Every business — whether a restaurant, bar, or other food service entity — has the same basic need to track profit and loss, manage employees and wages, and control expenses. It’s a big job for any owner, and if you don’t know the language, that job gets even more challenging. Here are ten business terms defined that will help you navigate the waters of your restaurant’s financial success.
Broadly, to amortize means to spread over a long period of time. In business, this can refer to spreading payments out over an extended period of time (usually years) as with a loan; or spreading the cost of a large asset out over a long period, as you would an expense in a budget. One might amortize a particularly large purchase if the benefits of that product accrue significantly over time and not all at once.
These are the types of activity employees can engage in that are protected by freedom of association and the National Labor Relations Act in the United States. Concerted activity such as self-organizing into unions, collective bargaining, and social media discussion of non-proprietary information or working conditions are all legally protected against employer retaliation and employee dismissal.
In general, due diligence refers to the steps a reasonable person would take before entering into an agreement or purchase with another party, focusing on information necessary to make an informed decision. Investment experts, loan officers, and merchant cash advance providers perform due diligence audits to confirm everything provided by the applicant or purchaser is true and supports the financial investment.
Fixed Expense/Variable Expense
All operating expenses fall into one of two categories: fixed and variable. Fixed expenses are the same from week to week and month to month, regardless of how much profit or traffic you generate. Some common fixed expenses are rent, base salaries, and insurance. Variable expenses fluctuate based on the volume of your business, including cost of ingredients, utilities, and overtime pay. They can also sometimes be impacted by external forces, such as market shortages that drive up costs.
Footfall is the number of people who frequent your restaurant in a given period of time. It’s one meter businesses use to examine the success or failure of particular advertising campaigns, monitor business trends, and determine staffing needs per shift.
Margin (also known as gross margin) is sales minus the cost of goods sold. For example, if a product sells for $100 and costs $70 to manufacture, its margin is $30. Or, stated as a percentage, the margin percentage is 30% (calculated as the margin divided by sales). According to the National Restaurant Association, the average margin for restaurants nationwide is between 2 and 6 percent.
The amount by which the cost of a product is increased in order to derive the selling price is your mark-up. To use the preceding example, a mark-up of $30 from the $70 cost yields the $100 price. Or, stated as a percentage, the mark-up percentage is 42.9% (calculated by dividing the mark-up amount by the product cost). This term is NOT interchangeable with “margin.”
Also known as “the bottom line,” net profit is the calculation of your total sales, minus operating expenses, wages, taxes, and all costs associated with your business in a given period.
The amount of any given item in your kitchen or front of house that you should maintain in inventory between deliveries. Par is also often called the “build-to amount,” where you essentially build to par level when ordering inventory. Order too far below par and you risk running out of food before your next scheduled delivery.
Triple Net Lease
A type of agreement where the lessee/renter is responsible for all costs associated with the asset leased, not just the rent fee. The other three costs that are typically included in a triple net lease include real estate taxes, maintenance fees, and insurance premiums, hence the name.
Want to double check your business knowledge with another ten terms? Explore with us as we define 10 business acronyms every restaurant owner should know: