Cost Segregation Q and A
Cost segregation specialist Steve Erwin answers some of the most frequently asked questions concerning cost segregation analysis. Feel free to send us any additional questions that we haven’t addressed here. Read more »
Cost segregation specialist Steve Erwin answers some of the most frequently asked questions concerning cost segregation analysis. Feel free to send us any additional questions that we haven’t addressed here. Read more »
Many restaurateurs are unaware of a tax tool that could save them thousands of dollars on their taxes. Cost segregation is a tax strategy restaurateurs can use to reduce their tax liabilities by identifying hidden tax deductions that result in thousands of dollars in tax savings. Because cost segregation isn’t commonly utilized by CPAs, many restaurant owners end up overpaying in taxes. Read more »
Part Seven: REINVIGORATING STAFF
The industry has had a couple of rough years in a row now. We’re finding that some spirits are sagging; especially for those segments of the industry hardest hit.
In beleaguered chains the impact on morale runs top to bottom and both managers and their staff are feeling weathered from the sustained pressures and stress. There is no doubt that a restaurant enterprise – and its financial performance – is the sum of its people. Therefore, we are dedicating Part Seven of our ten-part Boosting Restaurant Revenue series to the importance of a talented and inspired workforce. More specifically, we’re focusing on some of the “how-to” for reinvigorating an existing workforce that may be worn down from years of a struggling economy and uncertainty. Read more »
Imagine your week ahead like the first day of school. What will it be like? Who will you hit it off with and what will those interactions be like? What will you wear and what will you prepare ahead of time? Before the first day of school, many of us daydreamed and visualized what it would be like. The same is true in business. Some look just a day ahead or only visualize what it will be like after their lunch break or skip ahead to visualizing just what they’ll do after work. On the other hand, many managers plan a full week out. Some directors plan a month or a quarter out. Often, entrepreneurs will visualize years out or over their entire career the same way many of us back in grade school thought about that first day of school. They visualize not just what they will do, who they will meet, and what they will accomplish; they visualize their legacy and what they will contribute to their family, community, employees, and their industry. After they visualize it, they break what it will take to get there into its pieces are parts and take actions each and every day – just like a kid planning out their wardrobe for the first day of school; it’s all ready neatly laid out the night before.
Some people in your life will seek to beat you down, supress you, bully you, brow-beat you, and play the “devil’s advocate”. Especially in the case of the latter, they think they are serving you by helping you be “more realistic”.
As it turns out, the devil’s advocate never coached anyone to success. The devil’s advoate serves only to help you believe you can achieve less than you desire or deserve.
Whether you’re in the restaurant industry or not, you should surround yourself with those who believe in you, encourage you and help you be more courageous than you thought you could be. If you can’t find those people, it’s better to be alone for a while. As Lincoln one said, “Surround yourself with men of good quality, for it’s better to be alone than in bad company”.
While just a short 60 second commercial for a mega-brand, the Nike Courage video reminds us of the power of the human spirit. It can rise to any occassion. It will surge or receed in proportion to your desire and determination.
As you seek out restaurant consultants, seek those who will not only be an asset in terms of technical ability, but also in terms of mindset and shared beliefs. Don’t hire a devil’s advocate. You can find plenty of those who will volunteer for free. You don’t need or want eternal optimists who will kiss up to a client or idea blindly either though. What you need and deserve is someone who will bleed, sweat, pray, sacrifice, and work relentlessly as you do yourself in pursuit of something special.
When you watch the video clip included, you will get the sense that greatness demands a serious commitment, determination, and a vision to do more than the ordinary. Most likely, they either did it alone or with someone who was equally committed to the same. Be courageous and follow your dream with an unbendable deterimination surrounded by those who will work as tirelessly. Your success is in direct proportion to your willingness to pursue it.
Why a Recession is Good for the Restaurant Industry…
1. Recruiting – According to the National Restaurant Association, one of the top 10 most pressing restaurant industry challenges for the last 20 years has been recruiting and retention of employees. However, each time there is a recession, the restaurant industry is one of the greatest benefactors. With unemployment currently hovering at 10%, the restaurant industry is finding job seekers that we would not have seen during periods of low unemployment. While many may see the restaurant industry as a short-term solution until something “better” comes along, often a large number of them end up staying in our industry and making a permanent career switch. During recessions the restaurant industry benefits with greater supply and quality workers and this is the very best time to bring in new talent.
2. Reduced Rent – As much as residential property valuations were over-inflated, in many areas the commercial rentals are now above what the market can support. We are finding clients across the USA and abroad successfully renegotiating leases right now. The ideal “occupancy cost” for a restaurant (rent, C.A.M., etc) is 8% – 10% of sales. If you have experienced a big reduction in revenue or are paying more than this optimum range, now is the time to negotiate a rent reduction.
