1. business and industrial

HOW TO OPERATE A RESTAURANT
By PETER DUKAS, Professor DONALD E. LUNDBERG, Professor
of the Department of Hotel and Restaurant Management
School of Business
Florida State University, Tallahassee, Florida
AHRENS PUBLISHING COMPANY, INC., NEW YORK
COPYRIGHT 1960 BY THE
AHRENS PUBLISHING COMPANY, INC.
All Rights Reserved
No part of this book may be reproduced in any manner whatsoever without permission in
writing from the publisher.
Library of Congress Card Catalogue Number: 60-11733
MANUFACTURED IN U.S.A.
Preface
Food sales in the restaurant industry reached over 17 billion dollars in 1958. This
represents a sales increase of more than 40 per cent since 1950. Despite this growing
trend for eating out and a steadily expanding sales volume, the mortality rate in the food
service industry is extremely high. One investigation after another has shown that from
one-fourth to one-third of the restaurants that begin their existence in any one year were
out of business by the end of that year.
What are the causes for failure? This question was asked of many highly successful food
service organizations and operators in the country. Invariably they replied that a
restaurant operator will fail unless he has a thorough knowledge of food. He should be
able to design a profitable menu pattern, to purchase, receive, store, prepare, and serve
each menu item in such a manner that he maximizes his profits and the satisfaction of his
guests. He must understand and be able to control himself and his relationship with
employees, customers, dealers and the community. He must have a knowledge of
management, administration, organization, supervision, controls, accounting procedures,
pricing, promotion, contracts and insurance protection. He should be aware of changing
regulations concerning possible union tactics, food, health, wages, taxation, shifts in
consumption income levels, population and costs, relocation of business areas and
changes in competition.
Consequently, the significant causes for failure are:
1.
Inadequate knowledge of food.
2.
No understanding of people.
3.
Inexperience and no knowledge of business.
4.
Little awareness of a constantly changing environment.
iii
iv
Preface
Conversely, to succeed in this field the food service operator must be able systematically
to control, forecast and budget food, labor, beverage, rent depreciation, and other
operating costs, to promote his sales, to maintain good human and public relations, and to
keep one step ahead of his changing environment.
Preliminary investigation showed that there is no single restaurant business or type of
unit that is representative of the entire industry. Each food service operation has different
problems requiring management decisions that occasionally vary constantly and provide
different expectations of profit.
Because of this diversification there is no single idea or formula that can guarantee the
highest profit for all operations. However, since food service units have the same basic
problems of housing their physical equipment, purchasing, storing, preparing and
merchandising their food, selecting, training and motivating a productive labor force,
many of their basic problems have common principles from which correct solutions can
be evolved.
The authors gratefully acknowledge their debt to the Can Manufacturers Institute and to
Mr. Harold H. Jaeger who initiated the research study that pinpointed and evaluated
many of the factors influencing the profitable management decisions described in this
book; to Mr. Charles Staples, Institutions Magazine, Mr. Jack Ghene, Volume Feeding
Management, and Mr. Cal Morken, Diner Drive In, for their permission to include in this
book several of our articles first developed in their fine periodicals.
Thanks also to Food Service Magazine, Gas Magazine, Inc., and to several restaurant
operators and equipment manufacturers who supplied us with numerous photos for use in
this book.
No text is the work of the authors alone. This book represents the distillation of
experience and knowledge of many owners and managers successfully running all types
of operations: from drive-ins and diners to service restaurants, cafeterias and inplant
feeding units, with sales volumes ranging from $80,000 annually to $1,700,000 a unit,
located throughout the nation from Maine to Florida and across to Washington and
California. To these restaurateurs and to the restaurant industry as a whole this book is
respectfully dedicated.
Peter Dukas
Donald E. Lundberg
Contents
Page
PREFACE
iii
Chapter
I.
THE RESTAURANT BUSINESS
History of restaurants. Classification and size of the restaurant industry. Nature of the
business. Kinds of restaurants. Requirements of the business. Restaurant profits.
II.
LOCATION 13
Importance of a good location. Analysis of proper location in terms of the operator and
his personal requirements. Analysis of communities, neighborhood. Traffic and its effect
on location. The relationship of expected profits and investment to location. Competition.
Cost and characteristics of the site. The value of diligence and patience.
III.
SHOULD YOU BUY OR BUILD? 20
Advantages of building. Disadvantages of building. The advantages of buying.
Disadvantages of buying. Three major considerations to think about before buying. Tax
considerations in buying, leasing or trading. Determination of purchase price. Valuation
of assets. Tax savings check list.
IV.
WHICH FORM OF ORGANIZATION IS BEST FOR YOU?
31
Size importance, and relative potential sales of existing restaurant organizations.
Individual ownership—definition, organizational procedure, partnership agreements,
advantages and disadvantages. Corporation—definition organizational procedure,
advantages, and disadvantages. Three rules for profitable decision.
V.
THE PURPOSE AND USE OF CREDIT AND CREDIT INSTRUMENTS
40
Basis of credit. Classification of credit. Credit instruments. Negotiable instruments.
Promissory notes. Bills of exchange. Clasv
vi
Contents
Chapter
Page
sification of drafts. Recommendations regarding use of credit instruments. Leases—
definition, basis of validity, types, contents and check points. Mortgages—definition,
definition of terms, deeds, major classifications. Check list of important considerations.
VI. HOW AND WHERE TO OBTAIN CAPITAL 58
Classification of capital. Four general sources of capital. Banking services. The bankers
point of view. Basis of a loan. Use of financial statements. Use of collateral. Importance
of looking ahead. Selection of a bank—progressiveness of the banker, the banker's
approach to your problem, availability of credit, size, managerial policies. Sources in the
Federal Government. Small Business Administration. The Federal Reserve System.
Federal Housing Administration. Veterans Administration.
VII. HOW TO SELECT FOOD SERVICE EQUIPMENT 78
Reasons for failures in the industry. The problem of proper selection regarding number,
size and type of equipment. Method used for accurate determination of equipment needs'
17 factors for analyzing comparative efficiency of equipment. Productions Capacities of
Equipment. Miscellaneous light equipment utensils and ware. Minimum requirements for
miscellaneous items.
VIII. LAYOUT YOUR RESTAURANT FOR PROFIT 102
Value of a well planned layout. The problem of spare allocation to dining room and
kitchen areas. Opinions of other consultants. The basic menu pattern as a major tool of
analysis. Use of templates. Factors to consider in location of equipment within
departments. Basic factor determining the location of departmental areas. The solution to
traffic problems in the kitchen and dining room areas. Space requirements for the dining
room. Determination of seating capacity in a cafeteria. Determination of seating capacity
in a table service operation. The relationship of departmental function to departmental
location.
IX. HOW TO PROTECT YOURSELF WITH INSURANCE
115
Three general classifications of protection. First group—mandatory protection, second
and third group—selective protection. Description of protection offered by various type
coverages 3-D, building, contents, fine arts, auto, rent and rental value, boiler, business
interruption, extra expenses, engine breakage, electrical machinery, floater, sprinkler
breakage and others. Protection, development and requirements of workmen's
compensation laws. Variations in cost and benefits. Accidents and Health insurance—
description, classifications and protection offered. The co-insurance clause. How to
reduce insurance costs. Factors to consider in securing complete protection.
Contents
vii
Chapter
Page
X. RESTAURANT PROMOTION AND ADVERTISING 126
What is promotion and advertising? Establishing a personality-atmosphere. Trademarks
and themes. Upgrading the menu. Making the menu fit your restaurant. Giving the
children something special. Successful promotion ideas. Effective advertising. How to
capitalize on publicity. Putting motivation research to work. Identification of market.
Summary.
XI. PERSONNEL ORGANIZATION
142
History of personnel organization. Changes in organization. Organization in managerowner operations. Chains and their influence on organization. Restaurant jobs.
Disadvantages of restrictive job titles. Uses of the inverted organizational chart. How to
organize. Flexibility in departmentalization.
XII. LABOR COST 151
Labor cost and its relationship to survival. Two major considerations in control of
personnel. Theory of labor cost control. Eight basic reasons for high labor costs. Six basic
steps for effective labor cost control. Management's goal is profit. Employer recruitment
and selection.
XIII. TRAINING EMPLOYEES 169
Training in the past. Management's responsibility for training. Kinds of training, if you
are going to train. Levels of learning. Approach to training. Presentation of job skills.
Training pointers. How to make a job breakdown. Training with pictures, training films.
Teach more than the job. Summary.
XIV. HOW TO CONTROL AND MANAGE INDIVIDUALS 182
Human relations in Management. Motivating employees to do their work effectively.
How to gain respect of employees. How not to gain their resentment.
XV. MENU PLANNING AND PURCHASING 189
Importance of food in successful operations. Planning a menu. Sales analysis. Cycle
menus. Popularity index. Other cost considerations in menu planning. Three aspects of
purchasing. Knowing your needs. What about pre-portioned pre-packaged items? How
much should be purchased? Planning your ordering and receiving. Purchasing
procedures. Purchasing forms.
XVI. RECEIVING AND STORING FOOD
200
Duties of storeroom men and stewards. Requirements of a storeroom man. Kickbacks in
the industry. Importance of careful receiving. Procedure in receiving. Credit
memorandum. Storage of food. Proper refrigeration temperatures. Storing of staples and
dry goods. Summary.
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Contents
Chapter
Page
XVII. RESTAURANT STANDARDS
206
What are "standards"? Types of standards. Use of standards. Setting standards for your
operation. Flexibility of standards. Standard setting and leadership.
XVIII. CONTROL OF FOOD COSTS
211
Development of food cost control systems. Advantages and disadvantages of various
food cost control systems. Seventy-five basic causes of high food costs. Reasons for
restaurant failures. Problems of food cost.
XIX. THE PROFIT AND LOSS STATEMENT 220
Definition and purpose. Abuse of purpose. Three basic rules to increase the usefulness of
financial statements. Explanation of format. Analysis of format. Determination of
departmental productivity. Gross profit analysis. Departmental performance standards.
Bar standards. Payroll standards. Use of percentages. Management index of effectiveness.
XX. LET YOUR PROFIT AND LOSS STATEMENT WORK FOR YOU
228
Importance and problems of planned expense programs. The break-even point—
definition, formula for determining, problems of accurate determination, use of the profit
and loss statement for determining break-even points, graphic analysis, increased cost
variations, increased sales valuations, purchasing or building an operation.
XXI. THE DYNAMICS OF ACCOUNTING
238
History and evolution. Evaluation and misunderstanding. The purpose of this chapter.
The accounting cycle. The journal. The ledger. Number of journals and ledgers needed.
The trial balance. Debits and credits. The balance sheet. The profit and loss statement.
Balance sheet.
XXII. SIMPLIFIED RECORDS FOR INCOME TAX CONTROLS
248
Purpose of this chapter. Flexibility and basic requirements of an accounting system. The
journal. Posting to the ledger. Advantages of multi-column journals. Design of the multicolumn journal. Test of accuracy. Installation of the multi-column journal. Analysis of
format. Posting to the ledger. Explanation of some entries. Depreciation. Trial balance.
Profit and loss statement. Balance sheet.
XXIII. WHAT OF THE FUTURE? 262
More people will eat in restaurants. Types of food services operations. Location of
restaurants. Number of restaurants. More pre-prepared, portioned, convenience foods.
Faster, better equipment. Automation. Centralized purchasing. Labor cost to increase.
Imagination still at a premium.
INDEX
275
HOW TO OPERATE A
RESTAURANT
CHAPTER 1
The Restaurant Business
Selling prepared food to the public for a profit is an occupation almost as old as
civilization, an occupation chosen by millions of people throughout the centuries.
Ancient Egypt had inns of a kind. One on record offered a menu in keeping with the
modern limited menu—one dish consisting of cereal, wild fowl and onions. Ladies were
not allowed. This was 512 B.C. Today ladies are more than welcome.
Bankruptcy was no stranger to the early innkeeper. Through the forgetfulness of his
patrons, a Roman innkeeper in 153 B.C. found that a "pay as you leave" plan was not
everything it ought to be.
A businessmen's lunch was a good idea back in 40 B.C., when an innkeeper devised it for
shipbrokers who were too busy to run home for the noon meal.
Instead of juke boxes and piped-in music, the diner-out in Spain in the year 1125 was
entertained by story-tellers.
Until the 18th century there were no separate establishments serving prepared food. The
inns and taverns had the tables of the host or table d'hote where everyone sat down to eat
whatever was placed on the table. Meals were usually a part of the "room and board," the
board being a board on trestles serving as a table.
Coffee was introduced to Paris society in 1668 when the Turkish ambassador gave a
party and had the beverage served by beautiful slave girls. England is said to have had
coffee earlier, the first coffee house is supposed to have opened in Oxford in 1650.
Coffee gained popularity fast and in 17th and 18th century England many coffee houses
were started. Some of these developed into private clubs centered around food and drink.
The old club at Whites and the Reform
l
2
How to Operate a Restaurant
Club in London are examples, still very much alive. Chocolate houses and tea houses had
their day in the sun, just as cafe expresso houses are currently popular in London.
In Colonial America eating out was done at the local tavern, inn or "ordinary" where
beverages also flowed freely. Beer and rum were preferred with flip the most popular
drink. The recipe for flip was rum, beer, cream, beaten eggs and spices, heated by
plunging a hot rod into it. It was said to be both food and drink—and if you had enough
money also lodging for the night.
The first restaurant carried this inscription over the door: "Venite ad me ownes qui
stomacho laboratoratis et ego restaurabo vos." Few of the Parisians who saw this sign in
1765 could read French let alone Latin but if they could, they knew that Monsieur
Boulanger, the proprietor, said, "Come to me all whose stomachs cry out in anguish and I
shall restore you."
FIRST RESTAURANTS ESTABLISHED
Monsieur Boulanger's potion of soup he called "le restaurant divin." His "divine
restorative" was quite an improvement over the bitter herb and vegetable mixtures
brewed by the medieval physicians as restoratives. A richly delicious bouillon, it attracted
fashionable ladies and gentlemen who would not ordinarily patronize the public taverns
where eating ran a poor second place to drinking. Also Monsieur Boulanger's Restaurant
Champ d'Oiseau charged prices sufficiently high to make the place acceptably exclusive
and a place where ladies who were ladies would enjoy being seen. Boulanger lost no time
in enlarging his menu and a new business was born. Soon the word "restaurant" was
established and chefs of repute who had worked only for private families either opened
their own restaurants or were employed by a new group of small businessmen, the
restaurateurs.
Delmonico's in New York City is credited with being the first bona fide restaurant in the
United States. His first menu presented in 1834 carried a list of a la carte items most of
which would not appear unusual on today's menus. The prices, however, would be
unusual. (See illustration on page 4.)
Employee Feeding
Food service for employees began in the 19th century and runs into big business indeed.
The Bowery Bank of New York City began free
The Restaurant Business
3
meals, with waitress service to its employees in 1834. By 1904 at least one contract
feeder was in employee food service.
The first of the big food service contractors was Fred Harvey, a hard driving Englishman
who contracted to serve food on the Santa Fe and in its stations from Chicago to Los
Angeles. The multi-unit restaurant company appeared about the same time.
One of the early John R. Thompson restaurants in Chicago, a forerunner of the
modern cafeteria with self-service and limited menu. The all white interior lent
itself to cleanliness but is a far cry from being esthetically exciting.
The serving counter of a new John R. Thompson Cafeteria. The Thompson Company has
learned that a luxury cafeteria attracts patrons from higher income brackets. The decor
and atmosphere of cafeterias in the past have been designed to cater to lower and middle
income groups. (Photo courtesy of John R. Thompson Company.)
4
How to Operate a Restaurant
The first restaurant chain of any size was established in 1891—the J. R. Thompson Dairy
Bars in Chicago. Within a few years there were 125 units in operation.
The Oldest Restaurants
Of the thousands of business establishments in this country having histories, only a
handful of restaurants have been in continuous operation for over 50 years. The oldest
food service establishment is probably the Fraunces Tavern in New York City, a small
hostelry with a house specialty of chicken a la Washington, made for George Washington
whose store-bought teeth could cope with such a chopped chicken dish. George's teeth,
incidentally, are on display at Valley Forge.
Other New York City restaurants that have survived are Ye Old Dutch Tavern,
Cavanaugh's, Keen's, the Old Brew House, and Luchow's. No restaurant in Los Angeles
is more than 40 years old. Boston has Loch Ober's and one or two others. In New Orleans
there is Antoine's, which is proud of having opened in 1840. Chicago has Henrici's which
celebrated its 90th birthday in 1958. During their
The Restaurant Business
5
anniversary year a free meal was offered to persons celebrating their 90th birthdays.
The working man's restaurant sprang up by the dozens about the time of World War I and
soon after. Curiously the majority of these were operated by newly arrived immigrants
from Greece. They were an important part of the restaurant business through the 1930's,
but since they are fiercely independent, have not incorporated or developed chain
businesses which are so important today.
In the 1920's several large restaurant chains got underway. Stouffers began to grow into a
fine table service chain. Hot Shoppes developed a combination table-service and drive-in
chain. Cafeteria companies like Forum, Morrison's, S & W, and S & S began to expand.
An early diner, not prepossessing but serving fast food in a friendly atmosphere. The
owner had just returned from the service in World War I.
The White Castle System illustrates the rapid rise of the fast food restaurants. Started in
Wichita, Kansas by E. W. Ingram on a $700.00 investment, the chain now operates 84
hamburger stores. Sales were reported for 1957 as 17 ½ million which includes close to
96 million hamburgers and 777,125 cups of coffee sold. Cost of recent units was
$185,000 each.
6
How to Operate a Restaurant
The original White Castle restaurant in Wichita, Kansas, designed and built by Billy
Ingram in 1921.
Here is a modern-day White Castle restaurant, in Louisville, Kansas, which takes into
consideration the automobile public, and makes use of wide expanses
of glass.
The Restaurant Business
7
Biggest of all chains is Howard Johnson's which started as an ice cream stand in
Massachusetts. Now the chain grosses over $300 million a year and has more than 700
units.
With the popularity of the auto and the need for parking space the drive-in gained patrons
and today is the most dynamic element in the restaurant business. Diners in the World
War I era were built to resemble railway dining cars; today they are sleek beauties
representing investments up to $250,000 each.
Extent of the Business
Restaurants are defined differently by the various states and by the Federal Government
so that restaurant statistics vary. According to the U. S. Bureau of Census, there are
195,128 eating places in this country, or about one restaurant for every 850 persons. The
states with the largest populations, New York, California, Pennsylvania— as might be
expected, have the most restaurants.
Here are the sales figures and number of restaurants in 1956 for the ten states with
greatest restaurant sales:
Number of Restaurants
Sales
New York
22,017 $1,518,927,200
California
18,673 1,046,647,700
Illinois 10,457 641,155,200
Pennsylvania 12,527 544,791,100
Ohio 9,504 493,369,700
Texas 10,747 445,564,700
New Jersey 6,830 371,144,900
Michigan
7,638 369,236,700
Massachusetts 5,830 347,292,400
Florida 5,101 266,193,900
Cities have more meals eaten in restaurants per capita than do most towns and smaller
communities. New York City has more than three times the dollar volume of restaurant
sales than any other city—close to $1½ billion. Chicago and Los Angeles—including
Long Beach— are next with about $485 million annual sales. Sixty-two of the larger
cities account for well over half of the nation's restaurant business. Cities themselves vary
in restaurant business per capita. San Francisco, New Orleans, and Miami are known for
restaurants, while Pittsburgh, Cincinnati, or Kansas City do less business per capita. Of
all the restaurants in the country, only a fraction of one percent can offer what Duncan
Hines called "Adventures in Eating." Over one million restau8
How to Operate a Restaurant
rant employees receive some $2 billion a year in wages. In total, commercial restaurant
sales are close to $10 billion.
Sales are concentrated in the larger restaurants. Sixteen thousand corporations—about
nine percent of the total restaurants—account for approximately 30 percent of the total
business. Several restaurants do over a million dollars sales a year and a few go as high as
$3 million a year in sales. The great number of restaurants—155,000—have sales of
$50,000 a year or less.
Paradoxically, the fast food operations often show a higher percentage of profit than the
more elaborate restaurants. With minimum service and specialty items, selling price can
be low and sales volume increased. The ideal, of course, is to offer quality food in an
attractive atmosphere at moderate prices.
THE NATURE OF THE BUSINESS
The restaurant business represents tremendous variations in atmosphere, serving hours,
menus and customers. There seems little in common between the swank dining room in
many clubs and the 12?* hamburger heaven. Hours of operation vary from "luncheon
only" or dinner service only to 24-hour service. Some restaurants change little over the
years. Antoine's in New Orleans and Henrici's in Chicago take pride in having been in
business for 80 years and longer with only minor changes in menu and atmosphere. Other
restaurants have had to change locations and design every few years to survive.
Although many people have started restaurants having little or no experience, it is the
hard way, fraught with hazards. Better to learn one kind of operation well by working for
a successful operator or chain. Restaurant corporations like Howard Johnson's, John R.
Thompson's, Stouffer's, Morrison's, Hot Shoppes, and Sky Chefs have well developed
training programs on a management level. The programs place the trainee in nearly every
division of the restaurants so that he learns by doing as well as being exposed to ideas, as
in college. Most of the trainee programs are for college graduates.
Kinds of Restaurants
Restaurants can be classified into two large groups, service and self-service. A French
style restaurant with its waiter captains, waiters, and assistants represents the ultimate in
service, with as many as four or five persons waiting on a single guest. At the other
extreme is the
The Restaurant Business
Dining room beauty achieved by carpeting, heavy chairs with padded arm rests,
linen, stemware and lighting. Dining room of the Houston Club. (Phofo courtesy
of Henry O. Barbour, Manager.)
A modern diner, Luther Kohr's in Clearwater, Fla. representing an investment of
at least $1,000 per foot in length of the building. (Photo, courtesy of Diner
Drive-In Magazine.)
10
How to Operate a Restaurant
walk-up or drive-in where the customer places his order at a window, pays for it, and eats
it, unattended, in his car. The usual table-service restaurant has been traditional, but by
the 1920's cafeterias had become popular in the United States and today there is a trend
toward more self-service. Some restaurants are set up to offer a variety of servicecounter, table, and buffet type service.
Another way to classify restaurants is to group them according to the extent of the menu
offered. At the one extreme is the supper club such as the Le Pavilion or Club 21 in New
York City with an elaborate menu of haute cuisine dishes. At the other extreme are
restaurants with single item menus featuring such items as steaks, pizza pie, or
hamburgers.
Counter service, specialty restaurants, and the cafeteria are somewhere in between as
regards menu. Here is a breakdown from simple to elaborate in service and menu:
Table service with extensive, elaborately prepared items; Table service with limited
menu, simple food items;
(Most specialty restaurants would fall into this group) Counter service, usually limited
menus;
(Snack bars, luncheonette, coffee shops would be examples) Drive-in with car attendants
and often waitresses
(Diners would be grouped here also) Cafeteria with extensive menu Cafeteria with
limited menu
(School lunch rooms and most employee cafeterias are in this group) Drive-In or other
restaurants without service
Some restaurants offer counter service, table service, and even cafeteria service, all
served from the same kitchen.
The two variables—amount of service and type of menu—are important distinguishing
factors among restaurants. In large part they determine the complexity of operation. The
shorter, simpler menus with less service require limited skills and knowledge. A
sandwich shop operator may not do well at all in a full-menu table service restaurant.
Segments of cafeteria operation are unknown to operators of others kinds of restaurants.
Some specialized and different information is needed in employee food service. The
same is true for hospital food service and for school lunch feeding. Country and city club
food service, with its emphasis on high cuisine requires specialized information for fine
performance. An American plan resort where the price
The Restaurant Business
11
of two or three meals a day for the guest is a part of the room rate, requires still different
information regarding menu planning, menu pricing, and service. Whenever alcoholic
beverages are sold with food, another body of knowledge—beverage purchasing,
merchandising, mixing, and control—is useful.
Artistry can be an asset. Enjoyment of excitement and ability to make rapid adjustments
are virtues. Personnel problems are the greatest of all problems, but secondary when first
establishing a restaurant. Decisions regarding finance, location, menu, and atmosphere
are critical in getting a restaurant into a profit position.
Attitudes toward restaurateurs vary. Some restaurant operators are highly respected and
esteemed; others may not be. A few men have made fortunes in the business; as chains
grow, more will do so. Many heartaches with great financial and health sacrifices have
occurred and will probably recur in the future. Some operators have not been able to live
well with success.
Some restaurants call for long grueling hours of work by the owners. Others are
comparatively easy to operate. Restaurant work varies from the hot, disagreeable task of
pot washing to the work of policy making in a multi-million dollar corporation. Place of
work can be over a hot stove or in a beautiful, air-conditioned executive suite.
The business can be highly standardized, such as a Howard Johnson's restaurant, or it can
be free wheeling, such as offered by a high-class catering service for private parties. It is
a business which can use all of the imagination, ingenuity and drive a person can possibly
possess. Like most businesses, perseverance and flexibility are valuable and in most cases
required.
Restaurant Profits
Profits are figured either as a percentage on the investment or as a percentage of the gross
income either before or after income taxes. Profit figures are usually stated on sales rather
than investments. Various lease arrangements make investment figures difficult to
compare.
Considering the business as a whole, net profit on sales range from 5 to 8 percent in the
usual successful operation. Profits vary greatly with the style of service, volume of sales
and type of owner. When profits are figured as a percentage of sales the limited service,
fast-food style of operation stands out. Here are the percentages as stated for one of the
walk-up drive-in chains:
12
How to Operate a Restaurant
Food costs
40-45% (includes 5% paper cost)
Labor
17-22%
Indirect overhead
6%
Rent
6%
Depreciation
2%
Miscellaneous
2%
Advertising
2%
Net Profit
20-25%
Percentages of profit are usually lowest in full-menu, total-service operations; higher in
cafeterias, and other restaurants where labor cost is less. Total dollars of profit are higher
in some of the atmosphere restaurants where volume may exceed one million dollars a
year. Dollars are bankable; percentages are not.
A problem in figuring profit is the proper allocation of the owner's salary. Quick service,
24-hour restaurants that have been known to cost $10,000, net an equal amount each
year. If the owner's time is accounted for and a reasonable salary paid, the "net profit" is
considerably reduced.
The First National City Bank of New York reports that leading hotel and restaurant
corporations in this country netted 9.3% on their investments in 1957, and 3.3% on sales.
Compare these figures to the leading grocery store corporations which net 15.8% on
investment but only 1.4% on sales in the same year.
CHAPTER
2
Location
Wouldn't it be wonderful if the selection of a site for a restaurant could be determined
with a geiger counter or a dip stick? We could walk along proposed sites and
nonchalantly wait for the buzzing of the counter or the sharp down pull of the dip stick to
tell us that this is it! Unfortunately, no one has invented the proper device to pinpoint,
successfully, the proper location. Our concern with location is realistic because so much
of a restaurant's success may depend on its location. Furthermore, as time passes a
location that was regarded as an ideal location can slowly turn sour.
With years some locations get better; others get worse. The new Interstate Highway
System is certain to affect many food service operations. Neighborhoods rise and fall;
whole sections of a city die on the vine. New trends, such as suburban living, can
radically change the value of a location. New rules or regulations, shifts in consumer
behavior, spending and income, changes in population, national and local business
activity, union demands, or a change in the time, direction, or density of traffic can
destroy the value of some locations and create wonderful opportunities for others.
How can a successful location be determined? There is no sure fire formula which will
work for all types of operations. All the factors that contribute to proper location must be
analyzed individually in terms of the operator's desires, the type of operation, and the
market for the product. It is self-evident that for each type of operation there can be a
difference in the menu pattern, menu prices, service of food, need for skilled labor,
frequency of food deliveries, and the volume of business necessary to break even. Also, a
state or region should be
13
14
How to Operate a Restaurant
selected that is suitable for you and your family. Although this requirement may not be a
major issue, consideration should be given to the relationship of you and your family
with the community. Are you affected by extremes of temperature, sunshine, snow, or
rain? Are you and your family accustomed to a big city life? Do any of you have a special
health disorder, emotional, or mental block that will be aggravated by the community
environment? Why not consider these and other factors before and not after you invest in
an operation in that area?
If you have decided upon the region in which you prefer to establish your home and your
business, you have already narrowed down your location choices and can begin to make a
more careful inspection of the several communities that you have in mind.
Checks on the Community
The next step is to make a quiet but rather complete analysis of the possible communities.
Are they supported by an agriculture or industrial economy? You are trying to determine
whether or not there will be a sustained demand for your product and the community's
ability to pay now and in the future. Spend several days in each community. Visit the
bankers and business people in the local chambers of commerce. Talk with relatives,
friends, strangers. Get acquainted with the various realtors, brokers, restaurant supply
houses. Check with the local office of unemployment. Be alert to their comments. Are the
people friendly or antagonistic? Do they make you feel welcome? Does a large majority
of persons consider that the town is barely holding its own? Is there a large supply of
labor, food, and equipment available? Can you obtain these at a reasonable cost?
If the town is supported by industries, how many and what types of industries are in
town? Are they diversified? Is there evidence of stability or are most citizens seasonally
employed? Are the companies and the community considered to be progressive and well
managed? Is the trend up or down? What is the trend in population and income growth?
