Accounting to Set Restaurant Hours
Cash Flow - The saying goes, it takes money to make money, and it’s true. When you understand how cash availability works, one of the things you have to account for is how much cash it takes to make more money. Before you start thinking about opening for longer hours, you need to know if you have enough cash to make it work.
Variable Cost Per Unit - By understanding the variable costs per unit sold, you know how much additional cash you need to have on hand to extend service.
- Divide the variable cost by the number of units sold to determine the variable cost per unit.
- Multiply the variable cost per unit by the number of expected guests.
- This is your extended service variable cost.
- The difference between the current service variable cost and the extended service variable cost is how much additional cash you must invest to extend service hours.
Opportunity Cost - To know if service is profitable or you should stay open or closed during a period, you need to know the service breakeven point and the cost of expanding service.
- To determine the fixed costs of being open for the day, add up all your monthly fixed costs from rent to, payments on equipment and more.
- Fixed costs are those that remain stable from day to day, month to month.
- Additionally, fixed costs are not dependent on the number of sales you do. Whether you sell once slice of pie or 25, your rent will be the same, because it is a fixed cost.
- Add up all the fixed costs for the restaurant and Divide that number by the number of days in the month.
- This is the daily fixed cost of owning the restaurant.
- You have to pay this amount even if you’re closed all day.
Variable costs are dependant on how much business the restaurant is doing and when it’s open. In other words, the more you sell, the higher these costs are.
- The cost of food, labor, gas to run the stoves, electricity to keep the lights on.
- Bills that go up or down depending on how much you use.
When the total variable costs for the day are subtracted from the day’s sales, the remaining value is the average contribution margin for all the items sold.
- Although a restaurant’s kitchen is manufacturing goods, it’s not a factory making widgets. Every plate will probably have a different specific contribution margin, but this formula gives you an average.
- In other words, the money you make selling another plate after the variable costs are subtracted, gives you the item’s contribution margin.
It’s important to understand the tipping point between when the restaurant is paying for costs and begins to turn a profit.
Breakeven - Where profit meets the fixed cost average for the period, you’ve achieved breakeven.
ROI - After you have covered costs, you begin to earn a return on your investment. This is the restaurant’s profit.
Number of Guests to Serve - To determine how many guests you need to serve to break even, follow this formula:
- Project average ticket per cover
- Subtract variable costs from the ticket; the remainder is the average contribution margin per guest.
- Determine fixed costs for the period (day or service)
- Divide fixed costs for the period by the average contribution margin per guest
- This is the number of guests you need to serve to break even.
When it comes to choosing your restaurant hours, you want to make an informed and careful decision. Additional hours naturally mean increased the risk to capital, but if you use your intuition, consider the advice of those more experienced than you and know the numbers behind costs and profits in the restaurant, you can make an informed choice about what hours your restaurant should serve.