3. Locations – In recessions, new locations come available that were out of reach or budget before the recession. One client had his eye on a location for almost 20 years and never could make a deal happen. Half way through the recession he not only got his ideal location, he got a better deal on the rent and lease terms than he could have in any other scenario. While many restaurant companies are forced to contract, some have cash surpluses and are putting them to use by expanding. For those with money, the best time to expand can often be at the tail end of a recession.
4. Innovation – There is a saying, “Necessity is the mother of invention”. When our backs are against a wall is when we must prove our mettle. In downturns, we look at the P&L more closely, we engineer processes to be more efficient, and we look for new ways to be successful in spite of tough times. Generally people are motivated by the desire to avoid pain and gain pleasure. When we feel pain, we move with a greater sense of urgency and purpose. When the pain of a recession bears down, successful restaurateurs innovate. They bend like the willow. As Darwin said, “it is not the strongest of the species that survive, but those best adapted to evolve”.
5. Forces smarter buying – We all tend to shop differently in lean times. When cash is plentiful it can be underappreciated and misallocated. Scarcity compels a higher valuation on resources. During times of a recession, buyers can find better deals on products from suppliers that need to move inventory and service providers trying to keep their best employees fully utilized. Not only can you find better deals, a recession also serves as remedial training on remaining disciplined and diligent in purchasing decisions. This is the time to look at inventory par levels, menu yields and utilization, ways to introduce technology for greater efficiency, and much more. For a typical restaurant, 95% of the revenue coming in the front door goes out the back door to suppliers and vendors; leaving just 5% profit for the owner. Getting better at procurement and supply chain issues is necessity. Careful not to cut too much though (see 10 ways NOT to cut costs for your restaurant).
6. Pruning – As insensitive as this may sound to some, the fact is our industry needs recessions to keep us all on our toes and to prune out the underperformers. A rose bush must be pruned to be healthy; which means cutting away certain branches, blooms, and shoots. A forest must have forest fires to stay healthy. Forest fires seem devastating – and there is certainly collateral damage – but the greater good is served and this natural phenomenon is part of the necessary cycle. As an industry, we too need the cycles of recessions in much the same way a forest needs a brushfire. We as an industry get better. And as painful as it can be to see some not make it through, they too learn, grow, and often come back better than before. As my father always liked to say, Edison failed 20,000 times before he invented the light bulb.
There is a silver lining in ever cloud, even if it doesn’t feel like it at the time. You just have to look for it.
The good news is that all expectations are that 2011 will be the year we break out of the restaurant recession and the industry as a whole begins to prosper more fully.
Here are a few other blog posts I hope you may find interesting:
Perseverance is one of the most underrated virtues for entrepreneurs. No matter what business you’re in, no matter what the economy is doing, there are going to be hugely challenging times – many restaurateurs are going through this right now, with the way the recession has impacted our industry.
When things look bleak, you might be tempted to quit. You might even have people whom you love and trust who are telling you to quit. But I’ve found in my own career – and there are so many examples of this – that often, if you hold on just a little bit longer, or try to do something just a little bit different, you’ll see much better results.
Some of the biggest names in business struggled with the prospect of failure before achieving their greatest success:
• Richard Branson: When he was trying to get Virgin Atlantic Airways off the ground, he got into a price war with British Airways. They almost drove him out of business. His advisers were telling him, “You have to sell one of your companies; you can’t keep both.” So he decided to sell his crown jewel – Virgin Records, for 500 million pounds. (This was in 1992, when the music business still made money by selling albums.) Selling Virgin Records gave him the ability to pay down the debt to support Virgin Airlines – and even though this was a tough, risky decision, Branson was confident that it was the right thing to do. He was committed to offering something better in the airline industry. His advisors wanted him to give up on the airline, and they couldn’t believe that he chose the airline over the record business. Later he said this was the best decision he could have made – he got out of the music business at just the right moment.
• Steve Jobs: He has become a hero of the modern business world, but back in 1985, Steve Jobs suffered a very public failure. Years after he founded Apple Computers, Jobs was pushed out of his own company and resigned as CEO in 1985. Fortunately, he didn’t give up – he came back to Apple in 1997, and transformed the struggling computer maker into the most admired and envied personal electronics company in the world. Everyone who has ever worked with Steve Jobs testifies to his relentless, uncompromising, demanding expectations of himself, his company, and everyone around him. Steve Jobs rebounded from failure to create the iPod, iPhone, and iPad – monumentally breakthrough products that have changed the world.