Does the community attract tourists, vacationers, conventions?
After you have evaluated the answers to these questions and have decided on the
community, the next step is to analyze your personal qualifications and the neighborhood
in which you intend to establish your operation.
In order to do this, consider your ability, training, experience, personality, financial
resources, likes and dislikes. In terms of these conLocation
15
siderations you will make or perhaps have made a decision regarding the type of food
service operation that you are best qualified to operate. This decision will certainly affect
your location.
Checks on Your Operation
Your entire management pattern is distinctly different with a drive-in as compared to a
cafeteria or an atmosphere table-service restaurant. Will your operation be a specialty
house or will you feature many popular items? What is your basic menu pattern? Do you
have a high or low priced menu? Have you made an analysis of your basic menu pattern
and determined your probable average check per person? On the basis of the average
check per person and the volume of sales needed to make the desired profit, have you
determined the number of customers needed to attain the necessary sales volume?
At the location that you are considering, what is the direction, density, duration, type, sex,
age, and income levels of the traffic? How does this analysis of traffic compare with the
requirements of your operation? What type of neighborhood is needed for your
operation? Is the neighborhood composed mostly of suburban residents? shoppers, office
help, amusement seekers? Is the neighborhood growing? What are the potential sales now
and the outlook for the future?
As an intelligent businessman, be sure that the business potentials are thoroughly
investigated and a budget made of proposed investment, estimated gross income, general
and operating expenses. You can then make an educated guess as to the financial success
of your venture.
Gross and Net Profit
One operator located in a city of over 190,000 population had a very systematic approach
to the problem of location that illustrates very well how effective these considerations
are. After warning the interviewer that any restaurateurs planning to use his system
should substitute their own figures according to their knowledge and experience with
their particular type of food service, the operator resumed, "First, I determine how much
net profit I want to make from my investment. This net profit figure is before income
taxes and, for me, must be a minimum of $15,000 and a maximum of $25,000 from any
one operation. I multiply this profit by 4 or 5, depending on the type of operation I have
in mind, and the resulting sum determines my maximum investment in the operation.
"For example, I invested $60,000 in this table-service operation and
16
How to Operate a Restaurant
obtain over $15,000 net before taxes annually. In the cafeteria, on the other hand, I
invested $100,000 to obtain $22,000 a year.
"Before I select a location I consider four basic factors: (1) the volume of daily sales
needed to give me the desired profit, (2) the number of meal periods, (3) the basic menu
pattern, and (4) the type of restaurant I plan to operate.
"From my past experience I know that I can expect to make a profit of 10 to 12 percent of
gross sales. Therefore, if the desired net profit is $15,000, my gross sales should be
$125,000 to $150,000. To play it safe I use the $150,000 as the required sales and divide
this figure by the number of operating days in the year, in my case 360 days, and obtain
the required daily sales—approximately $416 a day.
"Next, I consider the number of meal periods and my basic menu pattern. From these two
factors I determine the amount of sales needed for each meal period, the average check
and subsequently the number of people required to produce a given amount of sales each
day.
"For example, before I opened this restaurant, I decided we would not serve breakfast.
My hours of business would be from 11:30 A.M. to 9:30 P.M. After analyzing my basic
menu pattern—considering item popularity and price—I figured that my average check
for lunch would be about $1.00 and my average check for dinner about $1.45. Knowing
this town and the eating habits of its people, I could expect about 40 percent of the dollar
sales volume to occur between 11:30 to 5:00 and 60 percent from 5:00 to 9:30 P.M.
"With these facts I was ready to pinpoint a location. Let's summarize this information so
we can see how we stand.
"First, since I do not plan to serve breakfast, the location must provide on an average a
luncheon volume of $167.00 and a dinner volume of $249.00. This means I must have
approximately 167 customers for lunch and 172 for dinner.
"Second, since my estimated sales are $150,000 annually, I would not want to pay more
than 7 percent rent and probably would not obtain a lease for less than 3 percent.
Consequently, the rental should not be more than $1,050 monthly and would probably be
over $450.
"Finally, I considered my basic menu pattern and the type of food service to offer from
the point of view of the people who would patronize that type of operation and would
want my menu offerings at a given price.
"At that time, I had a choice of two possible locations in the city. One location was in the
heart of the shopping district, which seemed
Location
17
ideal at first glance. However, after a little study, I saw that the rent was too high and the
time, type, and density of traffic was not right for my operation.
"For example, in terms of time of traffic, most of the people crowded the streets during
the morning and afternoon hours but after 5:30 the streets were deserted. In terms of type
and density most of the traffic was women shoppers, housewives, office help, etc. They
usually look for fast service, light meal, low average check, and continue their shopping
or return to their office. Since I was not going to compete with the two ten-cent stores,
one drug store, and three counter lunch operations in that block, I decided on the other
location.
"This site, on the other hand, rents for $700 monthly—less than 5 percent of my gross
sales. Around the corner is the Hotel Essex. Within a radius of three blocks are three
theaters, a bowling alley, the Palace Ballroom, and a shopping and office building
district. Seventy-five percent of my luncheon guests are salesmen and supervisory
personnel from the insurance, bank, and other office buildings in this vicinity. The
remaining 25 percent are clerical help and shoppers. For dinner I have two periods, one
from 5:30 to 7:00 and one from 8:15 to 9:00. These peak periods are created mostly by
people having late business in town, and those who are either going out for early
entertainment or returning to their homes after the first show ends."
Two other considerations should be analyzed to select a location successfully:
competition and the cost and characteristics of the site. Competition means many things
to many people. To some competition is a spur to added achievement—a means to added
success, not an obstacle to overcome. To others, competition is a fearful ghost—a dirty
word. Competition hurts only when the number of operations catering to the same
segment of the population exceeds the demand for the operations.
Looking at competition in this light, it is more often an unreal fear than a concrete reality.
The setting, facilities, services, prices, menu, and personality change from one food
service unit to the other. Each type of operation has a specific set of characteristics that
vary considerably from one another. A short order counter operation is not competing
with a service restaurant or a highway drive-in. A cafeteria is not competing with an
atmosphere table-service restaurant. Their menu patterns, menu prices, and services
appeal to different groups of the total population.
However, in some areas, there may be too many of the same type
18
How to Operate a Restaurant
of food service units as the one you plan to build. Consequently, if your services,
facilities, menus, and prices are the same, you will in all probability appeal to the same
segment of the population and thus be sharing the existing market for your products. One
effective way to determine your potential sales is to check total restaurant sales in a
community where restaurant sales are taxed with the tax division of the state in which the
community is located.
Another possibility is to evaluate your community data in terms of consumer
expenditures for food eaten away from home. In an agricultural area these expenditures
are usually not more than 75^ a week per person in the population. In an industrial
economy this figure may rise from $1.20 to $1.45 per person, depending on the
diversification and stability of industry and the total population. Consequently, the
greater the population and the industrialization of the economy, the larger the expenditure
per person per week.
Note the number of eating places in the community. On an average, it takes
approximately 1,500 people to support a restaurant that desires to attain a $100,000 sales
volume annually. Study the appearances of eating places, the type of management, and
the presence of chains. Each of these factors will affect your decision to locate in the
area. Slipshod methods of management, poor quality food, ineffective advertising and
promotion, unsanitary establishments, all indicate that a large market for restaurant sales
is untapped.
Another consideration in properly selecting a location is the cost and characteristics of
the site. The basic considerations in determining the specific location are the cost of land
or rent, the dimensions and topography of the lot, visibility and accessibility to the lot,
zoning restrictions, real estate values in surrounding areas, the traffic past the lot and the
population within a radius of two miles of the site.
Perhaps this is the most frustrating phase of restaurant development. However, diligence
and patience are desirable virtues at this point. A detailed analysis, and a business-like
approach cannot help but bring greater rewards than any hastily formed decisions.
Building codes and zoning requirements may place restrictions on construction or use of
space which make a restaurant impossible without actually stating that restaurants are
prohibited.
Technical advice may be needed: architects and engineers for an opinion of building
codes, cost estimates, and structural defects; lawyers to study titles, permits, leases, liens
on the property, pending lawsuits; accountants to make a property appraisal, proper asset
valLocation
19
uation for tax saving; or government officials for information on existing regulations
regarding plumbing, health and sanitation or wiring.
Good businessmen never take a chance and hope for the best if there is an opportunity to
obtain the facts and study a proposed action in detail. Most of the successful operations
spend months and sometimes years properly selecting a location. When asked what were
the three most important reasons for the success of his operation, Ellsworth Statler
replied, "Location, location, location!"
This chapter on location may be considered unnecessarily complicated with details.
However, any one of those details may be the one that is important for you and your
operation. Why be hasty or impulsive in selecting a location when with consideration of
all factors you can make a decision that will free you of worry, frustration, and ulcers and
provide you and your employees with a good start in a profitable service operation.
CHAPTER
3
Should You Buy
or
Build?
The fundamental consideration facing all prospective restaurant owners is whether to
build or buy a food service operation. Most of the time analysis of the location and the
characteristics of the sites or physical facilities available are the determining factors in
this decision. At other times, because a variety of opportunities may exist in a single
community, the future restaurant owner is faced with a number of alternatives. In this
case only a detailed examination of certain basic factors involved will enable the
newcomer to make a profitable and satisfying decision.
Assuming that the opportunities of either building or buying a restaurant operation exist
in a single community and that in terms of location value both are equally good, what are
the fundamental factors involved? The simplest and perhaps the most effective method of
determining these factors and their relative value to you is by listing the comparative
advantages and disadvantages of buying or building a restaurant operation.
Advantages of building:
1. Type, size and average check. Your training and experience with a definite type and
size operation many times makes it mandatory to begin with an operation whose
characteristics and operating problems are completely familiar to you. For example, a
table service restaurant is completely different from a cafeteria. More to the point,
however, a table service operation containing a cocktail lounge, incorporating a catering
service or a frozen food or bakery take-out sales department is also different from a table
service operation that does not have these features.
20
Should You Buy or Build? 21
Your experience and training may make it possible for you to offer curb service in
addition to regular table service operation. The layout, physical characteristics and
operating problems are again different from a simple table service operation.
Differences in the seating capacity of an operation bring attendant changes in the labor
force and mechanical equipment required to handle the volume of business. An operator
who is experienced with a table service operation with a seating capacity of 80 may well
find it difficult to operate an identical unit with a seating capacity of 205.
Finally, even within the type of operation other problems arise. For example, an operator
who is familiar with a table service operation that has an average check of $1.25 for
dinner may find himself unable to conduct successfully a table service operation whose
average check is $2.50. The menu, specifications for food, food portions, methods of
processing and service, amount of personnel training needed, linens, atmosphere may all
be completely dissimilar.
A distinct advantage of building therefore is the opportunity to begin an operation by
building it to fit your specific requirements in terms of your training and your experience.
2.
Architectural design. Today's new restaurants are being con
structed to furnish their own theme and sales promotion. Cantilevered
ceilings, types of lighting, signs, parking places, landscaping, and the
exterior design of the building are but a few of the items that are care
fully planned to furnish a steady and profitable sales promotion for the
operation.
When you build an operation, you have the greatest opportunity to make the operation
reflect your own personality, your desire to please the patrons and have the operation
contain within itself its own built-in sales appeal.
3.
Materials, furnishings and equipment. A newly constructed res
taurant operation can and should be designed to take advantage of
all the new types of materials that have flooded the markets today: the
new construction materials, removable sound conditioned ceilings,
natural and synthetic fabrics, flooring materials, lighting, and many
other items can now be selected not only for dramatic or eye appealing
effects, but for long run economy, freedom from excessive repairs and
ease of maintenance.
Add to this advantage the opportunity to select new equipment such as radar ranges, flexseal pressure cookers, and a host of other improved pieces of equipment in the frying,
refrigerating, processing and
22
How to Operate a Restaurant
serving lines and you have a strong reason to build from the ground up.
Disadvantages of building:
1.
Cost. The greatest single disadvantage of building a restaurant
operation today is the initial cost. Generally considerably more money
is likely to be needed to build than either to buy or lease. In a tight
money market, high labor and materials cost, a modest estimate of
investment needed to build a successful operation is $1,000 per seat.
The results of a recent study made by the Can Manufacturers Institute
showed that investment per seat differs materially in all operations.
The investment ranged from $1,800 in a diner to $400 in a small table
service operation. The $400 figure, however, represented an invest
ment in an old established operation.
2.
Working capital. In addition to the amount of cash required to
build and/or equip a new restaurant, working capital requirements are
likely to be much greater for an operation that has recently been con
structed. The established restaurant that is purchased or leased has a
definite volume of business that can be accurately determined. The
new operation, on the other hand, will have a surge of business at the
opening followed by a slow decline lasting anywhere from three to
eighteen months until sales volume stabilizes.
During the time that income is established, cost of labor, utilities and other semi-variable
and fixed expenses may have to be met from a rapidly diminishing working capital. The
cost of food and supplies can generally be met from sales of food; however, advertising,
insurance, deposits for public utilities, legal and advisory expense, house banks, auditors
or bookkeeping expenses, may be considered as a steady drain on working capital. If
items such as insurance, taxes, and licenses, have been prepaid, the minimum amount of
working capital needed to operate the restaurant successfully, take advantage of discount
purchasing, provide an emergency fund for extraordinary expenses and to free the owner
from tension of associated financial problems is six times the estimated monthly payroll.
Advantages of buying an established restaurant
1.
The volume of business is established.
2.
Advantage is taken of the former owner's skill in selecting a
location, determining the menu, purchasing equipment, laying
out equipment, assembling and training labor.
Should You Buy or Build? 23
3.
Eliminates competition.
4.
Is usually easier to finance than to build.
5.
May be a bargain.
The two most important advantages of buying an established operation in preference to
building one are that the volume of business is established and that the former owner has
organized man, machinery, methods and procedures into a productive entity. Without one
or both of these advantages it is seldom profitable to consider purchasing the operation.
The importance of these two advantages therefore, suggests a careful and detailed
analysis of present and future sales, and the valuation of the organizational skill that
created the enterprise. Accountants, lawyers, engineers, purveyors, townspeople, bankers,
realtors, and public officials may have to be enlisted to aid you in a profitable decision.
Accountants should examine the original cost, sales and expense records to help you in
the evaluation of the equipment and inventory, to determine present volume and trend of
sales, to budget and control operating expenses.
Bankers, realtors, and public officials can aid you in determining present and potential
danger areas such as a deteriorating neighborhood, new restrictive zoning laws, shift of
business areas to other sections of the community, plans for new highways or a
redirection of traffic, lease cost and availability if the owner of the restaurant does not
own the land.
A good lawyer will investigate liens on the business assets, clear title to fixed and current
assets, will draw up a purchase agreement protecting you and the business.
Engineers can examine the building for structural defects, describe the adequacy of
heating, air-conditioning and ventilating systems, plumbing and electrical lines, check on
all heavy equipment and estimate costs of remodeling, if necessary.
The purveyors and townspeople can give you a good idea of why the owner wants to sell,
if his operation has a good reputation for paying its bills, and satisfying its customers; in
other words, if the owner ran his business—managed it effectively—or if the business ran
him.
The advantage of eliminating competition is self-explanatory. If the restaurant that is to
be purchased is identical as regards type of services offered, menu selections, average
check and appeal to a certain
24
How to Operate a Restaurant
class of customers, it may be better to purchase the existing operation than to build
another nearby and share the market.
Generally, an established restaurant can be financed much easier than an operation that is
to be newly constructed and equipped. Of course, even with a new operation it is possible
to defer approximately thirty to forty percent of the value of heavy kitchen and certain
other dining room equipment by installment payments. Also, several other financial
arrangements with the owner of the land may be made that are advantageous to both. The
land owner, for example, may agree to build a restaurant operation on his land according
to your specifications and lease the operation to you. Lease cost will then vary according
to the amount of investment by the landowner, contractual agreements regarding exterior
repairs, landscaping, furnishing of utilities, participation in building improvements and
other items. If, on the other hand, your experience, reputation, and training does not
justify this investment by the land owner, he will obviously prefer to sell the land to you
and thus create an additional financial problem that must be met by you.
Most of the operations that are purchased from the former owner are bought with a much
smaller cash outlay than is generally supposed. For example, a restaurant that is offered
for $35,000 can be bought with a $5,000 to $10,000 cash deposit and the remainder
financed through a purchase money mortgage. An established operation may be financed
by relatives and friends, silent partners, the public, through stock purchases, banks and
other financial institutions. Methods of financing and loan sources will be described in
succeeding chapters.
The last advantage connected with the purchase of an established restaurant is that it may
be a bargain. The owner may wish to sell for business reasons: a partner's death or a
husband's death; for personal reasons: poor health, wife's death; decision to retire or
move to another community; or he may wish to sell because his business is unprofitable
or is mis-managed. There are many reasons for selling a going operation. A careful
investigation into the reasons may reveal that the operation is favorably priced and can be
made profitable through your good management.
Disadvantages of purchasing an established operation
1.
Bad reputation.
2.
Over-equipped or over-investment.
Should You Buy or Build? 25
3.
Too much fixed overhead.
4.
No technological advances in construction, use of materials,
equipment, fixtures, and design.
5.
Relatively difficult to promote.
6.
Good will can't be transferred.
The three major factors that should be considered before buying an established operation
are the operation's reputation, the amount of over-investment and fixed overhead. A bad
reputation is always difficult and occasionally impossible to overcome. The reputation
may have been caused by poor quality food, unsanitary conditions, poor service,
untrained and/or unorganized personnel, condemnation by health authorities, former
lawsuits, mis-management, and a host of other reasons. When you purchase an
established operation, you also purchase an established reputation. If the reputation is
bad, you are saddled with a greater-than-average risk. Not only have most of the potential
customers formed the habit of not patronizing the establishment, but also the entire tone
of the business in terms of type of customers and size of the average check has steadily
deteriorated. A talk with the townspeople, purveyors, bankers, chamber of commerce,
and other public officials will usually reveal the extent of damage caused by poor
reputation. An operation that has this type of reputation has no good will and is never a
bargain.
A poor selection of, and too large investment in, kitchen and dining room equipment and
fixtures, is a serious disadvantage that must be considered before buying an established
operation. Where this disadvantage exists, it is usually coupled with a poor layout. In
combination these two disadvantages can ruin your operation before you open the door.
Unless extensive remodeling is done, the layout changed, equipment that is not needed
dismantled, and equipment selected that will be needed in terms of processing your menu
properly, service will be slow, food quality will be poor, employee morale will be low,
and your customers dissatisfied.
The other major disadvantage, too much fixed overhead, is so serious that this factor
alone can and should dissuade you from purchasing an established operation. Items such
as rent, licenses, insurance costs, taxes, mortgages and other outstanding obligations that
you are asked to assume may be all out of proportion to the potential sales.
There are only two ways to make a profit: increase sales or reduce costs of operation.
When sales cannot be increased and costs are ex26
Should You Buy or Build?
cessive and fixed, your chances of continuing the operation successfully are very slim
indeed.
The remaining disadvantages are not as serious as those previously mentioned, but they
should be considered. Generally obsolete equipment, poor construction and use of
materials in fixtures and design are and should be reflected in a lower purchase price.
The relative difficulty of promoting an established operation in contrast with a sparkling
new operation can be overcome to some degree by advertising, changes in store fronts,
methods of service, interior decorations, and other operational procedures.
Many times the reason an operation is successful is not because of good food at moderate
prices or its location, but more important, it is successful because the total atmosphere is
a reflection of the owner's personality. The operation radiates with high employee
morale, hospitality, warmth, and the owner's very evident desire to serve and please his
guests. This good will cannot be transferred easily. Obviously it is of great value to the
new owner because a high volume of sales is assured during the first few months of
operation. Customers are in the habit of patronizing the operation. However, if the former
owner's personality and friendliness is not matched, sales will drop and a number of
operational headaches will arise. The value of good will therefore should always be
analyzed in terms of whether the good will is created because of an ideal location, the
need for the services the operation offers, or if it is tied to a single man's personality.
Determination of Purchase Price
In addition, if the prospective owner decides to operate an established unit, many
problems arise that might not appear if he built from the ground up. Since the most
important problems can be grouped in the classification of tax and valuation
considerations, the final section of this chapter concerns itself with problems in this
category.
There are only three basic procedures which a restaurant operatoi can use to take over an
established food service operation: he can purchase, lease or trade. If the restaurant is
incorporated and he decides to purchase, the prospective owner has the further problem
of deciding whether to buy the assets for cash or purchase the stock of the corporation.
Each decision may have a vital bearing taxwise and will directly affect the profit picture
for years to come.
Should You Buy or Build? 27
The basic concept motivating the prospective operator's thinking is to take over the
operation at a reasonable cost and in such a manner that the consumption, use,
deterioration, and obsolescence of the assets are reflected as soon as possible in the
reduction of taxable income. The underlying theory is to obtain the quickest return on the
investment in an operation by realistically including as expense the utilization of assets,
thereby reducing taxable profits.
The problem of determining the total price and the subsequent valuating of assets is a
good illustration of this procedure. The total price that may be offered for an established
operation varies with the volume of business, the percentage of estimated profits and the
number of years required to recover the investment in the operation. A rapid rule of
thumb formula for determining total investment in the operation is the multiplication of
estimated profits before income tax by a price factor of 2Vi to 5, depending on the
volume of business.
The price factor will increase in proportion to the increase in sales volume because of the
close relationship between total investment in an operation and volume of business. An
investment of $10,000 for example should result in obtaining a sales volume of at least
$40,000, whereas an investment of $100,000 in an operation may mean that sales volume
is expected to reach a minimum of $250,000.
To illustrate this concept of price determination, if a prospective owner on the basis of his
experience estimates that he should obtain as profit before income taxes, 10% of sales,
the investment percentage factor is this 10%.
Example 1
Example 2
If, on the other hand, the prospective owner estimates that he will obtain as net profit
before income taxes only 5% of sales, his total investment factor is five percent.
28
How to Operate a Restaurant
Example 3
Example 4
From the above examples an important principle can be deduced. The estimated valuation
of a restaurant will vary according to the amount of profits expected by the buyer and by
the owner. The difference therefore between the price asked and price bid may be thought
of as operational efficiency index. If the owner of the restaurant is operating with the data
shown in example 1, the asking price of $30,000 is realistic. On the other hand, in the
same situation, if a prospective operator bids $15,000, shown in example 3, the owner
will not sell. The difference between the two valuations has come about because the
owner can operate twice as efficiently as the buyer. Consequently, on this basis alone he
will not sell because he refuses to be penalized for the buyer's inefficiency.
After a careful analysis of the balance sheets and the profit and loss statements, a realistic
total valuation can be placed on the business. All figures should be independently
checked by a CPA trained in the necessary investigation. The investigation should cover
all the items found on the financial papers. A complete analysis involves the valuation of
current and fixed assets including a description of the condition, present value and title of
tangible assets, and the estimated value of intangible assets such as good will; the type
and amount of current and fixed liabilities that may be assumed by the new owner; an
appraisal of present net worth, a detailed study of profits claimed, based on the owner's
income tax returns and a report of the type, amount and reasonableness of the expenses
shown in the profit and loss statements and in the income tax returns.
The result of following the two procedures outlined above is that three valuations are
placed on the same property: the present owner's valuation—this usually includes good
will, the rule of thumb formula based on operational efficiency, and the financial analysis
based on a study of profits claimed and expenses incurred and on the appraised values of
all assets minus any claims on the business not made by the owner. If the three appraisals
of valuation are made realistically, the
Should You Buy or Build? 29
present owner's valuation is usually the highest, the rule of thumb appraisal is the median
and the financial appraisal excluding good will is the lowest of the valuations made. In
almost all instances the final purchase price will be determined somewhere below the
present owner's valuation and above the rule of thumb appraisal.
Tax Considerations
Taxwise the concept of valuation of assets is based on placing a high value on all short
lived assets and a low value on all long lived assets. Assets such as food inventories,
liquor inventories, paper supplies, and cleaning supplies, should be valued at a high
figure. Assets such as buildings, ranges, ovens, dishwashing machines, and other heavy
equipment should be valued low. A little thought on assets such as land and good will,
which will last as long if not much longer than the business, will clearly demonstrate that
they should be valued low.
The reason for placing high or low values on assets in this manner is to reduce taxable
income as much as possible the first years of operation. The investment in short lived
assets is returned in the form of expense such as depreciation, repairs, and maintenance
replacement, or cost of goods sold, reducing profits and in the case of depreciation,
increasing working capital available.
The section on tax savings describes certain procedures thoroughly. At this time it is
sufficient to point out the following rules.
1.
If other circumstances justify the decision, lease the land in
stead of purchasing. The lease cost is deductible each year. The cost
of purchasing the land is not a deductible operating expense.
2.
If land and building are purchased, allocate greater value to the
building and less to the land. Investment in the building can be re
turned in the form of depreciation. Land, on the other hand, cannot
be depreciated.
3.
If purchase money is needed, finance through bonds rather than
stock. In addition to broadening the ownership equity, financing
through sale of stock involves double taxation later when dividends
are paid. Interest on bonds is a deductible expense.
4.
Consider leasing equipment having a life of 10 years or more.
Lease cost is immediately deductible. The cost of purchasing the
equipment can only be recovered through depreciation over a 10-year
period or the estimated life of the equipment. Where equipment may
be financed through a lease, a graduate percentage lease based on
sales volume fluctuations is much better than a fixed rental cost. As
30
How to Operate a Restaurant
sales volume increases, payments for equipment increase, reducing taxable income. As
sales volume decreases, payments decrease, conserving working capital.
5.
If the owner is willing to offer a purchase money mortgage to
aid in financing the purchase of the restaurant, consider reducing the
amount of the principal and increasing the interest rate. Interest is a
deductible expense, repayment of principal is not.
6.
Separate promotional, administrative and certain legal costs
from total organization cost or building construction cost. Organiza
tion expense is not a deductible expense in the year the cost was in
curred. It cannot be deducted until the business is discontinued.
Similarly, building construction cost is an addition to the value of the
building, and as such is deductible only through long term deprecia
tion. Expenses of promotion, advertising, real estate taxes, and admin
istration on the other hand are usually deductible as expenses in the
fiscal year in which they were incurred.
7.
If estimated profits are well over $25,000 annually, consider
dividing your organization into two or more organizations: one organ
ization owning the fixed assets and renting these assets to the operating
organization. For example, have two partnerships or two corporations
instead of one.
8.
If you are a present owner of an established restaurant whose
value is considerably depreciated, consider a trade of properties instead
of a sale and subsequent purchase of property. When a sale is made,
the difference between the book value of the property and the sales
price represents a capital gain and the profit is taxed accordingly. The
capital gains tax can be very substantial. The trading of properties,
on the other hand, is a tax free exchange where no gain on the trans
action has been made.
To illustrate, take the case of a restaurant valued at $50,000 that can be resold for
$100,000. If the property is sold, there will be a gain of $50,000. But if it were exchanged
for another restaurant valued at $90,000 and $10,000 in cash, the taxable gain will be
limited to the amount received in cash or in this instance, $10,000.
If on the other hand this same restaurant were traded for another valued at $90,000 and
no cash or securities were received, the exchange would usually qualify as tax free. The
$10,000 difference between the resale value of $100,000 and the traded value of $90,000
would not be treated as a loss. There may be a gain in trading properties, but losses are
never recognized on any tax free exchanges.
CHAPTER
4
Which Form of Business Organization Is Best for You
There are three basic forms of organization through which a food service operation may
be initially organized and operated. Most of the 195,200 restaurants in the United States
are organized as individual proprietorships. This number is followed closely by the
partnership form of organization. The corporate form of organization is at present a very
small percentage of the number of food service operations.
Bulletin R. 22, 1954, Bureau of Census reported:
195,128 eating places in the United States, 1 eating place for each 800
population (est.)
141,000 individual proprietorships accounted for over 50% of the
restaurant industry's sales
35,000 partnerships accounted for over 21% of the restaurant in
dustry's sales
16,000 corporations accounted for approximately 30% of the restaurant
industry's sales
240 individual establishments have sales of over 3½ million dollars
annually
18,000 individual establishments have sales of over $1,000,000 but less than $5,000,000
annually
Two interesting observations may be made at this point based on the information shown
above.
1.
The restaurant industry is overcrowded and highly competitive.
In order to make $3,000 annually, there should be 1,400 people for
every restaurant. At present over 154,000 establishments have less
than $50,000 annual sales.
2.
Where energy, skills, training, and personalities, can be com
bined in one organization as in partnerships or corporations, the
organization has a better chance to prosper. Partnerships and corpora31
32
How to Operate a Restaurant
tions comprise about 26% of the total eating establishments and account for over 51% of
sales. Partnerships comprise approximately 17% of the total eating establishments but
account for 21% of total industry sales. Although corporations are less than 9% of the
total eating establishments, they account for 30% of sales.
Each of the three forms of organization have certain distinct advantages and
disadvantages and require careful study before a definite choice is made. The decision to
operate as sole owner, with a partner, or to corporate, involves consideration of the total
resources of the prospective owner of a business and the selection of an organization that
is specifically designed to supplement the owner's assets without adding undesirable
features that remain fixed in the organization formed. Usually a certified public
accountant and a lawyer should be retained to aid the owner in making a proper decision.
