Who wants to talk money?
Often enough, the answer is nobody. Especially not when it comes to profit and loss at someone’s restaurant. But the reality is, so many of the decisions you make every day as a restaurant operator comes down to how that choice will impact the financial success or failure of the business. And those choices often have a significant effect on everyone in your organization, from big-time investor all the way down to part-time dishwasher.
As a result, we’ve seen an emerging trend among restaurants toward financial transparency between ownership and staff. By far, the most compelling example of this is the so-called “open book” management.
Much like it sounds, open book management involves proactively sharing intimate details about the financial operations of your restaurant with the entire workforce in an organized fashion. This practice usually takes shape as financial data that’s available for viewing at any time (a la wall chart or whiteboard in a staff-only area) and regular open discussions to explain what the numbers mean and how the forecast looks for the next period.
What data is shared? The list should include most or all of the following:
- Revenue by shift, day, week, and month
- Revenue per menu item, including specials
- Cost of goods sold
- Cost of staff (but never individual salaries or pay rates)
- Cost of benefits provided to staff (health insurance, comped meals)
- Cost of property lease, utilities, and any vendor services (linens, etc.)
- Loss from inventory waste or comped tickets
- Debt from start-up loans, advances, or investor pay-out
The key in an open book management scenario is to clearly lay out the cause and effect of business. Every benefit has a cost. Every loss impacts the bottom line profit. Your staff will get a clear sense of how many moving parts are involved in eking out even a 5% profit margin after all calculations are complete.
And you may find employees never imagined how difficult it was to reach a profit until information like this is shared.
The more data you have, the more complete the picture can become for both you and the staff. Comparing year over year performance helps distinguish the natural ebb and flow of business by season and may spark new ways for you to look at trends that went unnoticed until now.
But sorting through data doesn’t mean your discussions have to be dry or one-sided. Encourage dialogue among the staff about what they’re seeing in the numbers. Talk about it like a story — don’t lose sight of the fact that this isn’t an academic math problem. Keep it personal, practical, and grounded in what you do every day — day in and day out.
But why go open book? What’s the advantage to restaurant managers? We’ve identified five key reasons why welcoming your entire staff into the financial day-to-day operation of your restaurant will be advantageous to your business.
It mitigates rumor and resentment.
One of the biggest killers to workplace morale is rumor. An owner’s closed door meeting with his manager can be innocent enough, but could whirlwind into a storm of suspicion and worry for employees that don’t feel like there’s enough transparency in how business is conducted.
Of course, personnel issues are always private. Those must be handled with care and discretion. But creating an open book environment for sharing your financial information can go a long way to not only clear up rumors (from the fairly benign “How are we doing? Will there or won’t there be bonuses this year?” to the more dramatic “Will I even have a job this time next month?”), but will also help mitigate worry in those instances where total transparency is not possible.
It drives employees to work smarter and harder.
When employees can see the direct impact their decisions and activity have on the bottom line, they are more likely to make good decisions. This can be through something as simple as associating actual hard numbers to the loss in profit from inventory waste or comped meals, or as substantial as how underperforming on estimated table turns for four nights in a row throws off an entire month worth of revenue.
And sharing positive results with staff is even more empowering. If performing well on table turns or upselling a particular special produced higher revenue, showing them where their hard work paid off is just as important. Either way, try not to frame negative results as scolding. It’s simply a place for learning and improving for future success.
Simply put, if the effect of their actions is no longer abstract, the responsible employee will work toward meeting those goals with more vigor and top-of-mind commitment. And the results are not only individual. When one team member’s performance impacts the profit sharing or overall state of business for everyone on the team, peer pressure to improve — and to help each other reach goals — sets in.
It teaches your staff something new.
Investing in your employees is a critical aspect in maintaining a stable work force. With the restaurant industry reporting an overall 66.3% annual turnover rate in staffing, it’s important to offer your team members something they can’t get anywhere else. Often that’s what we think of as culture, but that extra x-factor can manifest itself in opportunity as well.
Managers and owners who take the time to teach their team the ins and outs of basic financial bookkeeping and business management through an open book policy are giving staff invaluable insight into the restaurant industry, its challenges, and the path to success. Not every server or line cook has aspirations to operate their own business, but for those that do, watching your success and failures from the front row gives them something even business school students don’t often have access to.
It brings you new perspectives.
Honestly, going open book with your staff isn’t an act of charity. It’s actually good for your profits. The impact a talented staff member can have with just a little more information may surprise even the most open-minded manager.
At Honey Butter Fried Chicken in Chicago, Illinois, co-owners Josh Kulp and Christine Cikowski have managed with an open book philosophy since they opened five years ago. And the results have been tremendous. They hold a weekly, paid staff meeting where they go through the business forecast for shifts and specials and compare estimated profits and losses to actual performance. As a result, every employee is informed on every aspect of the business and can bring their own experience to the table in suggesting ways to improve the bottom line.
“We had a fry cook come up with a whole new way of rotating fryer oil that saved us $500 a week,” Kulp shared. “It was something that no one could have come up with had they not been familiar with our expenses, but because he was, he was motivated to come up with a solution and implement it.”
It builds trust.
Whether or not your financial transparency includes a profit sharing component for your staff, building an open culture at your restaurant with your employees builds morale. It gives your employees the confidence that you have their welfare in mind, and that their opinions and ideas matter to you and to the success of the business. It also gives you an opportunity to praise and reward good performance publicly. Boosting trust between management and staff results in higher satisfaction — and job satisfaction transforms into better service for your customers.
Want tips on hiring, training, retaining, and disciplining employees that leads to stronger sales and better service? Check out “Restaurant Management for Success”: