Understand Your Business’s Ratios

Know your numbers and ratios

Know your numbers and ratiosEarlier this week, I talked about knowing your numbers. The key to knowing your numbers is having good ratios that tell you how your business performs relative to your sales.

 

I believe in having strong budgets that tell your money where it is going before you spend it. A budget is created based on past experience and how your numbers have performed in the past.

 

However, sales and performance are not always predictable. So having your ratios set up help you to know if your expenses are in control and appropriate for your sales.

 

First, make every expense a percent of your total sales. While reviewing these ratios, determine what the ratio SHOULD be. Next (this is the hardest part) make a plan to get that ratio into the right range.

 

A quick example: in most restaurants, the food cost as a percentage of sales should be about 33%. If your food cost is around 40%, then there are several factors to investigate. There is spoilage (buying too much and not selling it before it goes bad), portion control, your pricing is too low, complimentary meals, theft, etc.

 

You can’t fix it if you don’t know there is a problem. . . .

 

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