INDIVIDUAL PROPRIETORSHIP
Definition
When a business is organized so that one person has control of the assets of the business,
sole power to make management decisions affecting the operation of the business, and
unlimited liability for any claims against the business, the organization is known as
individual proprietorship.
Organizational Procedure
The individual proprietorship differs from both the partnership and corporate forms in not
requiring contracts or complicated legal procedures to organize. The prospective owner
of the restaurant finances the purchase of the business assets, registers the trade name of
the restaurant at the recording office, and receives the necessary license or licenses and
permits to operate his restaurant.
Advantages and Disadvantages
The advantages of organizing the business as an individual proprietorship are as follows:
1.
The individual proprietorship can be organized without formal
permission.
2.
This form of organization provides the owner with absolute con
trol of the operation. He can select his own menu items, labor force
and equipment; decide on the promotion, accounting systems, investBusiness Organization
33
ment, type of service that he wants to initiate; has complete freedom of operation with no
interference from partners or stockholders.
3.
The sole owner of an operation does not have to divide his
profits with others.
4.
As a single owner of an operation all the data regarding profits,
costs, methods of operation can be kept private.
5.
In contrast to a corporation, the sole owner is not required to
pay excess profit tax, capital stock tax, transfer tax, tax on retained
earnings; nor is he taxed twice on income of the business.
6.
In contrast to the corporation and the partnership form of
organization, the individual proprietorship can be dissolved easily
or sold.
The disadvantages of the sole proprietorship are as follows:
1.
The sole owner must bear all the responsibility of operation.
2.
He has unlimited liability regarding any claim on the business.
The liability includes not only his business but also his personal assets.
3.
Initial capital requirements are greater for the individual pro
prietorship than for either the partnership or the corporate form of
organization.
4.
Credit is more difficult to obtain. Creditors have recourse on
the business and personal assets of only one person.
5.
Since one person's time and energy are limited, he must either
develop a large operation capable of bearing the cost of executive or
managerial aid or he must devote most of his total time and energy to
the operation.
6.
There is no division of skills or abilities in the proprietorship.
The owner can depend only on himself to be a host, an accountant, a
purchasing agent, a cook and a personnel manager.
PARTNERSHIP Definition
The partnership is a contractual association of two or more persons to carry on as coowners of a business for profit.
Organizational Procedure
To organize a partnership two or more persons who have the legal capacity to become
partners must agree to carry on, for certain considerations, a business operation for profit.
Although the partnership agreement can be either oral or written, expressed or implied,
the
34
How to Operate a Restaurant
agreement is based upon a contract and therefore should be in writing. Because there are
so many points covered in a partnership agreement that are points of dispute, the contract
should be drawn up by an attorney and examined by a qualified accountant. Among the
important points to be covered by the contract, called the articles of partnership, are the
following:
1.
The partnership name, the names of the partners, and a de
scription of their special duties.
2.
The date when the contract shall become effective and the
date when it will terminate.
3.
The nature and place of business.
4.
The amount of capital to be contributed by each partner.
5.
The type of records to be kept.
6.
The dates when the books are to be closed and the profits are
to be divided.
7.
A detailed description of intention of the partners regarding
the amount and distribution of salaries or profits.
8.
The amount of drawings to be allowed each partner and the
interest, if any, upon these withdrawals.
9.
The method of dividing losses.
10.
The method of settling disputes and the provisions for arbitra
tion in the event of disputes.
11.
Provisions regarding death of a partner.
12.
A detailed description of the conditions under which the part
nership will be dissolved or a partner be permitted to withdraw.
Advantages and Disadvantages
The advantages of a partnership arrangement are as follows:
1.
There is an immediate pooling of skills, training, experience,
and abilities.
2.
The partnership can obtain more credit than an individual pro
prietorship.
3.
More capital is available when two or more form a partnership
than when either one of the partners attempts to operate as a sole
owner.
4.
The partnership contrasted with the corporate firm does not pay
excess profit tax, capital stock tax, transfer tax, tax on accumulated
earnings and is not taxed twice on income of business.
5.
The time and energy required to operate a business are shared
by the partners.
Business Organization
35
The disadvantages of a partnership form of organization are as follows:
1.
Each partner may be held liable for all the debts of the partner
ship. As a principal in the partnership and as an agent of the partner
ship all the business and personal assets of a partner (except those
personal assets specifically exempted under the bankruptcy laws) may
be claimed by creditors.
2.
Each partner has the right to make contracts binding the part
nership. This right can be a dangerous one to the total partnership
relation.
3.
Control of the operation is divided. In most partnership agree
ments there is a division of power which may interfere or create dis
putes in the normal running of the operation.
4.
Profits are divided in partnerships.
5.
Death of one partner ends the partnership relation.
6.
Unless all contingencies are clearly written out in the articles of
partnership, a partnership is difficult to dissolve.
7.
The partnership creates difficulty in either trade or division of
assets in case of dissolution.
8.
Very difficult to sell partnership interest.
CORPORATION Definition
The corporation is an organization of human and physical assets created as a legal entity
by law, and empowered to operate a business under a special name and within the
limitations of its charter with the capacity of perpetual continuity as a business.
Organizational Procedure
After the necessary planning and promotion of the new business, the first step is that of
selecting the state from which a charter granting life and entity to the corporation will be
obtained. Considerations such as taxes, legal restrictions, and attitude of the state will be
important points in arriving at a decision.
After selecting the state of incorporation, the incorporators prepare and file an application
for a charter with the proper public officials such as the Secretary of State and the County
Auditor. This application is called the certificate of incorporation and contains all the
information that is to constitute the charter for the corporation.
36
How to Operate a Restaurant
Because the content of this certificate is governed by the laws of the state of
incorporation, generalization is difficult. In most cases, the certificate of incorporation
includes the name, principal office, purpose or purposes, description of total and classes
of capital stock, names of incorporators and directors, amount of paid-in capital, and
other charter provisions of the corporation.
If the law is complied with and the filing fee is paid, a charter is issued or a copy of the
articles of incorporation serves as a charter. Following the incorporation, the
incorporators or original shareholders adopt the bylaws, elect directors and officers and
are legally ready to do business.
This description of corporate organizational procedure is not intended as a portrayal of
the ease with which a corporation may be organized. The purpose of the description is to
present a broad general view of the important procedures necessary to the formation.
Realistically, formation of an effective corporation requires not only a knowledge of
finance but also a knowledge of law and of business management.
Advantages and Disadvantages
The advantages of a corporate form of business organization are as follows:
1.
Limited liability of the owners. The liability of the stockholders
is ordinarily limited to the par value of shares. In most cases the stated
value of the shares shown in the articles of incorporation and on the
stock certificate means very little. Under normal circumstances the
corporation's creditors can obtain satisfaction for their claims only
out of such property as the corporation may own.
2.
The stability and permanence of the corporation differs from
both the individual proprietorship and the partnership. The proprietor
ship begins and ends at the will of the owner or at his death. Partner
ship can be brought to an end by the death, withdrawal, bankruptcy,
or legal disability of any single partner. The partnership interest can
not be transferred to another by gift or by will.
In most states, on the other hand, a corporation can receive a charter giving perpetual life.
In the states which do limit the life period, the life of the charter may be easily and
indefinitely prolonged by renewal of the charter.
3.
Ease of transferring ownership interests. In the partnership
because of the personal relation of the partners and the possibility of
Business Organization
37
injury to creditors, the sale of ownership rights is very difficult. The owner of a share in a
corporation, on the other hand, may transfer his interest whenever and to whomever he
pleases.
4.
The corporate form of organization has a decided advantage
over both the sole owner and the partnership organization in obtaining
capital. Many people will risk small amounts of money in order to
invest or speculate for big profits. This is so, especially in the organiza
tion that offers participation in ownership profits with little or no
liability for claims against the owners.
5.
Professional management and control is provided in the corpo
rate form of organization. In contrast to the owner who is the sole
arbiter of his business or to the partnership in which it is difficult to
restrain partners to specific tasks, the corporation centralizes its man
agement in the board of directors who appoint professional officers to
do the actual managing of the corporation.
6.
A corporate form of organization can usually obtain credit
easier than other forms of business organization.
7.
Certain tax advantages are possible with the corporation. These
advantages include:
(a)
Employee stock holders can be included in profit sharing
or pension plans of the company.
(b)
Directors can control dividend payments, thus avoiding
double tax.
(c)
Can use tax money to build up working capital because
taxes due can be paid the year following the period in
which they were earned.
Disadvantages of corporate form of organization are as follows:
1.
A corporation may be difficult and expensive to start. The crea
tion of a corporation gives rise to a great deal of expense and effort. In
some instances the formalities of incorporation, the legal expenses and
other fees can be prohibitive.
2.
State and Federal regulations and restrictions affect the opera
tion of a corporation much more than other forms of business organ
izations. Because the corporation is created by the state, reports of the
activities and finances of the business must be made at regular inter
vals. In addition, reports to federal and state governments for various
tax purposes must be made, even if no tax liability exists. The corpora
tion's business activity is limited in terms of the approved certificate of
38
How to Operate a Restaurant
incorporation and unless qualified, cannot do business outside of the state of its
incorporation.
3. Corporations seem to be singled out for several types of taxes that are not incurred by
partnerships or individual proprietorships. The corporation must pay an incorporation tax
or fee when it is organized, a franchise tax annually, an accumulated earnings tax, a
surtax on excess profits, a transfer tax, and a double tax on an income distribution to its
stockholders. The most serious aspect of taxation is that of double taxation. A corporation
first pays income taxes on its profits, then the stockholders pay income taxes on the
dividends they receive from these same profits.
The purpose of this chapter is to present enough basic considerations upon which a
proper decision regarding the form of business organization can be made. Although the
information on organizational procedures and advantages and disadvantages of the three
basic forms of organization is complex, in reality a correct decision can be made if three
rules are followed.
Three Rules for Correct Decision
The first rule is to know all the advantages and disadvantages of each form of
organization and to realize that many of the disadvantages can be eliminated. For
example, although a corporation pays an incorporation tax and an annual franchise fee, in
most states these taxes are relatively small and unimportant. Double taxation on profits
can be eliminated if the dividend policy is controlled. Tax on accumulated earnings can
be avoided if the intent of the owner is to invest earnings so that the competitive position
of the corporation is maintained or to increase its operational efficiency. Surtax on
corporate earnings can be avoided by dividing the single corporation into two
corporations or the two corporations into three, four or five corporations.
In a similar fashion certain other features of the partnership and individual proprietorship
forms of business organization can be circumvented. Partnership liability can be limited
if a partnership association or limited partnership is created. In this case the owners of the
limited partnership are in the same position as corporate stockholders; that is, they will
have no liability beyond the subscription price of their stock.
A sole owner can create a partnership by transferring partnership interest to other
members of the family. He can make a gift of operatBusiness Organization
39
ing assets to the children, then have them make lease arrangements with his restaurant,
charging him for the use of his assets.
The second rule is to analyze yourself and your requirements in terms of the form of
organization. Basically, there are seven major factors to consider in relating the
organization to you. The factors are: liability, division of profits, control of operation,
span of time and energy, amount of training, financial resources, and transferability of
business interests.
For example, if your personal assets are much greater than the proposed investment in
business assets and you do not want to be held liable for business claims, the business
must be organized as a corporation. If your training, experience and financial resources
are small, the business must be organized as a partnership or corporation. If you do not
want to divide profits, establish a family partnership or an individual proprietorship. If
you want absolute control of the operation, establish an individual proprietorship or a
corporation. In the case of a corporation, you will need 51 percent of the common stock.
If you do not desire to put in 18 hours a day in a small restaurant or your time and energy
is limited, form a partnership or a corporation. If you plan to transfer your business
interests in the future, form a corporation or an individual proprietorship.
The third rule is to obtain the advice of a lawyer and an accountant. The lawyer's duties
are to protect the owner's interests and to see that necessary forms are drawn up in full
accordance with the legal requirements of the state and according to the expressed or
implied wishes of the owner. A qualified accountant will advise the owner in valuation of
assets, and organization of the business so that excessive taxation is eliminated. Much of
the difficulty of operation can be avoided by taking the proper steps before the business is
organized. The greatest opportunities for tax savings arise when the business is being
organized and when it is being sold.
CHAPTER
5
The Purpose and Use of Credit and Credit Instruments
Basis of Credit
The ability of an individual or firm to obtain credit depends on the prospective creditor's
belief that the individual or firm will be able and willing to repay at some specified date
in the future. The basis for credit then will depend on the debtor's ability to pay—the
nature and value of his capital or present investment, his present and future income, the
size and type of other claims and obligations; and on the debtor's willingness to pay—his
character and reputation for honesty, business ability, and for prompt payment of past
obligations.
Classification of Credit
Of the many classifications of credit that have been made, several categories are
discussed in the following paragraphs. These classifications are based on the length of
time credit will be utilized, whether the credit is secured or unsecured, and whether credit
is used to finance purchases of fixed assets for consumption or production purposes.
On the basis of the length of time credit is utilized, credit may be categorized as demand,
short term, intermediate term, and long term. Credit that is given to a debtor and payable
immediately or whenever the creditor demands payment is called payable-on-demand
credit and represented by such instruments as government notes, commercial bank notes,
or call loans.
Short term credit is any credit given to a debtor, the repayment of which is not on demand
of the creditor but at a stated date that is less than a year later. A promissory note is a
good example of this type of credit.
40
Credit and Credit Instruments
41
Intermediate term credit differs from long term credit in that the former applies to
obligations running from one to five years and long term credit applies to any debt that
runs for more than five years.
Since a borrower may obtain credit through a "character" loan or by pledging assets such
as securities, cash values of insurance, or other assets having a determinable value, credit
may properly be classified as secured or unsecured depending on whether or not an asset
or income has been pledged to obtain a loan. In most instances, except for demand or
short term debt, the new man in business must put up enough collateral to secure the debt.
The classification of credit according to the use of the money obtained may be described
as either consumption and production credit or credit to finance current or fixed assets.
On the basis of consumption or production the money is used for the purposes of
obtaining either goods or services that will be utilized immediately (consumption) or is
used to increase the productive activities of the business (production).
Credit used to finance current or fixed assets is self explanatory. In either case short term
credit is generally used to finance the purchase of current assets, consumption of goods
and services; and intermediate or long term credit is used to finance the purchase of fixed
assets or production activities.
CREDIT INSTRUMENTS
Definition
A credit instrument may be defined as a legal document evidencing the existence and
terms of a credit or debt contract. Credit instruments as defined in this paragraph will
therefore include promissory notes, bills of exchange (checks, sight or demand drafts)
leases and mortgages.
Major Classification of Credit Instruments
A very important classification made of credit instruments is the distinction as to their
negotiability or non-negotiability. This classification is vital, not because a credit
instrument can or cannot be sold— all credit instruments can be sold-—but more
important, whether title to the instrument is transferred by assignment or by endorsement.
When a title is transferred by assignment, the person accepting title to the instrument—
the assignee—has no better right or title to the
42
How to Operate a Restaurant
credit instrument than the title or right possessed by the assignor. There is no
unconditional promise to pay in an assigned credit instrument.
On the other hand, when a title is transferred by endorsement, the holder of the
instrument is protected by several special advantages conferred by the negotiable
instruments law, including an unconditional promise of the debtor to pay.
Negotiable Instruments
Credit instruments whose titles are transferred by assignment are governed by the
Uniform Negotiable Instruments law and are known as negotiable instruments.
The first important objective to be achieved is the development of an adequate
understanding of the difference between a negotiable and a non-negotiable instrument.
Because of the special privileges for holders of negotiable instruments, the kinds of
instruments to which such privileges belong are strictly defined. Any instrument that
doesn't conform to all the distinctions of a negotiable instrument will be governed by
other rules and not by the law of negotiable instruments.
Section I of the Uniform Negotiable Instruments law reads ... An instrument to be
negotiable must conform to the following requirements :
1.
It must be in writing and signed by the maker or drawer.
2.
It must contain an unconditional promise or order to pay a cer
tain sum of money.
3.
It must be payable on demand or at a fixed or determinable
future date.
4.
It must be payable to the order of bearer.
5.
Where the instrument is addressed to a drawer, he must be
named or otherwise indicated therein with reasonable certainty.
Note that all of these requirements must be met to make an instrument negotiable.
However, an instrument is held to be in writing even though it is printed or typed and the
amount to be paid under an instrument is a sum certain even though it is to be paid with
interest in an unnamed amount. In contrast to these reasonable assumptions, a promise to
pay thirty days after ... I sell the dishwashing machine . . . I receive my check ... or I sell
the store ... is not an unconditional promise to pay. You may not receive the check, nor
sell the machine or the store. An instrument, therefore, that is so conditioned is not
negotiable.
Credit and Credit Instruments 43
Promissory Notes
Before the importance of negotiability or non-negotiability of credit instruments can be
properly demonstrated, several illustrations and principles should be considered. Figure 1
below is a negotiable promissory note.
FIGURE 1
A promissory note is a statement in writing made by one person to another and signed by
the maker, promising to pay on sight or at some future date an amount of money to the
bearer. Usually there are at least two parties to a promissory note, the maker and the
payee. The payee may be bearer or a specified person.
If the promissory note contains: (1) an unconditional promise, (2) in writing, (3) to pay a
certain sum of money (4) on demand or at a determinable time (5) to the bearer or to the
order of a specified person, the note is negotiable. If any one of these conditions is not
met, the note is non-negotiable.
Promissory notes, like other credit instruments, will of course vary considerably from one
another. They will differ in such items as time of maturity, security, interest, and amount
of money.
Bills of Exchange
In contrast to promissory notes, bank notes, bonds, bank deposits, and other credit
instruments that are promises to pay, bills of exchange or drafts are orders to pay.
Instruments such as checks, trade drafts, trade acceptances, and money orders are
unconditional orders in writing signed by the person giving the order, and requiring the
person to
44
How to Operate a Restaurant
whom the order is addressed to pay on demand or at a determinable time, a fixed sum of
money, to bearer or to order.
Bills of exchange may be classified in several ways. Two important categories are based
according to the type of person or firm who is ordered to pay and according to the
amount of time elapsing before maturity date. To illustrate these classifications, an order
on a bank to pay is a bank draft; to another type drawer, a trade draft; a draft ordering
payment immediately or on demand is a sight draft or demand draft; an order to pay after
a certain lapse of time is a time draft.
In most cases there are three parties to a draft: the drawer—the one who orders payment,
the drawee—one who is ordered to pay, and the payee—the one who will receive the
payment.
FIGURE 2
Figure 2 is familiar to everyone as a bank check. Because the chief use of a check is to
transfer credit from one account to another, a check is also a credit instrument. In
addition, because the check is (1) an order to pay (2) on sight and (3) the drawee is a
bank, the check is known as a sight bank draft. If the draft were payable only after a
certain lapse of time, the order is called a time bank draft or a time trade draft, depending
on the drawee involved. Figure 3 illustrates a time trade draft.
The basic difference between a promissory note and a bill of exchange is that the first is
an unconditional promise to pay and the second is an order to pay. If all the legal
requirements are met, the promissory note is a negotiable credit instrument whereas the
bill of
Credit and Credit Instruments 45
exchange is not negotiable unless the order to pay is converted into a binding
unconditional obligation to pay.
For example, the trade draft shown in Figure 3 can be converted into a negotiable credit
instrument by the drawee accepting the order to pay. When the order to pay is "accepted,"
signed and dated, the trade draft is transferred into a trade acceptance that may be used
over and over again in financing and trade.
FIGURE 3
To illustrate the practical uses of the trade draft, study the following situation connected
with Figure 3. John Smith, a manufacturer of cash registers, receives an order for a cash
register from the Department of Hotel and Restaurant Administration. The Department,
however, does not wish to pay for ninety days and Smith does not wish to surrender title
to the register. The problem can be solved in this manner.
Smith ships the register to the department, consigning it to himself and receiving a bill of
lading. The bill of lading, representing title to the register, is sent together with the draft
to the local bank in Florida. The bank presents the draft to the Department for acceptance
and then gives the Department the bill of lading so that it can claim the register.
The time trade draft is now a trade acceptance held for or by Smith. If he desires, he may
keep it for ninety days or endorse it and sell the acceptance to a bank or any investor. The
bank may resell the acceptance to other investors and this may continue several times
before the maturity date has elapsed.
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How to Operate a Restaurant
Recommendations
A summary of important facts regarding the credit instruments described to this point will
include the following material:
1.
If you give credit, make sure that the debtor gives you an
unconditional promise to pay.
2.
If you accept a promissory note or bill of exchange, see that it
is negotiable.
3.
Remember, a credit instrument payable to bearer can be trans
ferred by mere delivery of the instrument, but an instrument payable
to a person or his order can only be negotiated through delivery and
endorsement. This means if you endorse a check in blank and a check
is stolen or lost and is subsequently cashed at a store, there may be
nothing you can do about it except find the original thief. The blanket
endorsement makes the instrument payable to the bearer. If the owner
of the store who cashed the check did so in good faith, he becomes
the legal owner of the check.
4.
If you intend to transfer a check to your account, endorse it
"For Deposit Only."
5.
Do not sign any uncompleted credit instruments. If an innocent
purchaser of a negotiable instrument presents the instrument for pay
ment, the drawer will have a difficult time preventing the establishment
of his liability.
6.
The words "I promise to pay" in an instrument signed by more
than one person make the signers jointly and severally liable, exactly
as though they had written "we."
7.
Regardless of the fact that you use an assumed name, trade
name or any name, Section 18 of the Negotiable Instruments law pro
vides that you cannot escape liability if your signature is on the instru
ment.
8.
An infant's promise on a negotiable instrument is not enforcible.
If Jones, 18 years old, receives a check payable to his order or endorses
a check as a drawer, the infant may be held liable for fraud if the
endorsement or drawing is fraudulent. However, if his actions are not
fraudulent, Jones is not liable as either endorser or drawer. A person
receiving the check will not be able to recover from Jones unless he
affirms his promise after majority.
9.
As a creditor you may accept a check for a lesser amount even
though it is marked paid in full and still move to collect the balance,
// there is no question as to the amount due. If there is a dispute over
Credit and Credit Instruments 47
the amount due, however, return the check and sue. Acceptance of the check in this
instance will usually liquidate the claim. The payee may not sue for any balance.
10.
A maker of a check or a holder who negotiates a check are
guilty of a crime if they know that there are insufficient funds or credit
to meet it.
11.
In most instances do not accept post-dated checks. A check
properly dated is an implied presentation that the drawer has sufficient
funds on deposit to meet the presentation for payment. A post-dated
check is a mere promise to pay at some future date. Fraud is never
presumed, but in this case must be proved by the payee.
12.
All states have bad check laws designed to protect the payee.
However, since most of these laws define the act as a misdemeanor
or felony requiring criminal action, restaurant operators are cautioned
not to call up or otherwise threaten the drawer of the check. Ask for
information concerning the check without making threats. If a threat
is made, the operator may be charged with a penal offense in some
states or blackmail or extortion in others.
LEASES
If you have a 5-year lease and you continue doing business for 5 years and 1 day, how
much rent will you owe the landlord? One day, 1 month, 1 year, 5 years? If the restaurant
you are leasing burns down or is otherwise damaged to the extent that business is
completely interrupted, are you required to continue lease payments? Common sense may
probably tell you that you are required to pay only 1 day's rent or if you cannot open for
business, you should not pay rent. The law and the small print on the lease, however, may
say otherwise.
A lease is an agreement entered into between a lessor—the landlord —and a lessee—the
tenant—conveying possession of property and certain rights from the lessor to the lessee.
Note that a lease conveys a right to the possession and use of a property and not a title to
the property.
Leases may be written or verbal, formal or informal. A valid lease is based on the
intention of the parties and not on any particular wording or form. The important
substance of a lease is the intent of the lessor and lessee and not the arrangement of
words according to some preconceived form.
Elliot Hunt Marcus, attorney-aMaw, once stated,
48
How to Operate a Restaurant
"A lease is a technical document which has many meanings, a good many of which are in
what is not said as well as the specific words themselves. You have no more right to sign
a lease without first reading and understanding it than you have to compound a
prescription for your ailing child." The greater the amount of money involved and the
longer the term of the lease, the greater the reason for giving detailed attention to the
rights and obligations of both parties of the lease and the greater the reason for obtaining
the assistance of a qualified lawyer.
Types of Lease
Leases may be classified according to the terms of the lease, the duration, the property
leased, and the method of rental payments.
Accordingly, a lease may be a contractual agreement to convey property and certain
rights for 1 day, 1 month, 1 year, 10 years, or 999 years. Whether a lease is described as
short term or long term will vary according to the type of property leased. For example, a
2-year lease for a restaurant may be considered short term and a 5-year lease, long term.
On the other hand, a 5-year lease on a building may be considered a short term lease and
a 1-year lease on an apartment as long term.
The basis of lease classification in another category is the property lease. For example, a
ground lease is one made for the purposes of conveying possession of land only. The
lease usually contains provisions regarding the erection of a building on the land and the
disposition of the building at the end of the lease.
Most restaurant operators are familiar with other types of property leases such as a
building or an equipment lease. The building lease is very often more complicated than a
ground or equipment lease. Since the lessor conveys possession of both land and
building, he must consider and clearly define his and the lessee's rights and obligations
during the term of the lease.
The periodic return paid by the lessor to the lessee is called rent. If the amount to be paid
continues at a uniform rate throughout the term of the lease, the lease is called a straight
or fixed rental lease. If the lease is graduated upward, it is called a graded lease or
graduated rental lease.
Another type of lease based on the manner of rental payments is the percentage lease. In
this case the lessee agrees to pay rent according to a percentage of sales or he may pay a
minimum fixed sum plus a percentage of sales. The specific provisions regarding
payment in the
Credit and Credit Instruments 49
percentage lease will very often depend on the lessor's appraisal of the lessee. If he
believes that the lessee is an efficient manager or operator, he will usually prefer a lease
based on a higher percentage of sales. On the other hand, if he believes that the manager
is capable but not extremely so, the lessor will protect his investment by requiring the
lessee to pay a relatively high minimum fixed rate and a correspondingly low percentage
rate.
A reappraisal lease is one in which the lessee is asked to pay fixed or graduated rent for a
short terrri after which the amount of rent is increased or decreased according to a
determination based on a reappraisal of the property.
Contents of Leases
With the aid of a qualified lawyer the prospective tenant should give detailed attention to
the following subjects:
1.
Are both the landlord'and tenant legally competent to enter a
contractual relationship?
2.
What is the basis for rental payments? This should be clearly
defined so that there is no misunderstanding.
3.
Is subletting or assignment prohibited or permitted? If a clause
is inserted in the lease that tenant cannot sublet or assign without the
written consent of the landlord, the addition of ". . . and the landlord
shall not unreasonably withhold his consent. . ." protects the lessee
in that the landlord must grant permission unless prospective assignee
is not financially responsible.
An assignment is a complete transfer of rights and terms of lease from one tenant to
another. The rule is that once a lease has been assigned with the landlord's implied or
expressed consent, a lease is thereafter freely assignable. The original lessee is cautioned,
however, that even though a lease has been properly assigned, he can still be held
personally responsible for the rent.
The term sublet creates a relationship in which a new lease is made and the old tenant
becomes a lessor and the new tenant a lessee. If the owner of the property insists on
controlling the- type and charactei of his occupancies, he usually provides in the lease
that there shall be no subletting without the landlord's consent.
Since a good lease is personal property, it can be a valuable asset assignable at a profit.
The prospective tenant should study the clause relating to subletting and assignment very
carefully.
4.
The term of the lease should be established beyond doubt.
50
How to Operate a Restaurant
5.
Ordinarily trade fixtures such as shelving, counters, and display
cases are removable by the lessee. To prevent misunderstanding, see
that a clause is in the lease describing the disposition of fixtures during
or at the termination of the lease.
6.
Most improvements become the property of the landlord when
made. It is proper, however, in some cases to provide that some or all
improvements be removed prior to the expiration of the lease.
7.
Check lease to see if the lessee remains in possession if the lessor
should die or the government step in.
8.
In some circumstances an option to purchase should be con
sidered very carefully. One of the basic disadvantages of leasing is that
the tenant can never build up ownership equity in the business.
9.
Check options to renew. An option is a prior right to do some
thing—a contract to keep an offer open. In the case of an option to
renew, the right is exercised within a stated period prior to the expira
tion of the lease. A so-called automatic renewal usually gives either
party the right not to renew. Check the terms of the renewal. How
long a period is the renewal, at what price, under what conditions?
10.
Usually in the absence of written restrictions, a tenant may use
the premises in any legal manner. The tenant's use of the property is
subject to the rule that he may not do anything expressly forbidden
by the law or in such a manner as to injure or unnecessarily diminish
the value of the property. Illegal use of the premises would permit an
action for dispossession by the landlord.
11.
If the landlord requires the tenant to furnish security for the
performance of the terms of the lease, check amount and type of secu
rity requested. The amount of security may be a sum equal to the rent
for 2 months or 1 or more years depending on the term of the lease.
If a cash deposit is required, very often an agreement is reached that
the tenant shall receive interest on the money deposited.
Generally, cash deposits should be avoided because the cash is not tax-deductible until
the owner accepts it as part of the rent. On a long term basis, therefore, a cash pledge or
its equivalent reduces working capital and provides no income tax benefits.
The terms of the lease should specify what disposition shall be made of the deposit if the
landlord sells his interest in the property while he has the money or securities on deposit.
