Restaurant owners everywhere let out a collective sigh of relief as pressures from the COVID-19 pandemic, and subsequent staffing challenges, have begun to let up. But while the economic symptoms of the pandemic have eased up for many restaurants, there are new concerns about the possibility of an upcoming recession and how it will affect restaurants.
While no one could’ve planned or prepared for the response to a global pandemic, time is on our side as it relates to a potential recession. It’s essential for restaurant owners and managers to take proactive steps now to prepare for the potential challenges ahead and ensure their businesses can weather the storm.
Here are some other steps that restaurant owners can take to be recession-ready:
- Review and optimize your menu: Analyze your menu and determine which items are the most profitable and which ones are underperforming in terms of sales volume or profitability. Don’t keep things on the menu that aren’t serving you and eliminate any items that require ingredients that often fluctuate in price. Also, review your food and beverage costs and identify opportunities to reduce costs without sacrificing quality.
- Cut unnecessary expenses: Take a hard look at your expenses and identify areas where you can cut back without impacting your business operations. For example, consider negotiating better rates with your suppliers or switching to more cost-effective products. Or look at your labor costs as a percentage of sales and consider cross-training employees to cut costs.
- Increase efficiency: Look for ways to streamline your operations and reduce waste. For example, consider implementing inventory management software or scheduling software to optimize labor costs.
- Enhance the customer experience: In a recession, customers are more likely to spend money on experiences that they perceive as valuable, and a good customer experience can go a long way in attracting people to your restaurant. Focus on enhancing the customer experience by providing exceptional service, improving the ambiance of your restaurant, and offering promotions to reward loyal customers.
- Diversify revenue streams: Consider diversifying your revenue streams by adding catering services, creating a loyalty program, or partnering with third-party delivery platforms. This can help you reach new customers, build customer loyalty, and help generate additional revenue streams.
- Build up cash reserves: In a recession, access to cash can be critical for survival. Consider building up your cash reserves by cutting unnecessary expenses and increasing efficiency.
- Keep an eye on debt: Try to pay down any outstanding debts as quickly as possible. Consider refinancing or consolidating your debt to lower interest rates and reduce your monthly payments.
- Stay informed: Stay up-to-date on the economic landscape and industry trends. Keep an eye on consumer spending patterns and adjust your business strategy accordingly.
By taking these steps, restaurant owners can prepare for a potential recession and position their business for success during economic downturns. Your Rea team can help you develop a plan – contact us today.
By Peggy Minnig, CPA (Lima Office)