Currently, numerous restaurateurs are unaware of the costs versus profits junction. More, specifically, it is becoming challenging to some restaurant owners to determine how much profit they are earning as opposed to the costs involved in running their business.
Restaurant’s Break-Even: Lack of profits and lack of losses
To put it plainly, one requires asking herself or himself the number of pizza’s needed to be baked and sold each day to earn money. Furthermore, another inquiry you should ask is about the number of covers required to reach to earn a specific profit level. It is important that such an inquiry is seriously considered by all restaurateurs.
Restaurant entrepreneurs do a mediocre job of accurately calculating their break-even point of their business. In many cases, a lot of entrepreneurs go out of business after only one year of operation because of underestimating costs versus profit points.
Income/Profits and Expenses
Expenses and profit earnings are the two variables that business owners need to be aware of to understand the break-even stage. This stage must always be considered by aspiring restaurateurs prior to opening up a business. Furthermore, this point must regularly be observed as the business operates.
This break-even point should be closely followed for success much like a guiding light such as the North Star. Restaurant owners need to ensure that they keep track of their profits and losses so that they do not end up facing irreversible damage.
Analysing the relationship between profits and losses is important. Restaurateurs must understand that the break-even point is the juncture where businesses only cover their costs, but do not make a profit or incur a loss.
Stationary expenses—property rent; staff wages; devaluation of capital are all included in the management of a business. Fluid costs are those that constantly change such as electricity rates; food prices; material costs…etc.
Income is concluded based on sales of food and break-even is totalled based on the price.
An Important Circumstance
Break-even is the stage that determines managing a restaurant’s expenses. Entrepreneurs need a solid working knowledge of break-even dogma as well as predicting income generation. Once you find out the numbers of each break-even variable, you can use a straightforward equation to calculate the sum.
The procedure is as follows: include the stationary costs and divide by the price while subtracting the expense of each meal. The final answer will determine the amount of covers required to arrive at the break-even—from here you will conclude your earning levels.
A Model Restaurant’s Break-Even Calculation
To keep things easy, we will pretend that a pizza restaurant offers Margherita pizza for a specific price. Stationary costs equal $18000 while fluid costs are $2.10
P—sale price of pizza
Q—number of pizzas at break-even point
The following are three examples about how prices influence quantity of pizzas sold
P=5.5 FC=18000 VC=2.10
P=6.5 FC= 18000 VC =2.10
P=4.5 FC=18000 VC=2.10
The above example reveals how the difference of the pizza price impacts the number of pizzas that can be sold to manage costs. This example can be applied to other situations.