Usually the lessor is personally responsible for the deposit.
12.
Check provisions regarding repairs, taxes and other obliga
tions of the lessor and lessee.
Credit and Credit Instruments 51
(a)
If the lease does not require the lessor to keep the property
in good condition, he has no obligation.
(b)
If the lease makes an allocation of repairs to both parties,
for example, the landlord to be liable for exterior repairs
and the lessee for interior repairs; see that the type of
repairs, conditions under which they must be made, and
the remedy for failure to repair is carefully spelled out.
(c)
If a lease contains a tax participation clause, the clause
should definitely state the type of taxes to be paid by each
party.
(d)
In several states the law provides that a fire which renders
the premises untenable, the lease is automatically termi
nated. If there is no such provision of law, the lease of the
premises continues. Generally it is advisable to include a
clause in the lease so that in the event of fire, the lease
is automatically cancelled.
(e)
Check all special covenants for additional charges. These
charges may include water, heat, insurance, and other
items. You will want to know the extent of your liability,
and the exact value of the services that are to be rendered
because of your acceptance of these charges. In cases
where the lessee is expected to pay in addition to an agreed
rental the expenses of taxes, insurance, interior repairs,
water, heat and other charges, the rent paid to the lessor
is called the net rental.
13. Generally a lessor may terminate the lease and dispossess the tenant for the following
reasons:
(a)
Unlawful use of the premises
(b)
Non-payment of rent, or other charges such as taxes, insur
ance which were agreed to according to the provisions of
the lease
(c)
Bankruptcy proceedings
(d)
Expiration of term of lease
In addition the lessor may wish to protect his investment by inserting clauses that will
cancel the lease if he sells or demolishes the building, or for any other expressed reason.
The lease should be carefully studied so that the long range interests of the lessee and
lessor are protected. The rights of both parties and a complete description of the
52
How to Operate a Restaurant
conditions under which a lease is terminated or cancelled should be carefully defined in
the lease.
MORTGAGES
Mortgages have been used from early times to borrow money by property owners. A
mortgage is a legal document creating a claim against real property under which, in case
of default, the lender may proceed to collect from the property. Before a detailed
discussion of mortgages can be made, the reader should acquaint himself with the
following terms:
1.
Property is the right or interest of an individual in anything
subject to ownership.
(a)
Real property is the right or interest held in land, buildings,
or those items growing, erected or annexed to the land.
(b)
Personal property is the rights or interest held in any item
of goods that is not classified as real property.
(c)
Fixtures are property that can change from real to personal
or vice versa. If they are definitely fixed to the land, the
items are known as real fixtures. If the fixture is not annexed
or used with the land or real property, it is known as chattel
fixtures.
An article is or is not a real fixture depending on the intent of the person, the method of
annexation and the relation of the parties. If he attaches the property to a building with
the idea of making it a permanent part of the building, the property becomes a real
fixture. If the property is annexed to a building in such a way that there would be a
substantial loss to real property or if it is especially adapted for use where it is placed and
if removing it would leave the building or land incomplete, it is a real fixture. Finally, in
the relation of parties, for example, a landlord and tenant relation, a tenant may be
ordinarily bound to leave property which he has fastened to a building. The general rule
in this relation, however, states that certain property such as showcases, shelves, and
counters are not real fixtures for the tenant has the right to equip himself with and retain
the tools of his trade.
2.
Estate is the right or interest a person holds in the land. There
are three major types of estate:
Credit and Credit Instruments 53
(a)
In the inheritance estate, the interest passes on to the heirs.
(b)
In a life estate, the rights or interest to the land is held
only for the life of the individual holding the life estate.
(c)
An estate in fee simple is an absolute estate in which the
owner can do anything he wants with the land. The words
in a deed, "grant and release unto the party of the second
part, his heirs and assigns forever' create the fee simple
grant. The words, "grant and release to
for life"
create the life estate.
(d)
Other estates are dower, courtesy, fee upon condition, fee
determinable, and remainders. A dower is the estate for
life given by law to a wife in all real property owned by her
husband during marriage. A courtesy is the estate given to
the husband in real property owned by the wife.
In both the fee upon condition and fee determinable the holder has an estate in fee simple.
This estate differs from the absolute state only in the limitation that if a certain condition
occurs (fee upon condition) or when a foreseeable and determinable contingency arises
(fee determinable) the rights to the estate will pass from the holder to another.
The remainder estate is invariably associated with the life estate. In this type of estate the
interest to real property is given to one person for life and at his death the estate is to pass
on to a remainderman.
3. A deed is a legal document which conveys title to real property. There are various
types of statutory and nonstatutory deeds; however, the restaurant operator will usually
be interested in the following three deeds:
(a)
Quit Claim Deed. The words, "Remise, release and quit
claim," in the granting clause create the quit claim deed.
In using these words the grantor transfers his rights, // any,
to the property to the grantee. There is no implication that
the grantor has good title.
(b)
Bargain and Sale Deed. The words "grant and release" in
the granting clause create the bargain and sale deed.
Whether the deed contains or does not contain a written
promise, the grantor of this type of deed impliedly asserts
that he has possession of the property and substantial title.
(c)
Warrantee Deed. In this type of deed the grantor warrants
that he has good and marketable title to the property. He
54
How to Operate a Restaurant
usually will give the grantee every possible guarantee in a deed containing six covenants:
1.
Seizin. Under this promise the grantor guarantees that he owns,
possesses and has a right to sell the property.
2.
Quiet Enjoyment. This promise guarantees that the purchaser shall
not be disturbed in the possession of his property.
3.
Further Assurance. By this covenant the grantor is required to perform such acts as necessary to perfect the title in the grantee.
4.
Encumbrance. This covenant guarantees that the premises are free
of liens except those mentioned in the deed.
5.
Warrantee Forever. This covenant guarantees both possession and
title to the premises. The promise is an absolute guarantee by the grantor and if broken,
the grantee may recover damages up to the value of the property at the time of sale.
6.
Trust. This provision reads that the grantor will hold money he receives from purchase of the property in trust for payment of any improvements that he
made prior to the sale of the property unless all liens were known to the grantee and
agreed on previously.
There are three major classifications of mortgages. The bases for the various
classifications are the risk of the loan, the method of payment and the type of mortgage.
Risk of Loan
Conventional—the loan is uninsured and not guaranteed. F.H.A.—the F.H.A. loan is
insured.
V.A. or G.I.—the Veterans Administration guarantees a certain percentage of the loan up
to a maximum amount of $7,500.
Method of Payment
Term Mortgages—In this type of mortgage the interest is paid periodically and the
principal debt is payable in full at the end of a designated period of time. There are two
types of term mortgages:
(1)
Open mortgages are term mortgages which upon maturity were
not extended. These mortgages are past due and payable on
demand.
(2)
Closed mortgages are unexpired term mortgages which are not
in default. The usual application of this term signifies that the
last payment on the mortgage has been made.
Amortizing Mortgages—These mortgages have provisions for periodic amortization of
the principal debt. Periodic payments include
Credit and Credit Instruments 55
payment of principal as well as interest. The two basic amortizing mortgages are known
as the constant mortgage plan and the straight principal reduction plan. Under the
constant payment plan the periodic payments remain the same throughout the term of the
mortgage. The periodic payments are allocated to interest and principal on a varying
basis. Under the principal reduction plan the periodic payments are gradually reduced
throughout the term of the mortgage. Each payment reduces the principal by a fixed sum
and the remainder of the payment pays interest on the reducing principal debt balance.
Types of Mortgages
There are many types of mortgages available to the builder or property owner of a
restaurant. Each type meets the specific needs of the mortgagee and is named according
to the specific features that it possesses. Of the many types available the most commonly
used by restaurant operators are the following:
(1)
Purchase Money Mortgage—The distinguishing feature of this
type of mortgage is that it secures part of the selling price for
the purchaser of the property. Many times the purchaser of
a property may not wish or cannot pay cash for the real estate
involved. A contract of sale is drawn up stipulating that the
purchaser will give a mortgage on the property for an agreed
amount and that the seller will accept the mortgage as part of
the consideration. This mortgage is superior to all other liens
against the purchaser which may at any time attach to the real
estate purchased.
(2)
Package Mortgage—To eliminate many short term burden
some financial requirements to pay for such items as heating,
cooling and cooking equipment, the purchaser of a restaurant
may very well consider the financing of real estate and the
necessary fixtures by means of a package mortgage. The pack
age mortgage as its name implies finances the entire package
in one mortgage and by spreading out a series of payments for
equipment and fixtures over the entire life of the mortgage
protects the restaurant owner's working capital and enables
him to better meet financial emergencies that usually arise
during the first three years of operation.
(3)
Open End Mortgage—The open end mortgage is one which
permits the operator to obtain additional advances from the
56
How to Operate a Restaurant
lender up to but not exceeding the original amount of the mortgage. This type of
mortgage is advantageous to the borrower because of the relatively low interest rate and
the longer loan period. For example, to finance the remodeling of a dining room, the
purchase of heavy equipment, the installation and purchase of central air-conditioning,
the owner of a closed end mortgage may find it necessary to borrow money from credit
sources over a short term period and at a high interest rate. (4) Construction Mortgage—
The basic purpose of the construction mortgage is to finance the erection of a building.
Generally a loan contract is drawn, incorporated in a mortgage or recorded separately in
addition to the mortgage, specifying that the amount of the loan will not be paid in full
but shall be advanced to the borrower in installments during the construction of the
building and will be repaid to the lender when the building has been completed.
There are many points that should be checked by you and a competent lawyer before and
during the mortgage closing. Some of the important items that should be considered
include the following:
1.
Leases and mortgages are not negotiable credit instruments.
A lease is transferred by assignment of a lessee; a mortgage, by assign
ment of the creditor.
2.
Insist on a clause reading: "risk of loss or damage to said prem
ises is hereby assumed by the seller until the delivery of the deed."
3.
See that the purchase contract does not contain a clause stating
that any down payment made will be treated as liquidating damages.
If a purchase contract contains this clause, is signed by you, and for
some business purpose you decide not to purchase, you will not recover
your money.
4.
Check on all restrictive covenants in the mortgage. For example,
if you are limited to two stories and you build three, you are subject
to legal action. In most mortgages you must expect to promise that
you will pay what you owe, according to the provisions of the mort
gage, to keep the property insured, not to alter, demolish, remove real
property without consent and to pay all taxes and assessments.
5.
Check for "sleeper clauses" such as, "the mortgagee may declare
the full amount of the mortgage due and payable any time after the
mortgage has been in effect for 2 years."
6.
If for business reasons you desire to take possession at a certain
Credit and Credit Instruments 57
date, insert time is of the essence clause. Delivery of deed must be
made on or before the specified date. You may also insert "in the event
the seller fails to deliver possession of premises at time of delivery,
it is hereby agreed that the seller shall pay "
7.
Carefully spell out any contingencies. If the purchase transac
tion is to be subject to obtaining a G.I. loan of $7,000 at 4.5 percent,
the contract to purchase should state this categorically. Do not say
"subject to obtaining a loan of $7,000" or "subject to obtaining a
G.I. loan" or "subject to obtaining a G.I. loan of $7,000." State that
this purchase contract is "subject to obtaining a G.I. loan of $7,000 at
4.5 percent."
8.
Check to see the mortgage does not contain a clause prohibiting
sale of the property without the consent of the mortgagee. If the mort
gage contains this clause, and a sale is consummated, the entire amount
of the mortgage may become due immediately.
9.
Study the details of the receiver clause. Generally, this clause
enables the mortgagee to appoint a receiver during an action to fore
close. The receiver replaces the owner of the restaurant or other
property, collects sales, pays expenses, and retains the profits for the
mortgagee.
10.
A foreclosure by action of law is slow and very often expen
sive. Check the mortgage for details regarding who will pay the lawyer
and other fees in case of foreclosure.
11.
Check the personal property clause. All personal property that
is mortgaged to the mortgagee, granted and released or otherwise
included as a pledge for performance creates a conditional transfer of
title. In the event of foreclosure, all property pledged as part of the
security is included in the sale. Note also if, after acquired, personal
property is subject to lien of mortgagor.
The study of credit and credit instruments is manifestly complex. The primary purpose of
this chapter is to provide the reader with basic fundamentals necessary to prevent serious
misunderstandings and unnecessary financial complications that will result in ultimate
loss. The selection, use, analysis, and protective features of negotiable credit instruments,
leases, and mortgages requires specialized training and a wealth of adequate experience
in the field of law, management, and finance. The secondary objective of this chapter is
the demonstration of the practical value of obtaining qualified seasoned advice, before
and not after an action has been consummated.
CHAPTER
6
How and Where to Obtain Capital
Classification of Capital:
Since the present or prospective owner of a food service operation can obtain capital from
only investment or loan sources, one proper classification of capital is based on source;
that is, does the additional capital represent an investment or a loan? Also, because
capital is needed for either short or long term objectives, another classification is the
length of time that capital will be utilized.
Short term use of capital is defined for the purpose of this chapter as all types of capital
that will be utilized and repaid to the lender or investor within a period of one year. Any
money obtained from various capital sources to be repaid in a period of more than one
year is regarded as long term use of capital.
The ability to obtain money when it is needed revolves around the basic principle of use
and repayment. Capital can very seldom be obtained unless there is a close relationship
between the type and effective life of the asset and the use and repayment of the loan or
investment. For example, a long term note cannot be obtained for use of short term
working capital needs such as rent, wages, and supplies. Similarly, if money is needed to
finance the purchase of land, buildings, heavy equipment or other fixed assets, the capital
is usually obtained from long term funds.
Investment or loan capital may be obtained from these four major areas:
1.
Individuals such as members of the family, friends and business
associates, equipment dealers, purveyors, manufacturers.
2.
Forms of business organization. For example organizing the
58
How and Where to Obtain Capital 59
business as a partnership, a limited partnership, or a corporation for the express purpose
of obtaining additional capital.
3.
Various types of business firms created for credit purposes such
as industrial, savings, savings and loan banks; small loan com
panies, insurance or commercial credit companies.
4.
Loan sources in the federal government, including the Small
Business Administration, Federal Reserve System, Federal
Housing Administration, and Veterans Loans.
Money obtained from friends is generally on a short term basis. Members of the family,
equipment dealers and manufacturers very often offer a long term loan. Purveyors of food
and other restaurant supplies usually give thirty days credit. In the case of equipment
manufacturers credit is obtained through lease arrangements whereby, in many instances,
the equipment becomes the property of the lessee at the end of a stated period.
The comparative ease of raising capital which results from the presence of characteristics
such as limited liability, permanency, and easy transferability of ownership interests in
the corporate form of organization is explained in the chapter on forms of restaurant
organization.
The limited partnership is another effective device for increasing both the owned funds
and the credit of either the sole proprietorship or the partnership form of organization.
The capital contributed by a limited partner is not considered an ordinary loan but as an
addition to ownership funds. As a limited partner he shares in the profits instead of
collecting a rate of interest. The contribution to the ownership funds therefore expands
the security of creditors, thus increasing credit sources. An ordinary loan increases the
liability of the firm and consequently reduces the line of credit which might have been
available before the loan was received.
The limited partnership differs from the partnership association in several important
respects, although both may be organized for the purpose of obtaining additional capital.
The partnership association is organized by filing suitable articles of association. The
ownership interest is represented by shares of stock and must pay taxes as a corporation.
Limited partnership, on the other hand, is formed by an agreement with one or more
general partners and a limited partner. The limited partnership files and publishes a
certificate of limited partnership for the protection of creditors and is exempt from such
taxes as double taxation on income and on the distribution of income.
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How to Operate a Restaurant
The third source of loans is from that category of service institutions that provides in
addition to other facilities a source of credit to the restaurateur. These credit sources
include institutions such as industrial, savings, savings and loan and other commercial
banks, insurance, commercial credit and small loan companies.
The most important source of credit from these institutions for the prospective owner and
the recently established operator is the commercial bank. Experience has shown that
many borrowers do not understand clearly how to obtain a loan from a bank. The would-
be borrower's problem breaks down into two major areas: the information and procedures
required to obtain the loan and the selection of the proper bank.
Banking Services
Banks are, of course, service institutions. Among the major facilities they provide, some
of the most important to small businessmen are:
1.
A safe place to deposit funds;
2.
An efficient way to collect checks and drafts;
3.
A source of advice with respect to financial matters;
4.
A means of borrowing money to supplement the funds which
the businessman has in his business.
That last function—borrowing money—is discussed in greater detail here.
The Banker's Point of View
When lending money, the banker must keep certain firm obligations in his mind. He must
comply with the specific laws and regulations which govern the operation of banks. He
must also keep prominently before him the debts which he owes his customers in the
form of deposits. In the main, the funds which he lends are not his; they have been
entrusted to him by his depositors. To fulfill these two obligations the banker is
compelled to know as much as he reasonably can about the people to whom he lends his
depositors' money. This is where the borrower can be of immeasurable help to his
banker—in his own self-interest.
Before a banker is prepared to make a loan he must feel satisfied with the answers to
these five questions:
1.
What sort of person are you, the prospective borrower?
2.
What are you going to do with the money?
How and Where to Obtain Capital 61
3.
When and how do you plan to pay it back?
4.
Is the "cushion" in the loan large enough? In other words, does
the amount requested make suitable allowance for unexpected
developments?
5.
What is the outlook for you, the borrower, for your line of
business, and for business in general?
What sort of person is the borrower?—the first question—is by all odds the most
important of the five. The character of the borrower comes first. Next is his ability to run
his business.
There are few problems on this score where banker and borrower have known each other
for many years. Nor are there apt to be obstacles where the business is well established—
even though banker and borrower are not intimately known to each other. Experience and
the operating record speak for themselves.
But what of the case, where the banker and the prospective borrower do not know each
other in advance? What if the business has no long-established record? If these conditions
describe your own situation, go in to see your banker and discuss your situation with him.
He will want to help you, and he may be able to offer specific recommendations.
For the future, here is a suggestion which may make your banking relations more
satisfactory from now on. Whether or not you foresee the need for a bank loan, make it a
practice to visit your banker at least once a year. When you do, give him your figures
(more information on this will be covered later). Discuss what happened last year, and go
over your plans for the year ahead. Then, should you need to borrow in the future, you
have laid a sound foundation and your banker does not have to "start from scratch" to
learn what has happened in your business. Nor are you, as a potential borrower, and your
banker, faced with the difficult task of understanding each other under the pressure of a
request for an immediate loan. The relationship has been established well ahead of time.
You might say, understandably enough: Why doesn't the banker take the initiative in
approaching his non-borrowing depositor? Basically the answer is his fear that the client
might misinterpret his interest as an unwarranted intrusion in his affairs. The initiative,
therefore, generally is left to you, the businessman. A good deal of time has been taken
on this question of "What kind of person . . ." because it is the most important of the five.
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How to Operate a Restaurant
What about the use and repayment?—the second and third questions? These points
should be considered together. The banker will always want to know: What is the
borrower going to do with the money; and how and when does he plan to pay it back?
The answer to the first of these two questions usually determines the answer to the
second. On the one hand, if the loan is made to acquire seasonal inventory or to carry
accounts receivable, for example, it should be repaid in a few months. On the other hand,
if the money borrowed is to be used to buy fixtures or equipment, the loan may be
outstanding for a considerably longer period. It is the earnings on the investment in the
latter case, not the cashing of the asset, which will provide the means of repayment.
How can you, as a borrower, go about preparing answers to the two questions? As a first
step, before you talk to your banker about a loan, decide for yourself how much money
you need, what you expect to do with it, and how and when you plan to pay it back. Then
explain your plans to your banker, accurately and in detail, so that he may understand
your program clearly.
Is there enough of a cushion in the loan?—that fourth question— is often the cause of
honest differences of opinion. The borrower may believe that there is enough cushion but
the banker may not. Each may be right from his own point of view.
If the banker is satisfied with the answer to the first three questions, he can make a loan
on only one of these two bases:
1.
Financial statements setting forth the condition of the borrower;
or
2.
Collateral pledged.
If either one of these two conditions is not met, the banker may run into well-merited
criticism from the bank examiners. These examiners have a duty to perform in the
interest of the bank's depositors and the public welfare.
Adequate Figures a "Must"
It is worth noting that, although statistics are not available to prove the point, it is
probable that banks lend a good deal more money to business on the strength of figures
than they advance against collateral pledged. The two basic financial statements they use
are the balance
How and Where to Obtain Capital
63
sheet and the profit-and-loss statement. Bankers and borrowers have a common interest,
not an opposing one, in what these figures show. The businessman is interested in the
solvency, the profits, and the growth of his business. The banker wants to make loans to
businesses which are solvent, profitable, and growing.
That statement does not imply that bankers invariably insist that profits and growth be
achieved in each and every period. There are times in the life of many businesses when
both may be well-nigh impossible, for the time being. In the long-range plans, however,
profits and growth, as well as solvency, are common aims for both borrower and banker.
The balance sheet, then, is the major yardstick for solvency, while the profit-and-loss
statement is the chief yardstick for profits. A continuous series of these two statements,
over a period of time, is the principal device for measuring growth.
Before you ask your banker to lend you money without collateral —just on the basis of
your figures—remember that he can do so only if you furnish him with enough
information to enable him to form a reliable opinion of the soundness of his risk. It would
clearly be unwise for the owner of a ship to ask the master to take the vessel to sea, but
deny him charts and navigating instruments. It is equally unwise for a businessman to ask
his banker for a loan, but deny the banker the means by which he can steer his course.
When you plan to borrow money, you can do your part toward building an effective
banking relationship if you will make available, willingly, to your banker:
1.
Your balance sheets and profit-and-loss statements, prepared
by acceptable certified public accountants. This suggestion casts no
shadow on the integrity of borrowers. Again to illustrate: The income
tax liability is of great interest primarily to the borrower and second
arily to the lender. Income taxes are end figures, the result of the
profit-and-loss account and the balance sheet. It is important that
such statements be prepared by a qualified, impartial expert.
2.
Other financial data—where needed—in sufficient detail.
3.
Financial reports at sufficiently frequent intervals so that the
banker does not have to guess at what is going on in your business.
If you supply adequate figures, the banker is able to do his job more efficiently in two
ways: first, in actually making loans; second, in giving reliable counsel on the financial
aspects of his customer's business.
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How to Operate a Restaurant
Using Collateral
If the loan required cannot be justified by the borrower's financial statements alone, a
pledge of collateral may bridge the gap. If the collateral consists of readily marketable
stocks and bonds, or the cash surrender value of a life insurance policy, the road is
usually smooth. Values are easily established. The legal necessities for effecting a valid
pledge, and the margin requirements are commonly understood.
Other types of collateral, however, must be considered in a different light. Values are not
always so easily agreed upon. The law with respect to a valid pledge often varies from
state to state. Moreover, what constitutes a safe margin can well be a matter of opinion,
rather than a generally accepted rule. The situation is further complicated by the fact that
banking statutes and regulations often put limitations on a bank's freedom of action in
this respect. In addition, loans against each of the types of collateral impose a duty on the
banker to insist on having more detailed supervision and more frequent follow-ups than if
he were lending against periodic financial statements or readily marketable collateral.
Therefore, whether your banker will or will not make loans against any or all of the types
of collateral discussed will depend on the legal requirements with which he must comply,
and on the policies which the bank's directors have set.
Here are two specific observations which are useful to keep in mind despite the foregoing
general limitations. First, each type of collateral is good under the proper circumstances.
Second, if your banker cannot accept the collateral you have to offer, he will usually be
able to suggest other responsible lenders who will consider your application.
Types of Collateral
Now for direct mention of the types of collateral which were referred to earlier. They
may be summarized as follows:
Securities of Closely Owned Companies: The problem, here, is that the collateral may
have to be sold and there may be no established market available. A particular buyer must
be found. Sometimes this obstacle can be overcome if a responsible third party will enter
into an agreement with the bank stating that he will buy the note and the collateral from
the bank should the borrower default.
Commodities or Merchandise: These also make good collateral under the proper
circumstances. Ready marketability, margin, time of
How and Where to Obtain Capital 65
proposed sale, care during storage, and validity of lien are the particular matters to be
discussed with your banker.
Machinery and Equipment: In recent years an increasing number of banks have engaged
in this type of financing. Whether this be for account of the seller or the buyer, whether it
be on conditional sales contracts or chattel mortgage, whether it be with or without
recourse or reserve, depends on the individual application. In general the banks engaged
in this type of financing feel it necessary that the following conditions be met:
1.
Preferably, the machinery or equipment should be new—not
used.
2.
A reasonable down payment is required—say between 25 per
cent and 33VS percent of cost.
3.
The final maturity period might be as short as 12 months or as
long as 60 months, depending on the type of equipment to be financed.
4.
The machinery or equipment should permit a ready sale at a
fair value in the used or second-hand market.
5.
The estimated profit, or savings plus depreciation, resulting
from acquisition should be adequate to repay the loan over the life
of the loan.
Real Estate and Buildings: Although a mortgage on real property is the oldest type of
pledge known, there are many banks which do not feel that they can take a mortgage on
commercial or industrial property as the sole basis for a business loan. This is more apt to
be true in the very large cities than it is in smaller centers. The reasons for this point of
view—where it is found—are numerous and technical. In the main, however, they relate
in part to banking laws and regulations which govern this type of advance in detail, and
in part to overall considerations of policy.
Government Contracts: During World War II, the means by which the proceeds of
government contracts could be used as bank collateral were greatly broadened. These
means are again largely in force. The requirements to be met are determined by the
related acts of Congress and the regulations set up by the government agencies and
departments concerned. Suffice it to say that if you have government contracts which
need financing, discuss the matter with your banker.
Importance of Looking Ahead
At the beginning it was stated that in deciding on a loan, the banker must satisfy himself
on the answers to five important questions. Four
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How to Operate a Restaurant
of these questions have been covered. Now consider the fifth one—the outlook for the
future.
Loans made today are to be paid back on some tomorrow. Therefore, when a banker
lends money to a business, he must form an opinion about the future of the borrower, and
the borrower's line of business, and of business in general, for the period of time covered
by the loan. Frequently he will not state that opinion to the businessman, but it is there,
nonetheless. Any estimate of the future is hazardous, and the more light that can be
brought to bear on it the better.
With respect to the outlook for your own enterprise, you should have more information
than anyone else. But your plans for the future, if kept to yourself, can be of no help to
your banker.
While lenders endeavor to keep abreast of developments in the lines of business which
they serve, they cannot ordinarily be so well posted as are the managers engaged daily in
those fields. New products, new machines, new methods of distribution and marketing,
and new packaging can alter the course of a whole field of business as well as the
individual concerns in that field. An exchange of information between banker and
businessman, with respect to developments affecting the borrower's line, is helpful to
both individuals.
What lies ahead for business in general is a complex matter. No one can be sure that his
view will prove to be correct. Both the borrower and the lender should be interested in
the other's opinion. The chronic pessimist is no better as a banker or businessman than is
the chronic optimist. What the banker is looking for in the businessman is a sense of
balance. The businessman has the right to expect the same quality in his banker. But if
the two never trade their ideas on how things look, neither one will have the opportunity
to get a "feel" of the other's mind. Without this "feel," it is difficult to achieve that mutual
understanding which is essential to a well-rounded banking relationship.
The selection of a bank involves the choice of a banker and under this circumstance
revolves around the problem of sizing up a banker. There are five main points to
consider: progressiveness, attitude toward your business, credit services offered, size of
bank, and management policies of the bank.1
1 The information is condensed from Management Aids for Small Business, Small
Business Administration, Washington 25, D.C.
How and Where to Obtain Capital
Is the Banker Progressive?
67
Physical appearance can give some indication of a bank's progres-siveness, or lack of it,
and in this way can be a factor in choosing your banker. But don't let "eye appeal" alone
control your judgment. Unquestionably, up-to-date quarters which are clean, attractive,
and furnished with modern equipment may give some indication as to the banker's desire
to meet and please new customers. Likewise, the presence of a handy parking lot,
sidewalk teller windows, air conditioning, and modern lighting may give clues to the
bank's progressive-ness. Nevertheless, it is always important to appraise physical features
with balanced judgment, taking into account the real needs and possibilities of the
particular situation. For example, a big city bank may find it impossible to provide a
parking lot right next door; a small country bank may have no need for sidewalk tellers;
and banks in cool, dry localities may get along satisfactorily without air conditioning. So
try to get a well-rounded picture of both the bank and the banker before you make a final
estimate of progressiveness.
What about a bank's employees? Are they reasonably young, interested in your problems,
active in civic affairs? Has your prospective banker called on you and solicited your
business, or does he seem to give you a cool, remote treatment as if he would be doing
you a favor to accept your account?
Is the banker known for his capacity to meet changing conditions effectively? Many
bankers used to be interested only in large corporate accounts. But lately most of them
have found that their best customer is the average "man on the street." This discovery has
led to the adoption of many new banking services. Among these are low-cost personal
checking accounts, bank-by-mail programs, night depositories, personal loans, and
installment credit for small business concerns.
One of the best tests of a bank's acceptance of progressive ideas is the character of its
advertising. Is it fresh and imaginative, or does it tell you to do business with the bank
merely because it is a "sound institution" and has been in existence longer than any other
bank in town? By and large, a bank is as good as its present officers, and that has very
little to do with the executives who were in charge many years ago.