• Southwest Airlines: Southwest is one of the most profitable U.S. airlines and has a great reputation for customer service. A few years ago I spoke at a conference where one of the other speakers was a former CEO of Southwest, and he told a story about how after 9/11, Southwest took a huge hit (like the rest of the airline industry) and was down to a dangerously low level in their operating accounts (he said just a few hundred dollars in their operating account – amazingly candid and powerful insight into what they were really going through at the time). Thousands of customers were asking for refunds, afraid to fly in the days after the terrorist attacks on America. Other airlines were refusing to issue refunds, afraid to lose money. Southwest took a different approach – they honored their customers’ requests for refunds, and sold hugely discounted tickets just to get people in the seats and get people flying again. It was a risky move, but it worked – Southwest was one of the first airlines to recover from the airline downturn after 9/11.
When you look at all of these stories, there were probably lots of times where these people and their companies hit roadblocks that could have been deal-killers – where people around them were saying, “It can’t be done, it’s impossible.” The mark of a successful entrepreneur is that they hear that feedback, and then they say, “Okay, so it’s impossible. But if it were possible, how would we do it?”
Times right now have been tough for the restaurant industry – with the Great Recession and the slow recovery, there are lots of people in our business who are feeling beaten up and tattered. But let’s not give up. Let’s keep looking for ways to innovate and do things better.
The “Never Give Up” cartoon attached to this post was once hanging on my dad’s office wall at his restaurant in Panama City, Florida – I remember seeing this cartoon over the years while I was growing up. My dad was one of the most important voices that encouraged me to stick with my consulting business back when I was just getting off the ground.
I could have given up, but I didn’t – and I’m glad that I held out a little bit longer. I’m living proof that sometimes, even at your bleakest moments, things get better.
There are no successful entrepreneurs that are also successful nay-sayers. If you want to cultivate a spirit of perseverance as an entrepreneur, you need to surround yourself with people who believe in you, but the most important voice to listen to is ultimately your own. Pay attention to your own intuition, hunches, your internal compass. This will guide you in the right direction.
People often tell me that I walk too fast. I’ll be out walking somewhere with friends, and I’ll find myself five paces ahead of them – and my friends have to tell me, “Hey, wait up!”
In this sense, I’m not a very patient person – it’s just the way I’m wired.
I can’t help it. I have an internal sense of urgency. The way I approach anything entrepreneurially is to have impatience with the situation. Once I know where I want to go, I want to start getting there as soon as possible.
To be a successful entrepreneur, you need to have a sense of impatience. Impatience is synonymous with ambition, with motivation, with a drive for results. There’s an old saying in sales, “You eat what you kill” – if you have a goal, if you want to succeed, you have to go out there and get it. You can’t wait for success to come to you.
Steve Jobs is famously impatient – everyone who’s ever worked with him testifies to his impatience with product development time, his constantly pushing the envelope on designs, always demanding more, better, faster – and this sense of impatience is what helped Apple transform a slow-moving telecom industry that previously hadn’t had a lot of innovation since the wireless phone.
Was President Kennedy patient about putting a man on the moon? (People said “it can’t be done, we have to wait, the science is too complex…”)
Was President Obama patient about getting health care reform passed? (People said “slow down, it’s too much to do at once, the politics is too complex…”)
There are certain times when you should be VERY patient – with people, employees, family, and people’s feelings – there are many situations where you need to be patient and understanding.
And being impatient doesn’t mean you should get angry about the weather or the flight delay or other things that are beyond your control.
Even when making business decisions, you shouldn’t be impatient all the time; there are occasions where you need to think things through, do your due diligence and avoid leaping too quickly into uncertain situations. Being impatient doesn’t mean being reckless; you need to take smart, calculated risks.
But when it comes to going out and getting what you need – you have to be impatient. Don’t be patient when it comes to pursuing your dream. Don’t put off until tomorrow what you can do today. Be impatient. Be restless. Be hungry. Be determined to create your own luck, not wait for good fortune to land in your lap.
Entrepreneurs frequently walk faster than everyone else – I swear I’m not the only one. We tend to have an internal sense of urgency in all that we do.
I’ve consulted with hundreds of restaurant companies, big and small – and most of the time, the entrepreneur who built the company is in the room with me. From my experience, you can definitely see patterns in the type of people who have achieved a great deal of success. One of the common traits is impatience.
There’s an old story about how you can boil a frog to death just by slowly heating up the water – it happens so gradually that the frog doesn’t notice until it’s too late. An “impatient” frog wouldn’t sit there and take it – an impatient frog would have already hopped out of the pot to go find something else.
One other caveat – impatient entrepreneurs need to have a clear objective. Aimless impatience is counterproductive; you need to focus your impatience on a goal, and then once you have settled on a goal, you can take clear and immediate steps toward its attainment.
At almost every consulting project that my firm works on, we start with a planning session – helping the client and their company identify what their biggest goals and deepest motivations really are. These aren’t necessarily financial goals – it’s a process to marry emotion to these corporate objectives, build a “backwards road map” to get to the top of the mountain – we work with these executives, and we ask them, working backwards from your dream, what is the first step that you need to take to get there?