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How to Operate a Restaurant
How Does the Banker Approach Your Problems?
When you go in to have a talk with a banker, you can learn a lot about how he would
approach your problems by his attitude toward you and your business and by the kinds of
information he considers important. An interested, helpful approach on the part of the
banker can be a significant factor in selecting the most suitable bank for your business.
First of all, does the banker regard the prospective relationship as one in which he would
help you to become a better manager? If he is an efficient, progressive banker, he will be
interested in helping you in this way and in building a continuing relationship that would
mean profitable business for the bank over the years. His enlightened self-interest is to
your advantage, too, because it leads to a healthy growing bank.
In this connection, it is logical for a banker to be interested not only in having your
borrowing business but also in your account as a depositor. Both aspects of banking are
"two-way streets." In the first place, as a depositor you have a safe place to keep your
money plus the convenience of being able to transact business by check. At the same
time, your deposited funds give the banker reserves against which to make loans. In the
second place, as a borrower, you gain access to the capital you need to operate your
business. At the same time the banker earns income in the form of interest on each dollar
he lends.
In regard to selecting your banker with the aim of building a permanent relationship, keep
in mind that it doesn't pay to move very frequently from one bank to another—especially
in days of relatively tight credit. The banker is only human, and you should understand
his resentment at losing an account to another bank because of a difference, for example,
of one-quarter of 1 percent in the interest rate charged on a loan. If you were repeatedly
to try one bank after another, you probably wouldn't be welcomed back with open arms
by one of your former bankers. He would recall his efforts and services, and the hours he
spent discussing your problems with you. And he would figure that these things deserved
some reciprocity.
An alert banker will want a great deal of confidential information from you. Good
banking practice demands that he protect himself, his depositors, and you. Therefore, you
should expect him to look carefully into your records, needs and plans. Ideally, he should
want to
How and Where to Obtain Capital 69
know as much about you and your business as you do yourself. Of course, while the
banker is entitled to all this information, he is at the same time obligated to keep it in the
strictest confidence. His professional discretion should be as completely reliable as that
of your doctor.
In deciding upon a banker to do business with, don't think of the preparation of detailed
financial statements as a nuisance imposed upon you by the banker's unreasonable love
for statistics. Take into account the fact that he cannot live with your business day by day,
as you do, and that he can judge your financial position and progress only through the
information and figures which you give him.
As a new customer, you should invite him to go a step beyond the examination of your
financial statements and make a visit to your place of business. In this way you can get to
know him better and, at the same time give him data with which he can serve you more
satisfactorily. Usually, if he is at all interested in your business, he will welcome the
opportunity.
When you are in the process of establishing a new banking connection, be prepared to
show the banker that you're honest, and that you have the capacity to run your business
successfully. In this regard, you should not feel put out when he checks with the
mercantile agencies to see how you have paid your obligations in the past. And you
should assume that he will ordinarily make inquiries in the trade and will ask for the
experiences of other banks with which you have done business.
Can You Get the Kind of Credit You Need?
In the days ahead, a strong credit relationship with your bank may be a vital factor in the
success of your business. With a heavy demand for funds and the possibility of rising
interest rates, banks may tend to be increasingly selective in seeking loans for income.
Thus it may be more complicated than in the past for businessmen to establish new lines
of credit; so be sure your banker understands your particular needs and is prepared to
service them.
If seasonal accumulations of inventory are your problem, a loan against public or field
warehouse receipts may be the answer. Although some banks still remain skeptical of
field warehouse credit, most of them will lend against salable merchandise with an
established market.
If your business is new, or is involved in a major expansion, you may need to supplement
your capital with "term" credit until such time as earnings can be accumulated for use in
the business. Or perhaps
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How to Operate a Restaurant
you have reached a disagreement with your partner and it's a case of buy his interest or
sell yours, but you'd rather buy him out. It's going to take awhile for you to pay off, but if
you've got a good earnings record or reasonably demonstrable prospects, you've got
something to talk about. Will the bank consider a term loan?
How Big is the Bank?
Much of the time it won't be important whether you're doing business with the biggest
bank in town or the smallest, but sometimes there's an advantage in size. Remember that
banks are regulated by government agencies, and one of the most important regulations
restricts the amount they may lend to any one customer. This amount is related to the
bank's capital and surplus. You will want to know that your maximum credit
requirements fall well within your prospective bank's "legal limit," or at least that the
bank has correspondent relationships with other banks where your "excess" loans may be
placed. Otherwise they may find that you have used all the credit your bank can make
available, and no one else is interested in your additional needs.
Still another advantage in size is specialization. Many small banks don't have a trust
department, and you may require the services of one in connection with your will, with
escrow arrangements, or with the management of your investments. Perhaps you do a
little export business. Does the bank have a foreign exchange department? Or if your
dealers sell on installment terms, you may be able to arrange for your bank to handle their
installment paper—provided, of course, that the bank has a department for this purpose.
Through this same service, dealers may be able to get "floor plan" accommodations for
your merchandise so that bills can be discounted, and so that you need less capital tied up
in receivables. The procedure is essentially a form of inventory financing. It works this
way: The manufacturer ships his product to the dealer with the title going directly to the
dealer's bank. When the goods arrive on the dealer's selling floor, he then gets a bank
loan which he uses to pay the manufacturer promptly. Thus the bank finances the dealer
instead of the manufacturer having to do so. Many banks, however, do not undertake this
sort of lending service.
Sometimes prestige also goes along with size. After all, it may be assumed that one bank
is bigger than another because more people do business with it. This may not be
important to you and need not be
How and Where to Obtain Capital 71
decisive in your considerations. It may mean, however, that more contacts are available
to you through your bank. At least it's a point not to be ignored.
What Are the Bank's Management Policies?
In the process of selecting your banker you should make sure you have a reasonable
understanding of the bank's management policies.
One of the areas of policy which you would do well to know something about is the
system of organization which the bank uses, since that system may affect your banking
relationship.
Broadly speaking, there are three kinds of banking set-ups throughout the country. The
first type may be called a unit system; in it a bank has just one office and does business in
just one location. The second type could be called a branch system; here, there is one
central bank with one or more branch offices located at different points in the same
community as the main office, or even in other communities. The third type might be
termed a chain system; in this case, there is a central holding company which controls
several subsidiary operating banks in various localities. Variations in how these three
systems function stem from state banking regulations. The situation in your own area will
depend to a large degree on the laws of the particular state in which you live.
Which of the systems provides the best service to small businessmen is a debatable
question. Moreover, it is not the most significant point in connection with picking out a
good bank; the important point is not the system, but whether or not the particular bank is
suitable for your particular business needs.
In this regard, you might also do well to investigate how deeply your prospective banker
is concerned with the growth and prosperity of your local community, and to what extent
the management is local and permanent. Another point worth looking into is the speed
and flexibility with which decisions can be made in your local area. Here again, the
banking system is less significant than the management policies of the individual bank in
question.
In recent years, bank failures have been only a scattered few, and those have not involved
large sums of money. Times have been good, and banking regulations more rigid. In
addition, most deposits today are insured by the Federal Government through the Federal
Deposit Insurance Corporation. Confidence in the banking system is justifiably
widespread, and there is every reason to expect that it will continue.
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How to Operate a Restaurant
Yet it is only common prudence to consider the safety of funds in a bank with which you
plan to do business. Unfortunately, no sure measure of the safety element is available to
the average small businessman. There are, it is true, several statistical approaches to the
analysis of a bank's strength. The ratio of deposits to capital funds helps to establish the
margin of protection for depositors. The ratio of "risk" assets to capital suggest the extent
to which a bank may sustain losses without endangering its depositors' funds. The
existence of adequate reserves adds strength to a bank's position. But all these analytical
tools are rather technical devices with which many small businessmen are unfamiliar. In
addition, they fail to take into account the most important factor of all—management.
Your most reliable indication, then, is the combination of integrity, experience, ability,
and initiative in the people who run the bank. Good management will usually produce a
reliable and progressive bank, just as it will usually produce a healthy business.
Finally, once you have started a satisfactory banking relationship, you will want to
continue close consultation with your banker. To get the greatest benefit from this
consultation, keep the banker informed on new developments in your business, and keep
him supplied regularly with complete and current financial statements—even at times
when you have no need for bank credit. Continuity of information enables your banker to
handle credit inquiries intelligently, increases his confidence in you, and makes it
possible for him to meet your requirements as they arise.
Although your business may be perfectly healthy, a good "financial doctor" is a handy
person to have around. So choose your banker thoughtfully and objectively, and once you
have chosen him, do your utmost to make the relationship a satisfactory and profitable
one for both of you.
The last category of loan sources is that of the Federal Government. This category
includes sources such as the Small Business Administration, the Federal Reserve System,
the Federal Housing Administration, and Loans to Veterans. Most restaurateurs do not
realize the many Federal agencies that are authorized to make, guarantee or insure loans.
One successful operator borrowed close to $150,000 from a single agency in the Federal
Government to finance his operation. Each agency is authorized to give a certain type or
classification of loan and although you may not be eligible for assistance from one
agency you may be able to obtain another type of loan or open up
How and Where to Obtain Capital 73
other credit sources through the device of governmental guarantee or insurance from
another agency.2
The business loan program of the Small Business Administration is expressly designed to
assist small enterprises—manufacturers, distributors, and service establishments—which
are independently owned and operated and not dominant in their field. (Disaster loans are
also granted to business concerns which have suffered damage from storms, floods, and
similar catastrophes and whose areas have been designated "disaster areas" by SBA.)
SBA's business loans are designed to enable small business concerns to finance plant
construction, conversion, or expansion, including the acquisition of land; to provide for
purchasing equipment, facilities, machinery, supplies or materials; to furnish working
capital to be used to manufacture articles, equipment, supplies, or materials for war,
defense, or essential civilian production, or to insure a well-balanced economy.
Who May Qualify: Small businesses which are unable to obtain from private lending
sources the intermediate- and long-term credit required for general purposes and normal
growth.
In addition to the fundamental requirements for government loans, an applicant for an
SBA loan must meet these requisites:
1.
The applicant must be of good character.
2.
He must show evidence of ability to operate his business success
fully.
3.
He must have enough capital in the business so that with the
SBA loan it will be possible to operate on a sound financial
basis.
4.
On a term loan—one repayable in installments over a period of
several years—the past record and future prospects of the busi
ness must show sufficient probable future income to provide
reasonable assurance of repayment.
Loans will not be authorized to finance recreational or amusement facilities; to pay
creditors when such payment would solve pressing financial problems only temporarily;
to effect change of ownership in a business; to provide capital to a concern which is
primarily engaged in lending or investment activities, in newspaper and magazine
publication, in radio and television broadcasting; or to furnish funds to
2 Condensed from Management Aids for Small Business, Small Business Administration,
Washington, D.C.
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How to Operate a Restaurant
firms which derive substantial income from the sale of alcoholic beverages or from
gambling.
The maximum loan to any one borrower is $250,000; the maximum maturity, 10 years.
SB A offers three types of loans:
1.
Bank participation. Purpose: Through the bank participation
plan, SB A cooperates with private financing institutions in meeting the
credit needs of small firms. Often a bank is willing to make a loan to
a small firm if SBA participates in it, i.e. purchases a share of it. SBA
may participate up to 90 percent of the amount of the loan. This par
ticipation may be immediate or deferred, as the bank may elect. The
agency cannot enter into an immediate participation, however, if a
deferred participation is available. In both types of participation loans
the applicant usually receives disbursements from the bank and makes
repayment to it. Terms: On an SBA participation loan, the participat
ing bank makes the loan and determines the interest rate to be charged,
with a minimum rate of 5 percent annually on the SBA portion of the
loan.
Where to Apply: If a bank or other financial institution will make a loan conditioned on
SBA purchasing a deferred participation, the applicant files with the bank its application
and necessary supporting data, and the bank applies to SBA for the participation
agreement. However, if the bank agrees to make the loan, conditioned on SBA
purchasing an immediate participation, the applicant must file an application on SBA
Form 4 at the SBA office serving the territory in which the applicant's home office is
situated. The same procedure must also be followed if the bank is unable to make a loan
on any basis and a direct loan is desired from SBA. In either case, while it is not required
that the application be presented in person, it is always desirable for the applicant to
discuss his situation personally, when possible, with an SBA financial expert. No charge
is made for information and counsel furnished by SBA in connection with the preparation
and filing of an application or for other assistance with financial management problems.
2.
Direct Loans. Purpose: Such loans are made by SBA to provide
assistance where the extension of credit by private banks alone or
jointly with SBA is not possible. Terms: The interest rate is 6 percent.
Where to Apply: Application forms should be filed at the Regional or
Branch Office of SBA nearest to the applicant's home office.
How and Where to Obtain Capital 75
3. Disaster Loans. Purpose: These are made, in areas designated by the SB A
Administrator, to aid victims of floods and other catastrophes. Terms: Interest on these
loans for the purpose of the acquisition, construction or restoring of home or personal
effects is 3 percent. Interest on such loans for purposes of acquisition, construction or
restoring of business facilities and inventories is 5 percent. Loans for housing may have
maturities up to 20 years but other disaster loans are limited to 10 years. Where to Apply:
File application forms at nearest SB A Regional or Branch Office. For speed in handling,
the SBA Regional Directors have been given authority to approve disaster loans in
amounts of $10,000 or less.
The Federal Reserve System
The Federal Reserve System consists of a Board of seven Governors supervising the 12
Federal Reserve Banks, their 24 branches, and some 6,700 member banks. While the
principal loan function of the System is to extend credit to member banks, the System
also has an industrial loan program and a V-loan program (a loan guarantee program to
expedite defense contracts).
Loans to Established Commercial and Industrial Businesses. Purpose: To provide
working capital for such businesses when the borrower is unable to obtain needed
financial assistance from the usual sources. Loans cannot be made for the purpose of
paying off debts. This program has not been very active for some years. Terms: The great
majority of these loans (under Section 13 (b) of the Federal Reserve Act) are made
through financing institutions—banks, trust companies, mortgage companies, and the
like. Very few loans are made directly. The interest rate on direct and indirect loans
varies from 2lA percent to 5Vi percent depending on the particular Federal Reserve
Bank. Maximum maturity is 5 years. The limit on the amount of loans or commitments
that can be outstanding is about $166,000,-000.
Loan Sources in the Federal Government
Where to Apply: At any bank or lending institution or direct to one of the 12 Federal
Reserve Banks or 24 branches throughout the country.
Under the Housing and Home Finance Agency are found a number of loan functions. It
must be remembered that legislation now pending may effect some changes and additions
in the program outlined below:
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How to Operate a Restaurant
Federal Housing Administration
The Federal Housing Administration provides insurance against loss on various types of
loans made by private lending institutions for housing purposes. Purpose: To encourage
private lending institutions to finance needed repairs to homes and other property and
construction of new homes and small nonresidential structures, and to encourage
improvement in housing standards and conditions. Terms: A matter for the lending
institution to decide, but the general terms of the loan (interest, down payment, and the
like) must be examined by the FHA before approval for insurance. Where to Apply: To
any lending institution approved by FHA for the type of loan desired.
Property Improvement Loans and Nonresidential Structures. Mortgages and property
improvement loans insured by the FHA provide for repayment in monthly installments
covering all charges. The mortgage insurance premium is computed at V2 of 1 percent
annually on outstanding balances of principal. Loans for general home repair purposes
may not exceed $2,500 or have a maturity in excess of 3 years; those for repair or
conversion of multifamily structures may be in amounts up to $10,000 and have a
maturity of 7 years. Loans for the building of new nonresidential structures may run up to
$3,000 in amount and have a maturity of 3 years.
Veterans Administration
The VA guarantees or insures various types of loans made by private lenders (banks,
savings and loan associations, and the like) to eligible World War II and Korean War
veterans. In some cases, it also makes direct loans to them. Purpose: To enable the
acquisition of home, farm, or business real estate, supplies and equipment, and working
capital. Terms: The loan may be short-term (under 5 years) or long-term (amortized)
loans. If the loan matures in less than 5 years, no payments on principal are required until
the end of that period. With a long-term loan, a definite monthly payment is agreed upon,
through which the borrower can pay off the principal plus the interest over the period of
the loan. Down payments are generally lower than required by State laws because of VA
backing.
The loan may be either guaranteed or insured by the VA. Generally, long-term home
loans—96 percent of them in fact—are guaranteed, whereas short-term non-real estate
business and farm loans tend to be insured loans, and are more advantageous. If
guaranteed, the interest
How and Where to Obtain Capital 77
rate on the loan may not exceed AV2 percent per annum. If insured, 15 percent of each
loan is credited by the VA to an insurance account of the lender from which he is paid in
case of default. The interest rate on a non-real estate, insured loan may be as high as 5.7
percent per annum simple interest or the equivalent 3 percent discount. Where to Apply:
Application for VA loans should be made to banks and other private lending institutions.
Real Estate Loans. A home or business real estate loan may be repaid up to 30 years and
a farm real estate loan up to 40 years. The VA may guarantee 60 percent of a loan for the
purchase or construction of a home up to the maximum of $7,500. Real estate loans for
farm or business purposes may be guaranteed 50 percent up to $4,000. The purchase
price of real estate, or other property, may not exceed the reasonable value as appraised
by the VA representative.
Non-Real Estate Loans: These are for the purchase of property other than real estate, such
as machinery, tools and equipment, and for working capital required in the operation of a
farm or a business. This type of loan may be repaid in up to 10 years and may be
guaranteed by VA up to 50 percent of the amount of the loan or a maximum of $2,000.
Direct Loans: The VA makes direct loans to veterans in isolated areas where private
lending institutions will not make the loans. Such loans may go up to $10,000 if the
veteran has not used any of his loan entitlement, at AV2 percent interest. The security is,
generally, the property acquired by the veteran. Additional collateral may be demanded
by the VA in some cases.
NOTE: While a veteran may transfer or sell the property purchased with a VA loan to
either a veteran or nonveteran, he generally remains liable for the debt. He should,
therefore, try to have the loan paid in full by the purchaser of the property.
CHAPTER
7
How to Select
Food Service Equipment
Each year over 25,000 owners of food service establishments fail in the difficult task of
providing maximum satisfaction to their patrons at a profit for themselves. Some feel the
responsibility for their business failure lies in bad luck, high labor or food costs and the
public. Others find fault with general economic conditions, poor location, and inability to
get trained help. As they close their doors for the last time, they blame everything and
everyone but themselves.
Time and time again, analysis has shown that the significant causes for failure are:
inadequate knowledge of food, no understanding of people, inexperience or no
knowledge of business and little awareness of constantly changing environment.
Invariably the cause of business failure can be properly attributed to one of these four allinclusive factors.
They range from knowledge of management, administration, organization, and
supervision to menu patterns, systems of cost control, and awareness of changing
regulations. This chapter is specifically concerned with the last of the four basic causes of
failure—the inability of an individual to note the changes in his particular environment,
to detect shifts and trends of costs and sales and to relate these shifts and changes to his
particular operation in terms of the present and the future.
One of the important changes that will affect all members of the restaurant industry is the
easily discernible trend toward higher and higher labor costs. Aside from the control
systems that have been devised to regulate and restrain this trend toward higher payrolls,
the experienced restaurant operator demonstrates his foresight by selecting the proper
type and size of equipment and establishing a sound basic
78
How to Select Food Service Equipment
79
layout of equipment that provides for maximum employee efficiency and productivity.
To store, process, and serve food effectively and economically in a restaurant operation
requires skill and experience. It also requires that employees are provided with the proper
tools and equipment at the proper time in the proper place so that they can work easily
and efficiently. There are four basic problems that must be solved before man hour
productivity can be stepped up: how to select the proper type, amount, and size of
equipment and how to design an efficient layout.
The type of equipment needed in any food service operation can be determined
accurately by developing and analyzing the basic menu pattern. This is the only means by
which the selection of the proper type of equipment can be made. For example, a curb
service operation serving only hot dogs, hamburgers, and coffee will not need a waffle
baker, a roasting oven, or pressure cooker. Similarly a specialty house serving only fried
chicken with french fries and an assortment of salads will not need a broiler, a soda
fountain, or a griddle. Stated simply, if an operator does not plan to serve fried food, he
does not need a fryer.
A basic menu pattern is a list of all representative foods that the owner plans to prepare
for his patrons on any day that his operation is open. A very convenient method of
preparing this list is to take several sheets of paper, rule off each sheet into 5 columns and
separate each column by the number of meal periods. For example, if you plan to serve
food for breakfast, lunch and dinner, each column will be subdivided into three sections.
In the first column list all the menu items that you plan to serve in your operation, and
place each item in its proper meal period. There is no need to list any menu item more
than once.
Consider each item individually and in the second column next to the type of food under
consideration, list all the heavy kitchen equipment that you will need to store and prepare
this food item. In the third column list the supplementary light equipment that will be
needed such as china, glassware, silverware, stock pots, serving spoons, tongs, pans. Be
specific; if a five-ounce juice, a ten-ounce water glass, an eight-ounce milk glass, or a
nine-inch dinner plate suit your specifications, list these items in detail.
The size and number of individual pieces of equipment required is determined by
analysis of the first, second, and third columns, peak volume demand, portion sizes, total
load on equipment, food produc80
How to Operate a Restaurant
tion and purchasing practices, and future expectations. Before an experienced operator
decides to operate a food service unit, he will make an analysis of total and daily
potential food sales (see Chapter 1). On the basis of his forecast of daily sales and peak
meal periods he will review the basic menu pattern and determine the maximum number
of menu items which will be offered for consumption to his patrons on his busiest day.
In terms of main entrees a typical luncheon menu may, for example, consist of one or two
roast items, fried, stewed, broiled, steamed, or unprocessed products. These menu items
are therefore checked and data on estimated portion sales, length of production time, time
production should be completed, and the number of batches needed is recorded in the
fourth column.
The fifth column is used to record the size and number of individual pieces of equipment.
This determination is properly based on a detailed analysis of information summarized in
the four columns of the basic menu pattern, the total load on the equipment during the
day and during peak periods, the owner's experience and knowledge of equipment, food
production and purchasing practices, and his plans for future development.
Although this procedure seems to be unnecessarily complicated, it remains the only
accurate method of determining the type, size, and number of pieces of equipment that
will specifically fit the requirements of an individual food service operation. Any other
method will invariably result in purchasing too much or too little equipment, the wrong
type, or the wrong size. There is no easy road to success in food service operations. Each
detail of establishing and operating a restaurant must be analyzed thoroughly before and
not after a commitment has been made. Spur-of-the-moment decisions are extremely
costly. The lack of foresight in making decisions of this type saddles the new operation
with fixed burdens, overhead and operating costs, that doom it from the beginning.
Much of the analysis required to select proper equipment depends on the owner's plans
regarding food production and purchasing practices. If he plans to purchase prefabricated
meat cuts or ready-sliced potatoes for frying, he will not need a meat saw or a meat block
nor, probably, a potato peeler. Similarly, if he plans to prepare food in small batches
during the meal period, he may have to substitute two or more smaller sized pieces of
equipment for a large one. In one case the decision to purchase prefabricated items
eliminates the need for
How to Select Food Service Equipment
81
a certain type of equipment, in the other instance the number and size of preparation
equipment.
There are other factors to consider when selecting kitchen equipment. These are
concerned with the comparative efficiency of the units under consideration. They are as
follows:
1.
Reliability of the company
selling the equipment.
2.
The ability of the equipment to
do the job.
3.
Economy of labor.
4.
Economy of food.
5.
Ability to produce a better product.
6.
Adaptability to other uses.
7.
Initial cost.
8.
Cost of installation.
9.
Length of Lease.
10. Ease of Maintenance.
11. Freedom from and availability of repairs.
12.
Cost and availability of fuel or power.
13.
Durability.
14.
Sanitation.
15.
Safety factors.
16.
Automatic controls.
17.
Sex and training of labor required to operate the machine.
PRODUCTION CAPACITIES OF EQUIPMENT
1. Broilers
Many types can be found in today's markets: regular, infrared, charcoal, or ceramic.
Production capacity depends on type, thickness, initial temperature and surface area of
food product, degree of "doneness" desired, the area of the broiling grate, and the B.T.U.
input capacity. The broilers are heated by gas or electricity with a heat capacity ranging
from 35,000 to 145,000 British Thermal Units. Grate broiling area ranges from 140 to
750 square inches. Depth of grate seldom reaches more than 27 inches. A grid 24 inches
deep may be considered standard; 18 inches, small; 27 inches, large. Where space is
limited and production needs are small, a salamander broiler may be fitted over and
above the range.
A sirloin steak one inch thick can be broiled well done in about 18 minutes or rare in
approximately nine minutes. A sirloin steak two inches thick can be broiled rare or well
done in approximately twenty or forty minutes respectively.
2. Carbonators
There are three basic types of carbonators: jet circulation, agitator and mist spray.
Depending on their respective size, the carbonators
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How to Operate a Restaurant
will produce 100 gallons per hour, 35 gallons per hour and 60 gallons per hour
respectively.
3.
Food Choppers, Cutters
Food cutters and choppers are used to cut, dice or crumb, shred and grate fruits,
vegetables, meats, nuts, breads, crackers, left over bread and other items. With the
grinding, slicing, shredding and juice extractor attachments that can be purchased, the
machine is a distinct aid in preparing appetizers, soup stocks, salads, entrees, relishes, pie
fillers, and a wide range of desserts.
Capacity of bowl varies with the type of food product, holding one to five pounds of
product per batch. One and one-half heads of cabbage for cole slaw can be cut in
approximately 8 seconds, hard boiled eggs for salad preparation can be uniformly cut in
10 seconds or blended for sandwich purposes in 18 seconds.
4.
Cory Coffee Maker and Similar Models
12 cups every 3 minutes, approximately 200 cups an hour; chief advantage ability to
prepare a small amount of coffee at a time, coffee is fresh, less waste.
5.
Coffee Makers, Other Types
Production depends on size of urn and number of fluid ounces per cup. Size of urn ranges
from 3 to 80 gallon capacity. Chief advantages —large capacities for mass feeding at less
labor cost; can be heated by gas, electricity or steam. Production formula:
number of gallon in urn X 128 __ number of cups number of ounces per cup ~~
each
brew
6.
Dishwashing Machines
There are many types of dishwashing machines: single tank, rack type, automatic or
semi-automatic; single tank, rack type conveyor operated; double tank, rack type,
conveyor operated; multi-tank rack-less conveyor operated; double tank rackless
conveyor operated. Capacity ratings range from 200 to 10,000 dishes per hour.
Production will vary with type of machine, design of layout, type, amount and length of
time food has been on the plate, industry and training of the dish operator, and fluctuation
in flow of soiled dishes to the machine.
The capacity ratings provided by several of the leading manufacturers—Blakeslee,
Hobart and Colt—are mechanical, that is, they repHow to Select Food Service Equipment
83
resent the maximum expectancy of each model. For average working conditions
approximately 70% of this rating is the proper production expectancy.
There are two methods used by experienced operators to determine the size of machine
needed to clean soiled ware: the peak load and the total load method. The peak load
method is based on estimating the total number of racks or ware items per peak hour and
selecting a machine that will clean that number of ware items per hour according to 70%
of the mechanical rating shown in the manufacturer's catalog. The advantages of this
method are simplicity, decreased investment in soiled dish table and holding carts and the
installation of a machine capable of cleaning ware items as rapidly as they flow into the
kitchen.
In the second method the operator bases the capacity of the machine on the total load on
the busiest day. To illustrate both methods, consider the following information.
Restaurant "A" has its peak period at lunch. During this period, 12:00-1:30, it serves 225
customers. From 1:30 to 2:00 it serves 25 customers. At two o'clock the restaurant closes
for three hours—it opens for a small dinner business that begins at 5:00 P.M. The total
load therefore is 250 customers.
On the basis of the peak period, restaurant "A" will serve 150 customers in an hour. The
selection of the dishwasher can now be readily made by selecting the dishwasher in the
manufacturer's catalog with this capacity.
If this operation averaged 6 dishes per customer, the dishwashing department will clean
900 dishes an hour or 450 every half hour. The operator who bases his investment in
china on peak load demands will therefore need approximately 8 dozen of each item.
This in turn means that he must have enough dishwashing employees to supply his guests
with clean dishes at the rate of 450 an hour because a little after the first half hour he will
be out of clean dishes.
With this situation he will probably need two or three dishwashing employees: one to
scrape and pre-flush dirty dishes, one to stack and load in the machine and one to remove
clean dishes and transport them to the area of use. Another factor that the operator must
consider is that if he purchases a machine capable of washing 455 items every half hour,
the three dishwashers will be through with their work a little after 2:00 P.M. and they
would have to be put to work doing some other job.
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How to Operate a Restaurant
The total load analysis removes several of these disadvantages. Since the total number of
customers for the entire five hour period is 250, the total number of dishes that must be
cleaned is 250 x 6 or 1500 in the five hours or 300 dishes an hour. If the owner wants to
give the dish operator time to change the tank water, clean the machine and prepare for
the evening peak period, he may want the dish operator to be through by 4:00 P.M. with
the dishwashing. Under these circumstances the dish operator will have approximately
four hours to wash 1500 items or about 375 items an hour.
This figure is a great deal less than the 900 dishes an hour previously determined with the
peak load method. Also, the average 20 x 20 rack holds 25 items and since 375 divided
by 25 is 15 racks per hour, a single dishroom employee can certainly clean this amount
and more in an hour. Consequently, the total load analysis not only saves by enabling the
operator to purchase a smaller machine but also eliminates at least one dishwasher.
The disadvantages of this method are apparent: the dish machine cannot keep up with the
flow of dishes to the kitchen necessitating increased investment in soiled dish tables and
increased investment in china ware.
7. Disposers, Garbage
Food sanitarians throughout the country have emphasized the importance of speedy and
sanitary removal of food wastes from food service operations. The elimination of
putrescible matter that is usually stored for a day or two, aggravating sanitation and
health problems such as rodents, odors, insects, and disease bearing nuisances, is
sufficient cause to install garbage disposal machinery.
These machines are capable of disposing of all types of food waste including bones,
vegetables, trim paper, wax wrappers, and cartons as well as large canned good cartons.
Most units consist of a hopper into which the waste is dumped and a grinder located
directly below the hopper. The waste is washed down from the hopper by a stream of
water to the grinder that crushes and pulverizes the waste and routes it to the drain
openings of the machine.
Most of the manufacturers in this field use either the hammer mill or the cutter ring and
impeller principle in the design of their garbage disposal units. The unit's load capacity is
stated on each model. Generally if more than 60 gallons of garbage are accumulated on
any one
How to Select Food Service Equipment
85
day in a food service operation, it is worthwhile to consider installing a garbage disposal.
8. Fryers
Most fryers, gas or electric, that are sold by leading manufacturers are strongly
constructed and designed to give the operator a long and satisfactory service at little cost.
The most important consideration in the purchase of a fryer is not the cost of the fryer but
its effectiveness. In all cases, the cost of fat used will be many times the initial cost of the
fryer.
Factors causing fat breakdown such as type of fat, presence of foreign particles, too high
a temperature will be discussed in a later chapter. Insufficient fat replacement, another
important factor in fat breakdown, depends on the volume of business and the size of the
fry kettle. As a general rule about 20% of the fat should be absorbed by the food product
and replaced with fresh fat each day.
This means, therefore, that the size of the kettle must be accurately determined to fit the
volume of fry business or the cost of fat may become prohibitive. The factors that
determine the size of kettle required are: the method of frying and the ratio of fat to food.
A food product can be fried in two ways: the single stage method and the double stage
method. In the single stage method a food product is placed in the fry kettle and fried to
completion at one time. In the double stage method the food product is first blanched
during a slow period and later during the peak period, the frying is completed.
Because of the continuous progress of manufacturers in their design of their frying
equipment, the ration of fat to food is generally considered 7-1 in the single stage method
and 5-1 in the double stage method. This formula means that for every seven pounds of
fat only one pound of food product should be fried for any one batch employing the
single stage method and for every five pounds of fat only one pound of food product in
the double stage method.
This formula is the basis for determination of the size of fry kettle required by any unit.
The basic menu pattern will quickly reveal the type of food product and the number of
portions required during the peak period of business.
In addition, the fact that certain foods containing fat soluble oils such as fish cannot be
fried in the same kettle with food items such as french fries or breaded veal or chicken
will aid the operator in determining the number of kettles needed in his operation.
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How to Operate a Restaurant
To illustrate this concept, study the following data: Restaurant "A" plans to serve 30
pounds of fish and seafood items and 56 pounds of french fries during a one hour peak
period. On the average it will take 3 minutes to fry completely the fish and seafood items
and 7 minutes to fry potatoes. A minute and a half is allowed to each batch for loading
the basket, removing the basket, allowing the fat to drain into the kettle, and unloading
the basket.
The operation will need a minimum of two kettles: one for fish and seafood items, the
other for french fries and related items. The size of the kettles may be determined in this
manner:
How to Select Food Service Equipment
87
Regarding the size of fry kettle needed, the single stage method determines the maximum
and the double stage method the minimum size.
9.
Griddles
There are two basic types of griddles, electric and gas. The griddle itself may be made of
a one-piece cast iron or polished steel plate. Like the broiler, the production capacity of a
griddle will depend on the type, thickness, initial temperature, the degree of "doneness"
and the surface area of the food product, the area of the griddle and the B.T.U. input
capacity. Commercial griddle areas vary from one square foot to ten square feet. In gas
equipment individual burners have from 5,000 to 15,000 B.T.U. capacity. Electric
griddles may be purchased for either 115,208 or 230 volt lines with a rated electrical load
of three to four kilowatts, a Kilowatt being 1,000 watts. Generally in an efficiently
designed griddle 500 watts will maintain a 400 degree temperature. One kilowatt or 1,000
watts is equal to 3412 B.T.U.
10.
Ice Machines
Several nationally known companies are currently engaged in manufacturing ice making
machines of many types and sizes. Generally all companies rate their machines in terms
of the number of pounds of cubes, cubelets or shaved ice the units can produce in one
day.
An efficient machine can produce approximately 200 pounds of ice at approximately 30
cents per day. The cost will depend on size of cubes, degree of room and water
temperature, and the cost per kilowatt of electricity. For example, to make 200 pounds of
5/s" cubelets with a room or ambient temperature at 70°, water temperature 60° and a 2^
electrical rate, the cost will be approximately 26 cents per day.
There are at least ten items to check when purchasing this equipment:
1.
For how long is the machine guaranteed?
2.
Can you obtain contract services and repairs?
3.
Is the ice cloudy or clear and sparkling?
4.
Is the ice uniform in thickness? Does it have a thickness thermo
stat?
5.
Is fresh water used at the beginning of each cycle or is water used
and re-used?
6.
Is the freezer compartment and the bin completely insulated,
lowering operating costs?
7.
What is the horsepower rating of the compressor? V3 horse88
How to Operate a Restaurant
power (248 watts) is much cheaper to operate than Vi horsepower (373 watts).
8.
Is the condenser cooled by air or water? A water cooled condenser
is more expensive to operate unless the head load makes it
mandatory to use water for more efficient cooling.
9.
Does the unit have an inlet water cooler, increasing the effi
ciency of the unit?
10. Is the bin interior of sanitary construction and readily removable for cleaning?
11. Kettles, Steam
Steam jacketed kettles are constructed of aluminum or stainless steel. In terms of the
kettles, there are three types: a deep type of kettle used for general purposes for the
preparation of food not requiring baking, broiling or frying; a shallow type of kettle used
for cooking poultry and other delicate meats where the weight of too many layers might
break the food items on the bottom; and the trunion or tilting type used for heavy viscous
products—this has a large pouring lip and generally a self-locking tilting mechanism.
Steam jacketed kettles can cook soups, sauces, ham, corned beef, swiss steaks, pie
fillings, stews, preserves, jellies, poultry, shrimp, lobsters, chop suey, pot roasts,
puddings, all types of vegetables, gravies, fruits, braising meat items such as beef chuck,
bottom rounds, flanks, lamb shoulder chops, pork loins and shoulder, veal and other
items. Their capacity ranges from small four quart table models to 100 gallon floor
models.
Cooking time for braising or simmering meat is approximately 35 to 45 minutes per
pound per piece. Many factors such as variations in temperature, size, style and shape of
cut, grade of meat and the degree of doneness desired influence cooking time. Large cuts
of fresh pork and fresh and corned beef, five to ten pounds each, usually require 30 to 50
minutes cooking time per pound, per piece; 12 to 15 pound smoked hams, 20 minutes per
pound per ham; veal or lamb stew, 1½ to 2 hours; beef stew, two to three hours.
The table of recipes on the next page for vegetable cookery gives an approximate guide
to time required to cook these food items. The cooking time indicated for the various
vegetables will vary because of factors such as the age of vegetables, length of time
vegetables were stored, size of vegetables, and type of vegetable cooking container used.
How to Select Food Service Equipment
89
DIRECTIONS
FOR COOKING INDIVIDUAL VEGETABLES
IN STAINLESS STEEL STEAM – JACKETED KETTLES*
*Quantity Recipes, Marion A Wood and Katharine W. Harris, New York State College
of Home Economics, Cornell University.
#Add stems to boiling water, cook two minutes, then add tips and continue boiling.
**Cooking time for frozen broccoli varies due to the quality of vegetables and to
blanching process used.
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How to Operate a Restaurant
12. Mixers, Food
The food mixers are one of the many versatile and labor saving pieces of equipment on
the market today. These units mix batters and bread, rolled and sweet yeast doughs;
mince meats and confections; mash potatoes; whip cream and milk, beat eggs, meringues
and mayonnaise; cut flour and shortening; and perform many other necessary tasks in the
commercial kitchens.
Most of the companies that manufacture the food mixers have designed an auxiliary drive
to operate auxiliary attachments such as food and meat choppers, vegetable slicers,
shredders, julienne and grater plates, fruit juice extractors, knife and tool sharpeners and
other items.
The size of the food mixer is determined by the bowl capacity. Capacity of bowls ranges
from five quarts to 150 quarts. The following table shows the single batch capacity of
various sized typical mixers.
How to Select Food Service Equipment
91
13. Ranges
At the present time there are only three basic types of ranges on the market: electric, gas,
and high frequency.
ELECTRIC
Most heavy duty electric ranges are approximately 36" wide and 38" deep. The wiring
arrangements vary between different sized ranges consequently it is important to
purchase a range with the exact kind of current that an operator has available or needs in
his operation.
Generally four typical circuits may be used: a single phase, two wire Alternating Current
or Direct Current; a single phase, three wire Alternating or Direct Current; or a three
phase, four wire Alternating Current. The voltages obtained from these circuits are 115
between a phase wire and a neutral and 208, 230, 240 and 450 between phase wires
depending on the current.
Most ranges are available with an oven and a variety of top arrangements, including hot
top for stock pot work, griddle top for griddling, french hot plates for independent stock
work, open top, a high speed calrod unit for fast pot and pan work or a combination of
tops for versatility.
Ranges can be equipped with a broiler, one or two ovens, a salamander or a fat fry kettle.
Food production capacity of ranges and integral units will depend on the dimensions of
the cooking surface or area and the rated kilowatt heat input.
Although interior dimensions of ovens vary slightly, most of the ranges and related
appliances are more or less standardized. Oven wattage capacity is usually 6 kilowatts. At
rated voltage an oven can reach a temperature of 450°F. in approximately 20 minutes. An
oven 22¾ " wide, 12½ high and 27½ deep will hold two standard 18 x 26 baking pans or
three large turkeys in a single load. Total kilowatt capacity on a range will vary from 15
to 28 kilowatts depending on type of top and whether a broiler is included in the range.
The Hot-point Supergrid, for example, can hold 70 3¼" hamburgers in one load and cook
as many as 1000 an hour. The griddle top is 36" x 24" with a rated voltage of 16.2
kilowatts.
GAS
Gas ranges, like electric ranges, can be subdivided into two distinct types: restaurant
ranges—a medium duty range for small establish-
How to Select Food Service Equipment
95
ments or intermittent use; and heavy duty ranges for large operations featuring heavy and
continuous loads and requiring durable construction and large capacity.
Both types of range are available in many different sizes and combinations of tops such
as solid hot top for stock work, open top for pot and pan work, fry top for griddling or
combination top. Oven capacity of restaurant ranges varies from 3 to 5.5 cubic feet
whereas the volume enclosed by a heavy duty oven is up to 6.5 cubic feet.
MICROWAVE
The microwave range is a high frequency oven designed to operate on a 208 to 230 volts.
The Raytheon Radarange Model 1161 uses two magnetrons to produce 1600 watts of
heating power. The Hotpoint Electronic Cooker uses a single magnetron to produce
approximately 800 watts of heating power.
A magnetron is a constant voltage device used to draw widely fluctuating amounts of
current with small changes in voltage. The efficiency of a magnetron tube is
approximately 50 percent. Of the 50%, 90% of the magnetron power is converted to heat
food and only 10% dissipated in random heating.
The ability of energy to penetrate food varies with frequency or wave length. The
frequency of microwave energy is approximately 2500 megacycles with a penetrative
power of about three inches. When food is placed in the oven chamber, the penetration of
microwave energy plus the rapid reversal of direction within the food causes molecular
agitation—the food particles vibrate in an attempt to follow the rapidly alternating
electrostatic field—producing cooking. The friction of molecular agitation causes food to
cook not so much from outside heating but from within and in much less time than any
other means.
Low moisture content materials respond much slower than high. Cooking utensils of
china, glass, paper and plastic will not absorb heat. Metals act as reflectors of
microwaves.
Some of the advantages of microwave cooking are:
1.
No heating of kitchen or oven compartment liner. Consequently
no smoke, grease, scraping or scouring oven and utensils.
2.
Turns out small batches of food very rapidly.
3.
Can pre-cook foods and refrigerate until ordered and reheat
with no dehydration or loss of flavor. Advantageously used to level out
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How to Operate a Restaurant
peak loads to increase seat turnover and food quality. Foods such as mashed potatoes,
roasts, fowls, corned beef, lobsters, pot pies can be cooked during slack periods, cut when
cold and portioned out, frozen or refrigerated, then reheated as ordered.
In terms of food quality or variety—fish is greaseless, corn on the cob can be cooked
without water, scrambled eggs are more fluffy and moist since there is no dehydration,
menu can be extended and food placed in the oven compartment is really hot—inside and
out.
The following table of food items and time of cooking reveals the remarkable speed
obtained in electronic cooking.
14. Refrigeration
In today's markets two basic types of refrigeration are available: domestic, gas and
electric; and commercial, electric. The principle of all electric refrigeration is the same.
The main working parts are the evaporator (freezer compartment), the compressor and
the condenser. A refrigerant is placed in a closed system under pressure in an insulated
box. The liquid refrigerant flows under high pressure through a suction tube to the
evaporator. In the evaporator, the refrigerant under low pressure changes from a liquid to
gas and in the process absorbs heat from the food in the refrigerator cabinet. The suction
of the compressor pump cause the heat laden refrigerant to move from the evaporator to
the compressor. In the compressor (a rotary or a reciprocating pump)
How to Select Food Service Equipment
97
the refrigerant is compressed and routed to the condensor. The air or water cooled
condensor transmits the heat that the refrigerant absorbed from the food in the cabinet to
the surrounding air or water outside of the refrigerator. The removal of heat and the high
pressure maintained by the compressor on the refrigerant causes the refrigerant to become
liquid and the cycle is repeated.
The amount of refrigeration needed in an operation varies directly with the number of
food items that require refrigeration and the length of time the various foods must be
stored. The larger the volume of business and the variety of items on the menu, the
greater the need for refrigerated storage space. Also, the fewer the deliveries made by
purveyors, the longer food must be stored and consequently the greater the amount of
refrigerated space needed.
The proper method of determining the number of cubic feet refrigeration required is to
analyze the specific requirements as shown by the basic menu pattern. The number of
items requiring refrigeration between delivery dates can easily be checked off in the
analysis columns and a fairly accurate estimate made of the number and size of
refrigerators needed.
15. Silver Washer and Drier
Although silver and stainless steel ware can be cleaned in a rack dishwashing machine,
there is a point in a large volume food operation where it is advisable to consider
purchasing a silver washer and drier. This point in sales volume depends of course on the
type of operation; generally an operation doing over seven hundred dollars a day can
advantageously use this machine. Basically this machine washes, detarnishes, burnishes,
rinses, sterilizes, and dries silver and stainless steel ware. Its greatest advantage over the
dishwasher machine is its ability to get the silverware really clean and to burnish it.
Fully automatic silver washing and drying machines use an electric timer to measure the
proper amount of clean water for both wash and rinse. After the rinse is completed,
electrically heated air of over 200° F. is forced through the constantly agitated silverware
for approximately two minutes. Silverware is washed on a batch basis approximately
every four minutes. Load per batch varies with size of drum, 75 to 300 pieces per load.
Once the machine is loaded and the starting button is pushed, the machine completes all
its cycles and shuts itself off automatically.
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How to Operate a Restaurant
16. Steam Chests and Cookers
Steam cooking is advantageous because of three basic facts: the units are simple, easy
and convenient to operate; they cook food more rapidly than boiling; and they save labor
time.
Steam chests and cookers have a multi-purpose utility in food service establishments
concerned with volume feeding. Because of this versatility, this type of equipment is
valuable to the operator in the same proportion as his degree of understanding of the
functions that can be performed by these units. The units will cook all types of
vegetables, many types of fish and seafood, cereals, eggs, puddings, macaroni, spaghetti
and similar products and dried fruits.
In addition because of its high speed, rapid penetration of non-scorching moist heat and
its comparatively low temperature, this equipment can reheat any food that has not been
baked, can be used to blanch or partially cook french fries, vegetables, poultry and other
food items and to thaw frozen food items or other pre-cooked meats.
Steam chests can be purchased according to heat source; a direct connected steamer is
designed to be connected directly to an existing steam supply line. In an operation where
steam supply is not available, a steam generating model chest must be used. Steam is
generated in this model by a heat source of gas or electricity; therefore an electric or gas
steam generating model must be purchased.
Aside from the type of heat source used there are two basic types of steam chests: a two
or more compartment floor model and a counter model. The floor models are used in
operations doing over 200 meals a peak period, the counter models in smaller sized
operations or for auxiliary purposes in larger operations.
Each compartment of a steam chest will hold 2 bushels of food. Two bushels are
equivalent to 90 pounds of potatoes or 70 pounds of vegetables such as peas and string
beans. The steam chests are designed with 2 to 4 compartments. Generally one
compartment is required for each 250 meals being served. The steaming chart below
gives approximate cooking times for various food items cooked in steam chests.
The counter models are single or two compartment pressure cookers available for gas,
electric, direct steam or as part of a combination unit. Each compartment is designed to
hold 3 standard cafeteria pans 12" x 20" x 2¼/ or 2½" deep or 6 half pans 12" x 10" x 2½
or one 4" pan and one 2¼" deep pan, or one 6" deep pan. The pans are
How to Select Food Service Equipment
99
STEAMING CHART
FOOD Asparagus
TIME IN MINUTES PREPARATION
SUGGESTED 10-15 OUR OWN
Green Beans 20-30
Green Lima Beans
20-25
Beets 30-90
Broccoli
10-15
Brussels Sprouts
12-20
Cabbage
8-15
Carrots 15-35
Cauliflower 10-15
Corn 5-10
Onions 15-20
Parsnips
15-20
Peas 8-12
Peppers, stuffed
20-30
Potatoes, •white
20-40
Potatoes, sweet
25-40
Rice 20-30
Rutabaga
30-40
Spinach
6-9
Squash, summer
10-15
Squash, winter 20-30
Turnips
20-25
Pot Roasts (lb.)
12-15
Hams (lb.)
12
Corned Beef (lb.)
20-25
Frankfurters 10
Fowl (lb.)
8
Fish 20-40
Shrimp 10
Lobster
20-30
Cereals30-40
Eggs, hard
10
Noodles-Macaroni
12-15
Dumplings
15-30
Puddings
2-3 hrs.
Apples, fresh 8-12
Dried Fruit
45-60
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How to Operate a Restaurant
made of stainless steel and are perforated or solid depending on the food to be cooked.
A firm in Chicago has designed a remarkably efficient cooker that will cook
approximately 120 three ounce portions of frozen vegetables per hour. The high speed
cooker is a self-contained, automatic, electric, steam generating model 12" wide, 12" high
and 22" deep, that can be located anywhere in the kitchen. The single stainless steel pan,
12" x 6½" x 3", is a 3⅓quart capacity.
There are also automatic steam pressure cookers that generate their own steam and
require only an electric connection for installation. The equipment manufactured by these
companies and many other leading manufacturers is very efficient. The automatic
pressure cookers can cook a 30 pound turkey in less than half an hour, 30 pounds of
potatoes in 12-15 minutes, 50 pounds of frozen peas in approximately 2 minutes, 24
pounds of frozen string beans in 5 minutes.
17. Vegetable Peelers
These machines can be purchased in 15, 30 or 50 pound size. The numerical designation,
such as 30 pounds, indicates the number of pounds of potatoes that can be peeled in 2 to
3 minutes. The motors of these units ⅓, ½ and ¾ horsepower respectively. A 30 pound
vegetable peeler can peel 30 to 32 pounds of potatoes in 2 to 3 minutes, 100 pounds of
potatoes in approximately 10 minutes, 20 pounds of carrots in 2 minutes and 20 pounds
of beets in W2 minutes.
MISCELLANEOUS LIGHT EQUIPMENT, UTENSILS AND WARE
1. China, Silverware and Glassware
The number of industrial china, silverware, and glassware items needed by an operation
will vary according to the length of peak period and seat turnover per hour. To illustrate,
in an operation where the duration of the peak period is one and one-half hours, the seat
turnover is 2 per hour and the owner desires to avoid hurried dishwashing during the peak
period, the number of chinaware items needed will be 3 times the seating capacity.
Seat turnover 2
Length of peak period X 1 ½ hours
Factor
3
If seating capacity is
48
How to Select Food Service Equipment
101
Number of individual chinaware items needed is 144 or 12 dozens of each chinaware
item.
Similarly, 12 dozen water glasses, 8 dozen milk or juice glasses should be sufficient.
The number of tableware pieces can be determined by the same formula. However, a
correction should be made in the case of forks, teaspoons or soup spoons. Conceivably a
customer will use one or more forks or teaspoons and may not order soup. Consequently,
a realistic quantity for purchase is
12 dozen knives (based on formula) 15 dozen forks 15 dozen teaspoons 8 dozen soup
spoons
2. Toasters
A 2-slice toaster can toast at maximum production approximately 60 orders per hour or
120 slices.
Conveyor type toasters, gas or electric, can toast approximately 9 slices a minute or 500
slices an hour.
MINIMUM REQUIREMENTS FOR MISCELLANEOUS ITEMS
CHAPTER
8
Lay Out Your Restaurant for Profit
The value of careful planning and layout of food service operations has been
demonstrated many times in the past. A well-planned layout invariably conserves high
priced floor space, controls and promotes increased production through a compact,
logical arrangement of the right equipment in the right place, increases employee
efficiency and employee morale, and lowers payroll costs by successful application of
design and layout principles.
The first problem that must be solved in layout is the allocation of space to the dining
room and kitchen areas. Contemporary articles dealing with space allocations invariably
recommend from 20% to 40% of the total space available be allocated to the kitchen and
the remainder to the dining room area. Unfortunately, one of the factors that determines
space allocations to different areas is the distribution of total space available. There is a
great deal of difference in area allocation when the total area is a square or when it forms
a long rectangle. Moreover, an establishment that has two floor levels in which to house
its operation will have considerably more leeway in assigning space than one with only
one floor level.
Other factors also influence total space allocations. Legal regulations and union demands
are good examples. In one state, fire codes may specifically prohibit placing heavy duty
cooking equipment nearer than 18 inches from the kitchen wall. In another state, existing
fire codes permit the placement of equipment as near as 6 inches from the wall. Similarly,
in one state union demands may require the erection of shower stalls, employee lounges
and libraries, whereas an operation located in another city or state or under the
jurisdiction of an unaggres-sive union will not have to meet these demands.
It is important to note, therefore, that even if two operations are
102
Lay Out Your Restaurant for Profit 103
completely comparable in terms of type of operation, extent and variety of menu,
anticipated volume of sales, and planned seating capacity, and where the total space is
identical in amount and distribution, the percentages of total space allocated will still vary
according to the impact of legal regulations, union demands, and arbitrary decisions of
management.
Moreover, a detailed study of blueprints and space allocation data from nearly 200 of the
nation's finest food service operations clearly demonstrated that space distribution based
on percentages of total space were not only very misleading but in most cases completely
unreliable.1 Unfortunately, there is no general rule or magic formula that will enable a
prospective owner to determine the number of square feet that should be allocated to the
various departments in his operation.
Mr. N. Bert Person, consulting engineer of St. Paul, Minnesota, wrote:
Although there are a few basic ideas which apply to every plan, experience will show
there are no two operations which are designed alike.
Many combinations of important factors create such diversified results.
One of the first, if not the first, thing to consider is the location of the restaurant and the
type of food service decided upon by the owner or operator. Both of these factors
influence the menu which in turn determines the kind and quality of food service
equipment required. This naturally must be considered when determining floor space
area.
Other leading designers, food facilities engineers, architects and consultants, such as
Arthur Dana, Harry Freidman, L. I. Graham, John W. Hargrave, George Henderson,
Frank T. Hilliker, L. J. Reutlinger, Fred Schmid, Walter J. Smith, and Sam V. Wells
testified that "the number to be fed, the time allotted for eating, the type of service and
menu are all necessary factors in determining the layout and the equipment.
"There is no cardinal rule or percentage figure that can be used universally for all types of
food service in determining the allotment for space. Any attempts by an inexperienced
person to use percentage figures or so called 'short cuts' to produce a layout would prove
most inefficient."
The basic menu pattern therefore is a major tool of analysis not only in equipment
selection but also in equipment layout and employee
1 Dukas, Peter. "Food Service Space Allocations," Institutions Magazine, August 1951,
p. 72.
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How to Operate a Restaurant
effectiveness. The scientific procedure used to allocate space to departments is outlined
briefly as follows:
1.
Determine a basic menu pattern.
2.
Estimate sales on menu items.
3.
Consider food purchasing policies regarding frozen, pre-cooked,
pre-fabricated, or prepared food item, reliability and location
of food supply sources, frequency of deliveries, and perish
ability of food items.
4.
Ascertain the size, number and type of equipment needed to
process the menu items. (See preceding chapter)
5.
Compute from specifications of equipment the amount of
space required to house the equipment.
6.
Determine layout equipment departmentally according to food
flow analysis and frequency of use.
7.
Calculate daily and peak food purchasing requirements based
on 2 and 3 above.
8.
Determine allocation of floor space to dry and refrigerated
storage.
9.
Estimate the dining room space by analysis of peak patron
loads and average seat turnover during those periods.
10.
Allocate service area space by considering menu, peak load
requirements, patron needs, and type of service offered.
11.
Determine the number of employees needed and their dis
tribution in the various departments from study of hours of
operation and peak production and serving requirements.
12.
Calculate the amount of floor space needed for work and
traffic aisles by studying equipment layout and employee
duties.
The basic menu pattern and the methods used to determine the proper size, number and
type of equipment has been discussed in the preceding chapter. After the necessary
equipment is selected, the logical procedure is to determine the amount of floor space
required to house the equipment. This determination can easily be made by recording the
exact dimensions of each piece of equipment from the purchase specifications. From this
record of equipment dimensions cut a set of templates scaled at ¼ or ½ inch to one foot,
depending on the total space available.
The best procedure to analyze space requirements entails the drawing of a plan showing
total space available and structural features.
Lay Out Your Restaurant for Profit 105
This plan is generally scaled Vs. inch to one foot and will be used to judge the efficiency
of space allocations and the departmental layout of the entire operation.
Place the equipment templates on a template representing the departmental area in which
the equipment will be used. The specific location of the equipment within the department
will depend on the following factors:
1.
The number of times and duration of periods each piece of
equipment will be used. Place equipment that is used more often in the
most convenient and accessible area to the operator.
2.
Local and state regulations concerning factors such as fire,
health and safety factors.
3.
Accessibility for repairs, maintenance, and sanitation. Place
equipment so that maintenance men can properly and easily service
the machine, and in a location where employees can keep the unit and
the area near the equipment clean and sanitary.
4.
Existing plumbing, heating, and electrical connections. Occa
sionally full advantage can be taken of various supply lines that have
been installed prior to the new owner's occupancy. Where it is possible
to take advantage of this factor, do so. Quite often, however, the oper
ator may disregard these lines on a departmental level, whereas he
should not on the equipment level. That is, if he plans to locate his
heavy cooking equipment in a departmental area that has supply lines,
then he should try to locate the individual pieces of equipment to take
advantage of this fact. If, on the other hand, he plans to locate the
heavy cooking department in an area that was not used for cooking, he
can properly disregard the supply lines.
5.
Structural features. Physical features of the building that form
main supports or bracing of the building should of course be taken into
account. Other features, such as decorative columns that can be torn
down, may or may not be considered, depending on the proposed
layout.
6.
Handling of food. The equipment should be located within a de
partment so that food moves in a direct line from storage or pre-preparation units to processing or service units. There are many good
examples of this: locate a potato peeler adjacent to a sink, the sink
near a vegetable steamer and the steamer near the mixer. In an opera
tion requiring only one cook's refrigerator, locate the refrigrator near
the broiler, also next to a sink with a work table between the sink and
the refrigerator.
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How TO Operate a Restaurant
Another idea to provide more landing space and better maintenance in the kitchen.
(Courtesy of Institutions Magazine.)
7.
Transportation of food. Arrange equipment so that employees
do not have to transport heavy containers of food an unnecessary num
ber of feet.
8.
Work stations within department. In any department place
equipment so that each worker has all the equipment that he will use
to perform his duties immediately before him. This eliminates cross
traffic of employees and enables the owner to close one or more sta
tions independent of the remaining stations. For example, in a straight
line arrangement of cooking equipment, place broilers, fryers, griddles
on one end of the line; ovens and rangers on the other end. With this
arrangement, one employee is a short order cook; the other for all
roast, kettle, and range top items. Each has his own equipment easily
accessible.
If an operator plans to do a large volume of business for the three meal periods—
breakfast, lunch and dinner—consideration should be
Lay Out Your Restaurant for Profit 107
given to allocating work space for equipment according to the meal periods. A breakfast
station, for example, could be set up so that a minimum of employees could work in a
compact efficient area processing only the necessary waffles, griddle cakes, eggs, and
other breakfast items. All other cooking stations would be closed.