I’ve noticed that with the people who are really successful, once we identify their ultimate goal, they want to take that first step forward RIGHT AWAY. Their attitude is, “Now that I know what I want, I’m going to go get it!”
Successful people are eager and impatient to take that first step. Others get paralyzed contemplating it: soon the momentum and excitement wears off, and then they’re back to their old patterns and old results.
Business is about more than quantifiable objectives, tactics and numbers – there’s also an element of passion and commitment. Part of getting entrepreneurs to focus on their ultimate goal is dredging up some serious emotional commitments. You have to facilitate a conversation and help people realize the answers – and really commit to taking that first step.
I’ve come to realize that my role as a consultant is often about helping people find their “cause,” not just their business goals.
But the most successful entrepreneurs, once they find their cause, are impatient to take the first steps toward fulfilling it. In the best sense, that’s what “impatience” means to me – it’s about maximizing your life, exercising your influence on what you can control and change, following your passion, and making the biggest possible difference in the world.
A while ago, I was in Panama City Beach, Florida, when I saw this restaurant:
It was so amazing that I had to take a photo. Look at the signs: “Bathroom for customers only,” “Cash Only,” “No checks…cash only.”
These signs are the first things people see when they walk up to this restaurant. This restaurateur is not making a good first impression – it’s almost like he’s trying to drive people away; he might as well have a sign saying “Keep Out!”
When you’re running a restaurant, it’s like being the ruler of your own little country. You have your own laws for your country’s “Constitution,” depending on what your “citizens” (customers and employees) are willing to put up with.
So this restaurant is the restaurateur’s own country; in his little 40 foot area, he can do what he wants. But the customs authorities and border guards of this “country” are not doing a very good job of welcoming visitors – it actually looks like they’re at war.
I know how these things happen. The restaurant manager gets tired of people stopping by to use the bathroom – and this is a big tourist area, so there are probably a lot of beachgoers who wanted to use the restroom but weren’t buying anything. So the manager gets tired of cleaning up after non-customers and says, “Let’s put up a sign!”
Then he gets frustrated from too many bounced checks – and gets tired of paying credit card fees. So now it’s a cash only establishment – and again he says, “Let’s put up a sign!”
The problem is, before you know it, you’ve got a front door covered with signs that are going to drive people away. In the process of trying to get customers to follow your rules and obey the “laws of your country,” you’re going to wind up with no customers at all.
Instead of worrying about people using the restroom without paying, turn it into an opportunity! If you’ve got a great food product and a great atmosphere, you should welcome people who are looking for a public restroom – it’s more foot traffic in your door. It’s more people who potentially might spread the word about your place to their friends outside – “Yeah, that place let me use the restroom, and the food smells great! Who’s hungry?”
Instead of trying to convert every rule into signage, instead of trying to head off every possible problem in advance, use this as an opportunity to engage with your customers.
If someone comes in and asks to use the restroom, use it as a chance to convert them into a customer: “Sure – customers are welcome to use the restroom; what can I get for you? How about a drink?”
Another moral of the story: if you’re a franchisor, this is another reminder to make sure that your franchisees are in compliance with your brand identity, signage rules, and general customer policies.
From a marketing standpoint, you want the entrance to your restaurant to be clear, uncluttered and inviting. There are too many restrictive signs right alongside the promotional signs – instead, create an uncluttered view. Customers will get confused if they see that your restaurant signage is sending mixed messages: “Welcome/We’re open/Come in and eat with us” right next to “Cash Only/Don’t Ask to Use the Restroom/Stay Out.”
You want to make sure that franchisees are representing your company and interacting with customers in a way that upholds your standards and supports your brand. If this was your restaurant chain, you would need to talk with your manager – because in this case, the manager is doing more harm than good by putting up all these signs.
Ultimately, it comes down to this: if you have managers or franchisees that can’t be bothered with dealing with customers, then they really shouldn’t be bothered with being in the restaurant industry. Every restaurant has rules, but there are always situations that arise where customers don’t know the rules, or unknowingly break the rules. So enforce your rules, but do it in a way that’s inviting.
Even if you do have a policy that non-customers can’t use the restroom, turn it into a positive: “Customers are welcome to use the restroom – what can I get for you?” Instead of using a sign to prominently remind everyone that your restaurant is “Cash Only,” gently direct people to your convenient on-site ATM.
We should not be at war with customers. We should embrace them – they are our guests. We don’t need to beat them over the head with all of our rules. Instead of trying to train your customers and filter out potential hassles before people ever come in the door, adopt an attitude of flexibility, welcoming and service. It’s better to have a busy restaurant with a few hassles each day, rather than an empty restaurant where everyone knows the rules.
Here are the answers to some of the most frequently asked questions about restaurant business plans. Read more »