9. Work space. A thirty-inch work aisle is the minimum for most types of food service
operations. If work space is narrower than 30 inches, employees and equipment are in
each other's way. Near equipment that is heated the work aisle must be at least 40 inches.
The exact depth of the work aisle will depend on the equipment and utensils used and the
number of employees. Check equipment requirements carefully. Can doors on equipment
be opened fully without causing an obstruction? Are the work aisles deep enough so that
long utensils such as roast pans can be placed into the oven compartment or similarly
confined areas easily?
After the equipment and the work space has been roughed out on the departmental
template, the departmental templates are placed on the total floor plan so that allocation
of total space is properly organized and checked. The basic factor that determines the
location of the various departmental areas is the sequence of handling food. Ideally, food
should move in a direct line to the customer: received, then successively refrigerated or
stored, prepared, cooked, brought to the service area, and served to the customer in a
continuous straight line. The ideal operation should consequently work as follows.
1.
Receiving area.
The employee checks, weighs, receives the goods and turns, plac2.
Storage area. ing the food items in storage area.
3.
Preparation area.
The preparation employee removes the food from storage, trims, cuts bones, de-scales—prepares the food item and
places it in daily stores.
4.
Cooking or Processing area. Cooks process the food and place
it on the service counter where it
5.
Service area. is picked up by the waiter or
waitress who turns and places the
6.
Dining room area.
food on the customer's table.
Unfortunately, this ideal is never realized. Certain food items will move sideways and
occasionally backwards before they can be moved
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How to Operate a Restaurant
forward. The basic principle of departmental location within total area, however, remains
valid* realistic, and important. Each time that an employee takes unnecessary steps to
perform his duties, the operator is paying him for walking, not producing. Each time that
food moves sideways, diagonally or backward, the flow of service is interrupted, the
quality of food deteriorates; seat turnover per hour becomes smaller, and the cost of
doing business increases at the same time as customer dissatisfaction increases.
Evolving from the concept of proper departmental location according to sequence of
handling food, minimum motion of employees, is an important factor to consider. In
terms of cross-traffic, that of employees in the relationship to other employees and to the
customers must be carefully planned.
In the kitchen areas, employee traffic aisles should be clearly distinct and separate from
work aisles. Wherever possible, traffic aisles should be at right angles or parallel to work
aisles. In food pick-up areas, food stations should be arranged so that the food server can
pick up the necessary food items in accordance with a prearranged sequence with no back
tracking. In some operations stations can be located in this manner to pick up cold items
first and hot items last. In other opera-• tions, pick-up stations may be located according
to the plan of the menu. For example, the water dispensing station can be located in the
dining room near the customer, the appetizer and soup station, the short order station, the
roast and vegetable section and the dessert station may be set up in that order so that the
servers move from right to left in a continuous line to pick up their orders.
Traffic bottlenecks in the dining room can be largely eliminated by considering the
following factors:
1.
Plan employee traffic so there are as few intersections with cus
tomer traffic as possible. There is no reason for employees to obstruct
the path of a customer in any operation.
2.
Bring as many of the food and utensil items as possible in or
near the dining room area. Almost all operations have service stations
in the dining room for water, glasses, coffee, cups and saucers, silver
ware, and napkins. Not many have planned their dining rooms so
servers can also obtain various juices, soups and crackers, dessert, and
other food items without moving to the kitchen.
3.
Plan the dining room layout so that the kitchen area is centrally
located and adjacent to the dining room. Wherever possible, eliminate
significant differences in the distance of one dining room station to the
kitchen and other dining room stations.
Lay Out Your Restaurant for Profit 109
4. Eliminate a great deal of employee traffic by installing labor saving equipment in the
dining room. Equipment such as the telephone, walkie-talkie, and microphone enables the
waitress to place an order without leaving the dining room area. The teleautograph not
only places the order for the server but also gives management a written record of all
food ordered. This information can be classified according to individual sales, value and
description of food sold.
A chart of work flow sequence is a distinct aid to the enterprising owner. In the dining
room the work sequence follows a general pattern: after the patrons are seated, the server
brings the menu and the water to the guest. As soon as the guests place their menus down
on the table or otherwise signal the waiter or waitress, their order is taken, the server
walks to the kitchen, places the food order and returns to the station to see if other
customers have arrived. After a few minutes, depending on the type of food item, the
server returns to the kitchen to see if the order is ready. If the food is not ready, server
may wait in the kitchen or return to the dining room. Later, when the entree is finally
obtained, the server will eventually walk again to the kitchen for a dessert or beverage. If
the servers are untrained, this procedure can go on and on, accumulating higher and
higher labor costs and unpro-ductivity.
A work flow chart will show the number of times a waiter or waitress enters the kitchen,
moves away from the table to obtain material to serve guests and the length of time taken
by each movement. Obviously, any piece of equipment that will eliminate any action will
save money for the owner and increase service to the restaurant's patrons.
If the service station is centrally located, equipped with menus, water, coffee, dessert,
soup, napkins and silverware, and dirty dish bussing sections, the servers will not have to
move more than a few feet to serve customers instantly. If the food items are coded, time
can be saved in writing the order. If a teleautograph or other information transmitting
device is used, it is not necessary walk to the kitchen to place an order. If each server is
given a code number and a set of inconspicuous signal lights are installed, the cooks can
signal the servers, eliminating the need for walking to and from the kitchen to see if the
order is ready. As each piece of labor saving equipment does its job, the number of
customers each server can handle is increased, the seat turnover per hour is increased, hot
food comes out from the kitchen hot, cold foods are fresh and appetizing and service to
the customer is increased and the number of servers needed for any meal period is
reduced.
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How to Operate a Restaurant
When the first stage of remodeling the Indiana Memorial Union food facilities began,
designers were faced with a common problem—building support columns. However,
they made ingenious use of these natural obstructions by curving the counter around one
column and placing all hot food at this point, thus creating a by-pass. (Courtesy of
Institutions Magazine.)
Lay Out Your Restaurant for Profit 111
Space requirements for the dining-room
A very rapid method of estimating the number of square feet per seat in the dining rooms
of most food service operations is to multiply the number of seats by the number of
square feet shown in the table below.
Banquet
8-10 sq. feet (depending on average check)
Short order operation 12 sq. feet (average check .35-7CW)
Table service restaurant
14 sq. feet (average check $1.25-$ 1.85. May vary
because of structural obstacles, absence, or presence
of complete service stations in dining room.)
Cafeteria
14 sq. feet (average check .85-$ 1.25)
Deluxe table service 16-18 sq. feet (average check per person over $2.25)
This method is used to give the individual operator an approximate idea of the space
requirements in his dining room. In actual practice, when the number of tables, seats,
stools, or booths have been determined, the operator with or without the aid of the seat
manufacturer should make a scale drawing of his dining room and superimpose to scale
the dimensions of the various pieces of furniture and fixtures he plans to purchase.
To Determine Seats Required in a Cafeteria
This depends on the speed of the cafeteria line, the duration of the peak period, the seat
turnover during this period, and a safety factor.
The number of persons that can pass through a well organized line in a commercial
cafeteria is 7 to 9 per minute. A good operator can reach 7 a minute; an exceptional
operator about 9; the average operator anywhere from 3-6. In a straight line set up, the
exceptional operators do not attempt to pass more than 9 people per minute. Time after
time experience has shown that as the speed of the line reaches or increases beyond 9
people a minute, not only do the customers complain of being rushed, but more to the
point, the average check per person decreases materially.
Only in the island type cafeteria where people can move from one food station to another
without forming a line is it possible to increase the number served per minute. In this
instance, although the average check falls considerably, the seat turnover and the number
of people that can be served per minute (16-18) increases.
The seat occupancy in commercial cafeteria is about 25 minutes. Variations from this
standard will depend on the average check per person, the training of service and dining
room personnel, the type
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How to Operate a Restaurant
of customer, and the atmosphere deliberately created by management to induce guests to
leave or to encourage them to remain and gossip.
To illustrate this procedure of determining seating capacity in the dining room, study the
example shown below:
A cafeteria operator plans to have 7 guests moving through his line per minute. His
average check is $1.10, and his seat turnover is 2 per hour. The peak period of business is
from 12:15 to 1:15 and he wants a 10% safety factor included in the seating capacity
determination.
The formula for computing the number of seats required is:
To Determine seats required in a Table Service Operation
The dollar investment in tables and seats in a table service operation as in any operation
will depend on the relationship between the amount of expected profits, the required sales
volume, and amount of investment. (See chapter on location) For example, if the desired
profit before taxes is $10,000 and the prospective operator, based on his past experience,
anticipates operating at a 10 per cent profit before income tax, the required annual sales
volume is $100,000 dollars.
The next step is to determine the number of operating days in the year and divide the
annual sales volume by the number of operating days. The procedure will give the
average daily sales volume needed to make the desired profit. Since sales every day do
not follow a straight line for example, $300 dollars Monday, Tuesday, Wednesday, the
average daily sales figure must be adjusted upward to reflect peak volume days.
This procedure is followed by an analysis of the menu and the traffic. The menu study
determines the average menu item price, and consequently the average check per person
and the seat turnover for each period. Analysis of the traffic and past experience provides
the operator with an approximate idea of the percentage of total sales volume that he will
obtain during the various meal periods of his peak day. To the figures obtained from this
study if a safety factor of 10 to 15 per cent is added, depending on the size of the
restaurant, the seating capacity of the restaurant may be accurately determined.
Lay Out Your Restaurant for Profit
113
Relationship of Function to Location
A rule evolving from the concept of locating departments according to the sequence of
handling food is the rule regarding function. Each department has a major activity to
perform. The department concerned with this activity should be analyzed and properly
located so that it can perform its special function most effectively. To do this
consideration should be given to the relationship between the function of one department
and of the others. By locating each so that activity of one supplements the activity of the
others with speed and efficiency, the more common mistakes in layout planning will be
eliminated.
To illustrate this procedure, the dishwashing department's function is to receive soiled
dishware, glassware, trays and silverware from the dining room area, wash these articles,
and arrange for their distribution to the service area. Associated with these activities is
the problem of performing this function with a minimum loss of time, energy and
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How to Operate a Restaurant
with a minimum of breakage. It seems apparent that the greater the distance between the
dishwashing area and the dining room and service areas, the greater amount of labor time
and energy will be used transporting clean and soiled articles to and from this
department. In addition, since the articles are handled a longer time over a considerable
distance, the amount of breakage incurred will be increased. Consequently, in most
operations, the dishwashing department should be located adjacent to the dining room
and near the service area.
There are cases where factors such as total space available, high rental of first floor
levels, or the need to serve a number of decentralized serving areas make it impractical to
locate the dishwashing department near or adjacent to either the service or dining room
area. In these instances the exact location can be determined by considering the factor
that creates the problem and its subsequent effect on the function of the dishwashing
department.
If, for example, there is a definite need to conserve the high cost first floor level area, the
dishwashing department may be moved to the basement level and conveyors and
subveyors installed. On the other hand, if the problem consists of providing several
service areas with the necessary glass, silver and dishware, the dishroom may be located
adjacent to the busiest dining room and equipment installed to transport clean and soiled
ware to the service areas.
Each department of the kitchen can be similarly located. The receiving area should be
adjacent to an easily accessible vendor's entrance to the building and near the dry and
refrigerated storage areas. The vegetable preparation areas should be next to the
vegetable storage areas and the vegetable processing equipment, such as steamers and
steam kettles; the pot and pan washing section should be near the cooks' and bakers'
station. The butchers' department should be near the meat refrigeration area and the meat
processing area. Each department performs a special function. The efficiency of the total
layout will depend on the degree that each department is located so as to perform its own
activity efficiently and supplement the functions of other departments.
The use of departmental templates representing the dimensions of the departmental areas
is a very ample way to check the efficiency of the total layout. By placing these
cardboard templates on the blueprint, not only can the entire layout be visualized, but a
great deal of time and unnecessary expense saved because any proposed change in
departmental location merely entails shifting these templates.
CHAPTER
9
How to Protect Yourself with Insurance
Depending on location, size, and nature of the restaurant, the list of perils from which a
food service operation needs protection falls into three general classifications: (1)
protection from perils which might result in a large loss and must be covered by
insurance; (2) protection from perils to which the restaurant is constantly exposed and
which may or may not result in serious loss; and (3) protection from small losses which
can occur frequently.
The type and importance of protection needed by individual restaurants will vary.
Protection from windstorm, classified in the third group on the following pages, may
easily shift, in terms of importance, to the first group because of the location of the
operation. The arrangement of different types of protection into the three categories is
therefore changeable. The importance of this type classification to the individual operator
is none the less vital.
In effect each operator is asked to classify the various perils in terms of their relative
importance: the seriousness of the loss, the possibility or frequency of occurrence. The
operator will weigh the amount of loss against the possibility or frequency with which a
specific peril will occur and assign the peril to its proper classification.
A sound insurance program provides complete protection from the dangers of the first
group, selective protection from the perils of the second and third group. Generally, the
specific things from which a restaurant may need protection fall into the following
classification:
First group—protection is mandatory
1. Comprehensive general liability—the intent of this coverage is to protect the operator
against every type of liability that may occur in
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dealing with people. The coverage protects the owner against claims for personal injury
suffered on or adjoining the premises by customers or persons other than employees.
Depending on the insurance company, this coverage generally includes damage to guest
property, claims for accident, illness, or death of customers. The products liability clause
protects the operator specifically against claims ensuing from the consumption and
handling of food and beverages.
2.
Comprehensive fire—the intent of this coverage is to protect the
owner against property losses caused by fire, lightning, smoke and
water damage created during the time the fire was being put out. The
coverage provides for an appraisal and subsequent replacement of
property damaged or destroyed by fire.
3.
Life insurance—this coverage protects against losses caused by
death of owner or business partner. The coverage may be written as
a business insurance to protect the partner or as a personal insurance
to protect the family.
Second group—protection is selective depending on size, type, location, volume and
nature of business
1.
Theft or larceny, burglary and robbery—insurance companies
define theft as an act committed by stealth without knowledge of the
owner. To change theft or larceny to burglary, the loss of property
must be accompanied by forcible entry. Robbery is an act committed
in the presence of some person who is in danger by reason of the act.
The robber takes property by violence or threats of violence. Depend
ing on the value of property inside the restaurant and the frequency
and value of property transferred to banks, the operator will protect
all safes and contents, safe deposit boxes, and insure against damages
caused by burglars to property and hold-ups inside and outside the
premises.
2.
Fidelity bond or 3-D insurance—this coverage provides pro
tection from losses caused by dishonesty, disappearance, and destruc
tion of property. A well-written policy will cover loss of money through
employee dishonesty, loss of money or securities inside and outside
the premises, loss of money or securities in safe deposit boxes, loss
through forgery of outgoing instruments and altered or raised checks.
Many times large organizations ask for an incoming check rider to
protect the company from forged, altered, or raised checks coming
into the operation.
How to Protect Yourself with Insurance
117
There are four types of bonds protecting the restaurant from its employees:
a)
the position schedule bond furnishes indemnity in the event of
larceny or embezzlement up to the limit of the bond. This cov
erage applies to the position or job, not to the individual holding
the job and is particularly advantageous for restaurants having
a high turnover of employees.
b)
blanket position bond covers positions similar to the schedule
bond explained above. However, it differs in a very important
respect in that each position covered by the blanket position
bond is protected to the limit of the bond.
c)
individual or name schedule bond covers only the designated
employees named in the bond. The owner can protect himself
by insuring each responsible employee for varying amounts ac
cording to the risk involved.
d)
primary commercial blanket bond covers all the restaurant
employees up to the limit of the bond. If the limit of the bond
is $5,000 and two or more employees working together are
responsible for an $8,000 loss, the bonding company will pay
only $5,000.
3.
Building insurance—covers losses created by damage to the real
property. This policy can cover permanent fixtures such as boilers,
plumbing and heavy machinery. Most owners specify that additions or
improvements to the building are automatically insured. Payment on
this policy will be made on the basis of value at the time of loss, not
original cost. The reason for placing this coverage in the second group
of selective protection is that many restaurant operators do not have
title to the building. Where the operator has not leased the building,
this coverage should automatically be shifted to the first group.
4.
Contents insurance—this coverage protects against all losses
to everything contained in the building that is not included in the
building insurance and excluding value of food inventory.
5.
Fine arts insurance—included in the second group because of
the value of the property protected. In the instances where operators
have rare paintings, tapestries, statuary, and other valuable property,
protection can be obtained with this policy for all risks including fire,
theft and breakage.
6.
Automobile insurance.
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Third group—selective protection
1.
Rent and rental value insurance—protects the insured from
loss of rental income when sublets are damaged and the lessee is not
required to pay.
2.
Boiler insurance—provides protection up to the limits of the
policy for losses arising from accidents from equipment such as en
gines, boilers and hot water heaters; covers property damage, acci
dental injuries, legal and other expenses and losses to newly installed
equipment.
3.
Business interruption or use and occupancy insurance and
extra expense insurance—compensate for loss of profits and continu
ing expenses such as rent, taxes, interest, salaries following some
casualty.
4.
Engine breakage and electrical machinery—can be sold as
separate policies, the first covering damage to equipment such as
pumps and compressors; the other, generators, machines operated by
electrical wiring, switchboards and control devices. In some instances
large chains have combined all three types of protection—boiler, en
gine breakage and electrical machines—in one comprehensive policy
called boiler and machinery insurance.
5.
Floater insurance.
6.
Sprinkler leakage.
7.
Windstorm, hail, tornado, hurricane.
8.
Water damage—protects against losses caused by bursting
water and steam pipes, leaky roofs.
9.
Aircraft and vehicle damage.
10.
Destruction by vandals.
11.
Bad debts.
12.
Glass insurance—protects the owner when damage or break
age occurs; covers all types of glass: plate, window, carved, and others.
13.
Explosions.
14.
Earthquake.
15.
Riot.
There are many other types of insurance that have not been included in the classifications
above for several reasons, such as the location of the operation, the requirements made on
the operator by state or federal law, demands made by unions, and the variety of
coverages offered. Coverages pertaining to workmen's compensation, accident, and death
are good examples of this type of insurance.
How to Protect Yourself with Insurance
119
WORKMEN'S COMPENSATION INSURANCE
1 Workmen's compensation insurance, for example, protects employees against loss
resulting from job-connected accidents and in most cases against loss from specified
kinds of occupational illness, through a policy purchased by the employer. Generally, the
employer is compelled by State law to carry this insurance, and even where he is exempt
from compulsion, he may find it safer not to take advantage of his exemption, since
failure to provide protection may expose him to greater risk.
Workmen's compensation laws developed as a social reform. They provide that in return
for giving up his right to sue at common law, a worker who is injured in the course of his
work has a right, regardless of fault, to definite benefits to compensate him for the loss of
pay he suffers when occupational injury prevents him from working and for the medical
expenses entailed. If he is killed, compensation is provided for his widow or other
dependents.
All 48 states now have compensation laws on the books. These differ widely, but most
compel the employer to insure the risk to make certain that the money will be available
when there is a valid claim.
In a number of states, the insurance is purchased from a private insurance company, but
in some the employer may choose between insurance with a private company and
insurance with a state fund. In a few states, a state fund provides all the workmen's
compensation insurance, and private companies are not permitted to offer the coverage.
In most cases, the employer also has the option of "self-insuring" (that is, posting a bond
and maintaining a fund for the payment of injuries himself) but this is generally not
practical for any but a large employer.
Some compensation laws are "elective," that is, the employer may choose whether or not
he will come under them. But if he elects not to come under the law, employees who are
injured on the job may sue him for damages. And it is much easier for them to collect
than it was in pre-compensation-law days, since the common law defenses mentioned
above are no longer available to him.
State laws exempt certain types of employers also. For example, if the employer is
engaged in a non-hazardous business, he may not come
1 Data obtained from Small Business Administration, Washington 25, D.C.
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under the act. Or he may be exempt because he has very few employees. Every employer
should check the law in his own state to discover how it applies to him. But even if he is
exempt, he may find it advisable to carry insurance in order to avoid the risk of being
sued at common law. The risk can be great, but the cost of insurance is moderate. In
addition, that cost is classified as a normal expense of doing business.
The amounts paid to employees for injuries suffered during their work depend on the
benefits provided in the workmen's compensation law of the particular state in which they
are employed. The premium rates are based on past loss experience for the particular
industry and are computed as a percentage of the payroll. Thus the total premium an
employer must pay for his workmen's compensation insurance depends on the type of
business he is in, the number of employees he has, and how much he pays them. The
premium rate also covers expenses of administration, accident, and occupational disease
prevention, agency service, claim adjustment costs, and taxes. In addition, insurance rates
as applied to payrolls vary from state to state, because the actual benefits provided by
state laws differ considerably.
Premium rates are influenced by the percentage of weekly pay allowed as a benefit, by
the length of the waiting period required, by the maximum and minimum benefits, by the
allowance for loss of limbs and similar permanent injuries, and by death benefits.
Amounts paid for medical treatment also form an important element of cost.
Variations in Cost and Benefits
Employers whose operations are of sufficient size can have their rates adjusted up or
down from the standard rates on the basis of their own loss records. This is called
experience rating and is based, in most states, on a three-year period, not including the
current policy year. In addition, such an employer may elect to have his premium for the
current year modified on the basis of his loss experience for that year. In this case, the
final premium is determined after the policy period has ended.
All but a few state laws have been amended to provide benefits not only for injuries
resulting from the job, but also for illnesses which are due to the worker's occupation.
Some occupational diseases are very severe—sometimes permanently disabling. One of
these is silicosis, caused by inhaling silica dust, which may be found in places such as
foundries and quarries. The dust affects the lungs and can cause irreparable injury to
them.
How to Protect Yourself with Insurance
121
Usually, state laws specify whether officers of corporations are to be included in or
excluded from workmen's compensation coverage. However, under a few state laws, it is
permissible either to include or to exclude corporation officers from such coverage.
When company officers are included, their salaries, up to a stated maximum, are taken
into account in determining the payroll subject to premium charge. Individual employers
or partners are usually excluded from the coverage of the laws.
ACCIDENT AND HEALTH INSURANCE
It has been noted that workmen's compensation protects an employee against financial
loss resulting from job-connected injuries and often from loss due to occupational
disease. Nevertheless, it offers no protection against injuries which occur off the job or
against illness not directly resulting from employment. To fill this gap for the worker,
accident and health insurance is available. This type of insurance is obtainable on both an
individual and a group basis. Individual policies may cover both occupational and nonoccupational disabilities. Group insurance, which is customarily purchased through the
employer, usually excludes accidents and illness covered by workmen's compensation. It
can help reimburse an employee both for the expenses resulting from an off-the-job
injury or a major illness and also for the loss of income he suffers when unable to work
for a significant period of time. With more than two million non-fatal off-the-job injuries
occurring annually, accident and health insurance meets a very real and pressing need.
Only about five percent of all disability cases result from accidents on the job;
consequently, accident and health insurance must supplement workmen's compensation if
the other 95 percent of the cases are to be covered.
Uninsured employees often postpone needed hospital or medical care because they feel
the financial burden will be too great. Such delays often result in more serious illness and
ultimately a much longer absence from work. Moreover, the loss of pay, even for a few
weeks, usually means a distinct hardship for an employee and his dependents.
Because they realize how serious the loss of regular income is to an average family, many
employers arrange to continue salary payments during an employee's illness; some even
help in paying hospital and medical bills. This procedure, however, can frequently
impose too heavy a financial burden to be practical for a small business. It is also
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an unnecessary burden, since the same benefits can be obtained much more economically
through the use of insurance. Furthermore, although employees individually can obtain
insurance protecting them against off-the-job injury and sickness, they can generally get
the same protection more cheaply through a group plan arranged by their employer. This
is true whether or not the employer himself pays any part of the cost.
A sound accident and health insurance plan will, first, act as an inducement to
prospective employees; second, help reduce employee turn-over; and third, promote
better morale and loyalty to the company, and in that way tend to increase productivity.
Types of Accident and Health Insurance
Accident and health insurance policies can be designed to include one or a number of
benefits. The current trend is toward broader and broader coverage.
1.
"Loss of Time" income insurance.—Of cardinal importance in
the group program is insurance against loss of income during an ab
sence caused by a nonoccupational injury or illness. This sort of loss
comprises about 70 percent of all losses resulting from disability.
Policies may be developed to provide either a specified dollar amount weekly for all
employees, or weekly payments graduated on the basis of wages. In the latter case, the
policies usually provide from one-half to two-thirds of regular wages up to a benefit of
around $50 a week. Payments are made during illness for periods up to 13, 26, or 52
weeks. Moreover, most policies pay benefits whether or not the employee is confined to a
hospital or to his home.
2.
Hospitalization.—This is next in importance, and among the
most common kinds of insurance. A policy of this type will pay the
cost of a hospital room and board at rates ranging from $3 to as high
as $15 a day; typically, the maximum time is between 30 and 70
days, depending on the particular policy. Hospitalization coverage gen
erally includes payment for at least part of the cost of "extras," such
as use of the operating room, laboratory tests, and X-rays, special
medicines, etc., which often bulk large in the total bill for a stay at the
hospital.
3.
Surgical insurance.—This is less common, but gaining in popu
larity. It pays all or part of the surgeon's fee for performing an opera
tion. Policies may apply not only to operations performed in a hospital,
but also to minor surgery done in the doctor's office or at the emHow to Protect Yourself with Insurance
123
ployee's home. The maximum surgical benefit paid is ordinarily between $150 and $200.
A few schedules pay as much as $500. Typical allowances are $100 for an appendectomy
and $30 for a tonsillec-tomy. These amounts, of course, vary with the amount of
insurance purchased.
4.
Medical insurance.—To round out the program of accident and
health insurance, medical insurance is also available. Most commonly,
this contributes $2 toward the cost of a visit to a doctor's office, and
$3 for a doctor's visit to the home, or $3 and $5 respectively. Upon
request, a policy providing for higher amounts may be obtained.
5.
Coverage for dependents.—An employee is, naturally, con
cerned both about meeting expenses attendant on his own illness, and
about paying for the illnesses of his immediate family. Consequently,
it is possible to obtain hospital-surgical-medical policies extended to
provide coverage for the employee's dependents, including a maternity
coverage for wives.
6.
Accidental death and dismemberment insurance.—Another
kind of coverage which may be purchased for employees is accidental
death and dismemberment insurance. This type provides protection,
usually in the form of a lump-sum payment, for fatal accidents or for
loss of arms and legs. Since the cost of such insurance ordinarily is
quite low, it is often practical to provide for fairly large benefits.
7.
Other coverages.—Sometimes, in the case of a long illness,
treatments must extend over a period of years. However, because such
a case is relatively uncommon, ordinary hospitalization and medical
insurance is not designed to take care of it. One such disease which
causes widespread concern is infantile paralysis, or poliomyelitis. In
this case, special protection is available. Since polio insurance for
employees and their dependents is fairly inexpensive, the small manu
facturer may want to consider adding it to his group insurance pro
gram.
A much broader form of coverage, which will pay expenses running into thousands of
dollars for exceptionally expensive illnesses of almost every kind, is called "catastrophe"
medical or major medical expense coverage. This, however, is still a comparatively new
and costly type of insurance.
Insurance coverage is technical and requires a great deal more than casual interest in the
subject. The carefully conceived policies with their unfamiliar terminology and detailed
pages of fine print usually confuse the average operator. The proper approach to
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tection is to determine when initiating an insurance program to read the entire policy
carefully.
One subject of insurance that is little understood is the co-insurance clause. The intent of
this clause is to require the owner of property to insure for a realistic amount. In the event
that the owner does not insure to the full value of his property, he becomes in effect a coinsurer depending on the percentage requirements of the co-insurance clause.
For example, if a restaurant building valued at $100,000 is protected by a policy
containing an 80% co-insurance clause, the building should be insured for at least
$80,000. If the owner insures his property for less than this amount and a loss occurs, he
will not receive the full amount of loss, but the full amount less his proportionate share of
risk. The formula for computing the value of his protection is the face amount of his
insurance policy divided by the amount of insurance he should have carried, times the
loss. Mathematically the formula looks like this:
In this case the $60,000 is only % or ■% of the coverage required by the 80% coinsurance clause; consequently, the insurance company will pay only % of any loss up to
the limit of the policy. The owner is said to be a co-insurer for % of any loss that occurs.
Reduction of Insurance Costs
There are many ways of reducing insurance costs without reducing the coverage and
protection afforded. Fire insurance premiums, for example, can be reduced by installation
of adequate fire-fighting equipment, sprinkler systems and fire-walls between hot kitchen
equipment
How to Protect Yourself with Insurance
125
and wall. A check on the total electrical system and a substitution of proper sized
protective wiring for poorly insulated undersized system will invariably reduce costs.
Another possibility is the careful selection of the types of protection needed and the
subsequent combination of these policies into a single policy that will cover all the
similar perils.
In most instances it is advisable to study your individual needs and obtain the advice of a
competent insurance agent, advisor, or broker. The insurance program should be tailored
to secure adequate and complete protection for the particular needs of the operation in the
most inexpensive way.
A reliable advisor seldom attempts to oversell an insurance program and invariably can
answer your questions regarding the insurance policies and the insurance companies
engaged in selling. Note whether the policy is a broad comprehensive form or limited
form of insurance. Study the casualty and liability protection afforded. Are the limits of
bodily injury liabilities, for example, sufficiently high to protect you against most
contingencies? Find out if the policy is a standard form authorized by your State Board of
Insurance Commissioners. As a minimum a policy should give standard protection by
meeting the requirements of law. Check the fine print for assessment clauses. A policy
subject to assessment enables the company to ask for additional premiums so that
unexpected financial obligations of the company may be met.
The prospective policy holder should investigate the character, service, reputation and
business management of the company. The State Insurance Boards, financial records of
corporations, insurance agents and brokers can provide an interested party with ratings
and financial data enabling him to check on the financial strength, long range stability
and national reputation of the company. Local inquiries will show if the company has a
resident agent in the community to settle losses quickly and to aid you by providing
safety engineering or other services that you may require.
CHAPTER
10
Restaurant Promotion and Advertising
Broadly speaking anything that is done to increase sales is promotion. This includes
public relations practices, paid T.V., radio and newspaper advertising, highway and
entrance signs, direct mail to customers, and publicity of all kinds. The printed menu is
part of promotion, literature to induce the customer to buy.
Operational practices are part of restaurant promotion. Service and cleanliness are indeed
part of the sales program. In fact, cleanliness is usually number one in the promotion
program. A good share of the success of Howard Johnsons can be attributed to the
emphasis placed on sanitation. The over-all effect a restaurant has on the public and its
customers measures its promotion efforts.
The restaurant public is likely to judge a restaurant as a totality— everything about the
restaurant, the courtesy of the employees, the kind of advertisements used, the design of
the building itself, its decor, the smartness of its menu, the relation of the restaurant to the
community, and the food itself. A completely successful restaurant is successful in all of
its aspects.
Establish a Personality
First step in a promotion plan is to establish a personality for the restaurant, a personality
that sets the place aside as a separate identity. To make it stand out from other
restaurants, make it at least a little different in design, in decor, and in items and services
offered. Create an atmosphere.
In the restaurant business atmosphere is probably the best promotion possible. It's the
thing people talk about, the thing that makes
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Restaurant Promotion and Advertising
127
them return. It's the popover muffins at the Watergate restaurant in Washington, D.C., the
piled-up portions and Madame Pompadour's piano at Creighton's in Fort Lauderdale, the
spotlessness of Van de Kamps in Los Angeles.
ATMOSPHERE CAN BE BROKEN DOWN INTO FOUR PARTS:
1.
The physical part—the building, the signs, the parking lot and the
general decor.
2.
The personal part—what you and your staff do to make the guests
feel important.
3.
The food—its quality and appetite appeal.
4.
The distinctiveness of the restaurant—the way it stands out from
other restaurants. This may be the menu, the wonderful service, the
music played, the convenience of the parking lot, or what have you.
Of course, the way your restaurant is different must be in terms of
the other three parts.
Then there's the use of a signature or trademark. Every restaurant has a personality and a
name. Give your restaurant a Dale Carnegie course—build a personality. The trademark
should set off pleasant reactions in everyone who sees it. Some highly effective ones are
The Magic Chef, The Little Chef, The Big Boy, the Howard Johnson's Simple Simon and
the Pie Man. Van de Kamps of California use the Dutch Windmill—very good, because
Dutch and cleanliness go together.
The Big Apple, The Juicy Steer, The Copper Kettle, The Coffee Pot, The Chicken Pot,
The Chicken Basket, The Carousel, The Barbecued Burger—all set off pleasant images
for the customer.
"Jones Drive-In" or "Brown's" are perfectly good names and, depending upon the
location, service, food and personality of the operator, may be highly successful. How
much better, though, to take an idea such as The Carnival, The Bun and Burger, The
Yacht or The Tarn O'Shanter, develop it imaginatively and build a complete promotion
package of highway signs, stationery, building and uniforms—all tied together with
design—a trademark and color.
Develop a Theme
The successful restaurant operator is selling much more than food. He is selling himself.
He is selling taste. He is selling atmosphere. He is selling glamor, a social gathering
place, beauty and excitement. All of
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these must be tied together to make a package—a promotional package which is pleasing
and will be remembered.
The package should have a theme, a bright and yellow ribbon around it to wrap it all
together. Suppose, for example, that you are featuring barbecued sandwiches. The
building itself, the entrances, the menu, the matches, the carhops' costumes all should fit
the barbecue's idea.
To illustrate what is meant by developing a promotion theme, here are a few promotion
devices featuring "Smoky" the pig, who is seen on the road sign making sage comments
on "Growling Stomachs." A trademark such as "Smoky" is a good promotion device on
which to hang all selling ideas. The caricature is easy to remember and gives the deft
touch which lifts a promotion program out of mediocrity.
On entering the drive-in, the guest immediately sees the theme again. In the illustration,
"Smoky" appears at each side of the entrance gate.
The menu itself is a miniature smokehouse, a small version of the real drive-in building.
The bib 'n' tucker is for all "children," young and adult, and lends a picnic air to the place.
Eating is made into something more than masticating and swallowing food. It becomes an
event.
Idea for a highway sign using trademark pig caricature. Same design can be
used for newspaper and television ads for recognition tie-in. Copy can be
changed in ads as desired to feature different messages.
Smoky piggy banks given to favored customers and the Smoky straws for "pig size
milkshakes" are additional details to round out the Smoke House theme.
Restaurant Promotion and Advertising
129
Entrance arch to parking lot features trademark pigs. Backsides of pigs are seen when
leaving lot to provide good humor touch to departing patrons.
A trademark piggy bank like this might
be given away with a special such as
barbecued ribs.
This special design menu carries out the smoke house theme together with the pig
trademark.
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A special bib design continues the trademark tie-in. A matching trademarked napkin is
served tucked in the pocket of this colorful "bib'n'tucker."
Consider the menu—that silent salesman, that hint of things to come, that important part
of restaurant atmosphere. It can be a negative factor, lifeless and neutral; or active and
alive, a positive selling force, even a thing of beauty to be enjoyed along with the food.
Are the colors, words, and pictures appetizing? Does the menu make you hungry just to
look at it?
Nearly every menu can be improved. This will be true as long as we have new color
processes, better paper, and as long as man has imagination.
Make the menu fit your restaurant: The menu is an integral part of the restaurant
atmosphere. The menu should reflect the tone, the colors, the formality or lack of it, the
style of operation. In other words, the menu is very much a part of the personality or
identity of the restaurant.
Make the menu distinctive: You want your operation to stand out, to be different from
that of all other restaurants. A menu that has "personality" helps to give your business
"standout" value.
Use words that set off pleasant emotional responses in the patron: Words trigger the
human nervous system.
Here are a few descriptive terms which are certain to make the mouth water:
Old Fashioned Custard Pie
Tender Buttered Green Beans
Orchard Fruit Cocktail
Creamy Cottage Cheese
Restaurant Promotion and Advertising
131
Flaming Pit Chuckburger
Roasted one-half Maplecrest Spring Chicken
Prime Ribs of Corn-fed Kansas Beef
Sublime Sherry Sauce
Tasty Swedish Pancakes served with real Lingonberry butter
Hot Cakes with Oregon Wild Blackberry Syrup
Of course, menu descriptions can and have become so wild and unrelated to fact that they
are ridiculous. One restaurant takes 200 words to describe one of its dishes. But look at
this description of an orange drink as served at the Coffee Shop in the San Francisco
Airport:
Whirly Bird
Chilled California Orange Juice and Lemon Juice blended
with Mountain Honey served chilled and brimming with
health for your morning perkup
60¢
Who can resist such a build-up?
Except for strictly fast-service, most restaurants would do well to dress up their food
terms, plus garnishing and adding color or a bit of this or that. Add to the price also.
Whipped cream on the chocolate pie, hot apple pie with a slice of cheese, cinnamon toast
with a fruit plate, sour cream dressing with a large hamburger, nutmeg available for
malts, and so on.
Develop your own specialty: Every restaurant should have a specialty—something that is
at least partly unique, something people can talk about. . . . "Have you tried the 'special'
sandwich at the Corner Drive-in?"
The "special sandwich" may have little claim to distinction other than that it is served in a
poppy seed bun that has been toasted. Or perhaps the tartar sauce is "Mary's Own Tartar
Sauce." Mary's recipe for the sauce may come from Fanny Farmer's Cook Book, but
Mary has added just a speck of garlic to the sauce, making it her own. The greatest chef
of all, Escoffier, was not above using the same tactics. Sarah Bernhardt, renowned actress
of Escoffier's time, loved his scrambled eggs, claiming that the flavor was unparalleled.
The secret Escoffier used was to place a small clove of garlic on the knife he used in
mixing the eggs. The secret was kept because Miss Bernhardt insisted that she could not
tolerate the taste of garlic.
Maybe your specialty is coffee, milkshake, corned beef on authentic dark bread, an ice
cream pie, or a pie piled 4 inches high with meringue.
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The specialty need not run up the food cost. It should be a popular item, something with a
little imagination and naturally something which can be done well and quickly.
Use color in the menu to arouse appetites: Recently a number of restaurants have
illustrated some or all of their items in full color. Some of these are remarkably well
done. One of the best of these is the Redwood Drive-In in Brentwood, Mo. The cover
showing chuck-burgers in "the flaming pit" is enough to set off the taste buds. Needless
to point out, such a color menu is expensive.
Balance the layout of the menu: Many menus are cluttered and lack any semblance of
plan making them most difficult to read.
The menu, no matter how well the items are selected, described, placed and displayed in
color, will not make a restaurant. It cannot overcome poor location, mediocre food,
preparation and service. Even so, it is part of the food service personality and sales face
which has helped change many an operation into something outstanding.
Give the Children Something Special
If children are an important part of the business, give them something special. A few
restaurants have set aside a Kiddies Korner. The Korner may have small seats and a
kiddie-size soda bar or it may be just a corner with individual decorations. A Fairytale
Nook could be decorated with animals and fairytale characters. Needless to say, carpeting
would not be part of this Nook and washable furnishings would be a requisite. A drive-in
could feature a Clown Corner with a carhop dressed as a clown.
The Clean Plate Club has been used by many restaurants. Children who eat everything on
their plates get a certificate to the Clean Plate Club. In some places this can be turned into
the cashier for a grab in the treasure chest, which contains assorted prizes with an average
cost of less than 5 cents.
Children's menus in the form of face masks, animals, or clowns are good if there are
enough children customers to warrant the extra expense. Menu items on these are named
after animals or well known children's characters. "Please order by picture," says one
such menu. The menu itself is in the form of a donkey and the food items are the Polar
Bear, Zebra, Lion, Elephant and Giraffe. As an example, the Zebra turns out to be a
peanut butter or raspberry jam sandwich, ice cream cone, and chocolate milk.
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Other children's menus feature such characters as The Davy Crockett or The Rough
Rider.
Writing to children directly pleases them as well as the parents. One restaurant has a
fictitious character "Speedy" on all of their children's menus who directs the Speedy
Clean Plate Club and sends the kids periodic messages. Here's one of them—
Master Peter Wilson:
Speedy is busy and asked me to remind you of Washington's. Birthday and, of course, the
juicy cherry pie that always goes with Washington's Birthday. You know, George
Washington was supposed to have cut down a cherry tree and then like a good boy
confessed everything to his Daddy.
Speedy is busy baking lots of cherry pies and he wants you to come down to Jerry's
Drive-in and have a big piece. Or better yet, get Mom to take a whole pie home so that
the whole family may enjoy it.
(signed) Rumpelstiltskin Secretary to Speedy
Contests for children have a great appeal and what is more interesting to a child than a
Shetland pony as an animal prize? Bikes as prizes come in for a lot of interest, too.
Hot Shoppes in Washington, D.C., has a contest in which the winners plus their mothers
and fathers are guests at a nearby ranch for a day. Everyone is picked up at a designated
spot downtown by a chartered bus and taken to the farm. A tour and steak picnic follows.
For city children who have never been on a farm, the trip is a real thriller.
One restaurant created considerable attention and extra business by suggesting a "steak
and beans" contest to large auto dealers, insurance companies and department stores in
the area. A No. 10 can of pork and beans was sent to the manager of each firm with a
letter suggesting that the can of beans be a gimmick for a sales contest. The sales force,
the letter suggested, should be divided into two teams and a sales contest held. The can of
beans was to be prominently displayed as being the prize for the losers. The losers ate the
beans and paid for "steaks for the winners." The steaks, of course, were served at the
restaurant that conceived the contest idea.
Another idea is to tie in with a local movie theater to give complimentary tickets on
nights that normally have little business for both
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the drive-in and the theater. The tickets cost the theater manager nothing and he can be
sold on the idea of establishing the "supper-theater" habit. Also, the restaurant can give
the movie some publicity in the newspaper advertisement.
To introduce a new food item or to push the sales of an old one, try waitress badges
reading—
It's The Greatest. Everybody's Talking!
When the curious customer naturally asks "What's the greatest?" the waitress responds
"Why, the new Barbecued Pig Sandwich we're featuring. Would you like to try one?"
Most salesgirls can profit from a "charm" course. Such courses suggest improvements in
posture, walking, make-up and conversation. Why not get the local restaurant association
to sponsor a charm course and send the salesgirls at no cost to them? Many times the
local newspaper or electric power company will co-operate or even finance completely
such courses. A girl who can be made more attractive likes herself better and she also
likes other people and the world in general better.
Successful Promotion Ideas
Here are some successful promotion ideas used in actual operations. Some may not be
entirely suitable for a particular operation, and others may have to be changed to go with
your restaurant, but each should be considered as a possibility in your promotion
program.
Let's start with guest relations. Waitresses and carhops can be informed and cheerfully
answer commonly asked questions about such items as the population of your town, the
reason for the town's name, name and location of a good department store, men's store,
women's shop and drug store, location of the nearest post office, mileage to nearby towns
and cities and highways to travel in getting to them, and current movies.
In other words, guest-contact employees thus appear informed and can make intelligent
conversation. Part of personality is interest and knowledge. Help employees to develop
theirs.
Holiday greetings to regular customers are another promotion idea. For this, try
something different. Send a line cut of your restaurant with Season's Greetings "From
Jerry and the Staff at the Bonny Charlie." Send a "We are thankful for you" note at
Thanksgiving time.
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Special customers deserve something. Dale's Steakhouse in Birmingham sends something
useful and different each Christmas. One year it was a cocktail glass with ounce marks
and recipes engraved on the outside. Another year it was a tile pot holder. Another time it
was a catsup dispenser in the form of a giant tomato.
The idea which goes with the gift is often more important than the gift or card itself. You
may want to include a message like this one—
Tomatoes + Spice = Catsup Catsup + Bonny Hamburgers =
Something Nice Hope to see you often
The Bonny Charlie Staff
Effective Advertising
Eating is an emotional process and therefore advertising must appeal to the emotions.
Radio is very effective for advertising restaurants provided the advertising is repeated.
Since TV has offered radio so much competition, radio advertising rates have come down
and today some mass rates are obtainable in blocks of as many as two thousand spot
announcements on the radio. Black and white TV is not too effective for selling
restaurants but color TV should be an excellent medium. Radio and TV advertising can
hit people when they are "ready" to eat if timed properly. Dining out is often "impulse
buying."
A classified ad in the telephone book which describes the restaurant carefully is an
effective advertising medium—tourists and local people often select restaurants from the
phone book.
Word of mouth advertising is, of course, the best of all advertising and it may be
necessary to produce such a fine product that all of your advertising money is spent on
the product itself.
Have a definite advertising budget and stick to it. Most restaurants cannot afford
professional guidance through advertising agencies, but would do well to employ one if
the restaurant is being changed over in style of operation or is just being opened.
Limit your advertising objective: Do not try to be all things to all men. Keep your
message simple and hammer away at a single idea. Do a few things superbly and be
consistent in the advertising.
Never forget that advertising is but one phase of a promotion program. A full-page ad in
the local newspaper will bring dozens, maybe hundreds, of people to the restaurant. They
come once, but unless the atmosphere and food is right, they do not come again.
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Capitalize on Publicity
Few restaurants capitalize on publicity—that is, getting the name and idea of their
restaurant before the public at no cost to the restaurant. Radio stations and newspapers
are eager to broadcast or publish anything that is newsworthy. It's up to you to slant what
happens at your restaurant so it will be newsworthy. Have your chef work up a special
dish for the winning high school or college team. Call it "The Victory Sandwich." Serve
it to the first string eleven and see that the newspapers are there to photograph the event.
Or develop a specialty featuring a local food product, such as a shrimpburger, a
crabburger, a new ice cream float featuring local cranberries—there is no end to what can
be done by making a minor change in a well established recipe. Food editors are looking
for just such news.
You must view the problem objectively and realize that an editor cannot use your
material just because you sent it. Give the editor a hook on which to hang his hat,
something that will interest his readers. Make it as easy as possible for the newspaper
man to help you. Remember that the editor is a very busy man, always racing the clock.
Forget the small talk—be polite, brief, considerate—and get out.
In writing a news release tell your entire story in the first paragraph. The rest of the story
is trimming. Give yourself three chances on a story by leaving aspects of the story for
other news releases.
In sending in news stories, type them double spaced and do not try to blow them up
unrealistically. "Pufflicity" is no longer fashionable. Realize that a publicity program is
like building a house out of blocks. Each block is necessary and adds to the final effect.
Keep your program fluid and be ready to change your objectives when necessary.
The Fontainebleau has built up the word fabulous to such an extent that many people are
afraid to stop there. Now an effort is being made to make the public aware that twelvedollar rooms are available just as are the two-hundred-a-day suites.
Timing in publicity is important. Christmas week, for example, is a poor time to publicize
a hotel since most people are preoccupied with Christmas events of their own.
Put Motivation Research to Work
Why do your customers eat at a particular restaurant? Is it actually because of the good
food in pleasant surroundings?
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The "MR" people—psychologists doing motivation research—tell us that people buy
things for more impelling reasons and your food is probably no exception. If you know
the reasons, you have a key for unlocking greater sales. As the MR people say, you can
trigger the emotions which will cause people to buy your product.
What is MR and what has it done? Motivation research is an attempt to learn the
underlying reasons why we buy the things we do, to uncover the "unconscious" forces
which steer our decisions. Psychologists use so-called depth interviews, word association
and projective techniques to take a look below the surface of the mind. And what do they
find?
Are one drive-in's hamburgers really any better than primeburgers or another drive-in's
hamburgers? Maybe not. Maybe all three burgers have been made with buns from the
same bakery, the same grade of meat and the same cuts using similar patty machines.
What then is different? Only the image that each hamburger creates in the mind of the
buyer. We may be willing to pay more for the image than for the product itself.
Our egos, our pictures of ourselves, are our most important possessions. Consciously and
sub-consciously we try to do the things which preserve that picture. We buy the kind of
car we think fits us, the kind of beer which goes with our personality, the hamburger with
which we would like to be associated.
So we are really not selling just hamburgers, steaks and barbecued beef, but what goes
with them. Anyone can buy hamburger and buns, take them home and grill them for less
than half what they cost in a drive-in. But a drive-in represents excitement and being
served by others. It presents light, color and social life. Sell this image, not hamburger.
Many restaurants still sell that tired old idea, "the best hamburger in town." This theme
and all the rest that harp on taste have no real appeal. However, the associations that go
with the item and its meaning are very important. The restaurant and the people are, in a
sense, part of the hamburger.
How many persons have you met that you can't remember because they are pretty much
like every other person? Most restaurants and most restaurant items are pretty much
alike—no personality, nothing that sets them apart. Advertising builds the difference and
develops the personality. So, too, does design and service. Give your hamburgers and
steaks personality. Create a personality to set them apart. Establish an identity and build it
up. "Sell the sizzle, not the steak."
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Food is loaded with psychological implications. Milk means comfort, security and return
to the safety of mother. Ice cream is a reward food and should be advertised as such—
"Reward yourself with a heaping dish of ice cream" or "Today you deserve ice cream."
Ice cream often symbolizes self-indulgence and ads should show the overflowing cone or
dish.
Restaurants that cater to a weight-conscious crowd should use the 4 to 6 percent butterfat
soft-serve product and emphasize that "it has all of the nutrition with a minimum of fat."
Dairy Queen has done well with these ideas.
Motivation researchers tell us that most people have guilt feelings about indulging
themselves in food, especially candy, beer or any other extra fattening foods. Candy
companies raised sales by telling us that candy is nutritious and full of energy and by
putting two or three smaller pieces in a wrapper so that the buyer can sin a little less if he
eats the candy in parts. Eating out comes under the heading of self-indulgence for many.
The "you owe it to yourself to eat out" is a way of wiping out the guilt feeling.
Another psychological clincher is the one that dramatizes eating out as a way of
increasing one's efficiency. "Have more time for doing the things you should do by eating
at the Chicken House" is one way to say it, or "A quick supper at the Chicken House will
give you the time you need."
Suppose you would like to attract a higher income bracket to your place, people who may
not feel quite sure of their social standing at a drive-in. The "Mrs. Vandersnob appeal" is
a tried and true approach. Where the social leaders go, so follow those who must
psychologically associate with the "best people." Invite Mrs. Vandersnob to your place.
Get her comments on the food and atmosphere. Tape them and put them on radio. Follow
her with the Highnoses and the Gotmoneys and you will find matrons of the community
changing their tune about "the drive-ins" and falling right in line, just as they do when a
new dress fashion is presented. If your place caters to a younger crowd, get the high
school leaders and the offspring of the social leaders to "say a few words for the radio
audience."
Know your clientele. Are they local people or tourists? Underneath it all, why do they
choose your place? If you cater to tourists, be sure to emphasize cleanliness on the
outside with fresh paint and clean signs. The menu should include the familiar popular
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thing he can feel secure with—he will not venture anything new or something of which
he is not certain.
In Copenhagen, Denmark, there is a popular restaurant called the Seven Houses. It
consists of seven different dining rooms, each decorated to represent a different style of
home, each in a different period. The patron is free to wander from one home to another
until he finds the one that fits his mood for the day—"the one that reflects his image of
himself." This is good salesmanship.
Thousands of people are willing to pay a higher price for the better image of themselves
eating the same hamburger but in a more glamorous spot. Howard Johnson, for another
example, has built a restaurant empire on sanitation, familiarity and the accepted menu
items.
Every restaurant should know its market. The restaurant market is located geographically
and psychologically. The geographic market is more easily identified than the
psychological, but even it is not always clearly defined.
Some restaurants appeal to patrons from as far away as 50 miles. A few name restaurants
such as The Forum of the Twelve Caesars in New York City can be said to have a
national market. Most restaurants have local, restricted markets. Many markets are
restricted to the area of one office building.
Geographical markets can be identified by asking the patrons of a restaurant where they
live. Plot the areas on a local map and show the percentage of patrons coming from each
section. See example on next page.
The circles are drawn to show where the large percentage of the patrons live or work. The
map can be drawn in any way which is meaningful to the operator. In the example shown
it is seen that 75% of the patronage comes from two well defined areas. This might
suggest that newspaper, television, and radio advertising would not be efficient media for
advertising this restaurant. Advertising using such media reaches too many people who
are not potential customers, and the advertising rates are based on the wide coverage. In
this case, direct mail to the places of work and to residences would pinpoint the market
and gain the most results for the advertising dollar.
The location, decor, menu and price structure determine the market to a large extent. A
cafeteria with carpets attracts a higher income group than a cafeteria with tile floors. A
drive-in featuring a 21 cent hamburger attracts a different crowd than a restaurant
featuring, as some do, a 95 cent hamburger. Most cities are divided according to
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income bracket, some areas being on the right side of the tracks, others on the wrong
side. Sociologists divide cities more precisely by separating families into socio-economic
classes.
The median (or middle point) income of all U. S. families is about $4900. Every
restaurant operator should be aware of the class of persons he attracts. Most operators are
vaguely aware of their socio-economic market; few understand it well. The management
of a cafeteria believed that they were catering to the lower middle class. After
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a study it was learned that upper middle class persons were their patrons. So what? A
restaurant that was believed to cater to the upper middle class found that it was catering
to lower middle and lower class patrons who instead of wanting heavy drapes and
carpeting, quiet and dignity, preferred plain floors and jazz. A cafeteria operator wishing
to attract a younger crowd introduced a combo on certain nights. A candle-light dinner
proved effective on a slow Thursday. The candlelight and the combo changed the market.
Is the image created for the public eye masculine or feminine? Is it sedate or gay? Is it
informal or formal? The creation of an image begins with the name itself. If a restaurant
wants a little snob appeal it uses a snob name. Something French helps. A new cafeteria
in California serves caviar on its line, not because it is a profitable, popular item but
because it is good for the image.
Summing up, know your patrons and the real reasons they patronize your restaurant.
Appeal to these basic, underlying needs of people by establishing a personality or identity
for your restaurant and your best sellers. Sell the "image," the associations that go with
the item, rather than the item itself. Create a personality—a difference—through
advertising.
CHAPTER
11
Personnel Organization
The first restaurants as distinct from taverns or inns were small and the personnel
organization simple. The chef wore a long nightcap type hat and it helped to identify him
as the man in charge. He also carried a large wooden spoon which the new scullion
(kitchen worker) soon learned was a symbol of authority as well as a useful kitchen tool.
Hapless scullions and maids were thwacked with it to keep them alert while turning the
spit by the open fireplace or in pounding up some of the ingredients for a meal.
Later, in 1810 to be exact, chefs changed hat styles, and the higher the hat, the greater the
importance. The specialist chefs now wore hats half the height of the head chef's. The
lowly apprentices must restrict their hats to no higher than five or six inches. The checked
pattern in the trousers is also part of the cook's uniform.
When some of the larger hotel kitchens opened, there was need for more organization.
Auguste Escoffier, small in stature but great in spirit, was the man credited with
organizing the kitchen into departments. This was in the great Savoy and Carlton Hotels
of London about 1890. The French kitchen under his guidance was divided into parties or
stations. The kitchen took on a form, personnel were assigned as a part of a smaller work
group doing specialized work. The kitchen organization shaped up and remains
something like the chart of the French-English kitchen on page 144.
Highly organized in the sense of being well departmentalized, the French-English kitchen
is also well defined status-wise. Each job has a well defined place and fits into the
kitchen hierarchy. The commis or assistants for each station are learning the cooking
trade and advance up the ladder. According to the size of a department, the first commis
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143
in the Saucier department may be as skilled as the Chef de Parti (station chef) and would
probably have completed five years of apprenticeship. He might have two to five
assistant commis with two to five years of training. Each person fits into his niche. Each
person has his place on the totem pole, from plonger (diver or dishwasher) to allpowerful Chef de Cuisine.
Our kitchens are often under-organized—too few departments, no regular line of
promotion, no understudies, too few supervisors, ill-defined jobs and little prestige for the
various jobs. The poorly-structured kitchen revolves around the manager-owner who is
supposed to be superman, able to do any or all jobs and often does them. If the warewashing breaks down, he fixes it. He may cook while his wife is hostess-cashier. Such
versatility has its compensations and the small American restaurant that is successful has
much flexibility among personnel.
In such places cooks may also be vegetable preparers, hostesses fill in as waitresses and
cashiers act as bookkeepers. This is all changing and has been for a number of years.
Famous restaurants like Antoine's, Rector's, Delmonico's and Sherry's had French
organization. The Greek family restaurant was built around the family, each member of
the family doing what he could. Chain restaurants have sharpened organization.
The first restaurant chain of any size was established in 1891, the J. R. Thompson Dairy
Bars in Chicago. Within a few years there were 125 of these combination cafeteria, shortorder stores and the owner was a rich man. He was probably the first operator to use a
central commissary with specialized butchers and truck delivery—electric trucks to be
sure. He achieved high efficiency in use of labor. His labor cost was 15 percent of the
gross sales.
As the chain expands so does the number of positions on the staff, and managerial levels
become greater. Today, for example, the Howard Johnson's restaurants number over 600
and the company has a goal of 1,000. Gross income is reputedly over $200 million a year.
Necessarily, the chains have added supervisors, architects, equipment engineers,
personnel managers, and tax experts to the personnel organization.
Job titles and kitchen organization has changed to fit the various kinds of restaurants and
their special problems of food production and service. Countermen and countergirls for
cafeterias, car hops in drive-ins and fountainmen in luncheonettes are relatively new jobs.
Sauce cookery is little used today. Only a few high class pastry chefs, glaciers, and sugar
men are found in commercial restaurants any more. Jobs
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Personnel Organization
145
will continue to change as new equipment is devised. Pot and pan men —a tough job and
hard to keep filled—may be passing out of the kitchen with new automatic pot and pan
washers. Cooks can throw soiled pans into a sink, pull them out later when clean. With
pre-cut meats, few restaurant butchers are needed. Food and beverage controllers—a
separate job—are being added to the chains. Their function is to watch and keep constant
controls on food and beverage costs.
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order to short order cook, serves order to customer, and collects payment or makes out
food checks. Sandwichman: Makes sandwiches to individual customer order.
—Peculiar to drive-ins:
Car Hop: Waits on customers seated in cars, transmits order to kitchen and carries order
to car on a tray, presenting check for payment.
KITCHEN PERSONNEL
Chef: Plans meals, orders the food and supervises its cooking, supervises kitchen
personnel.
Sous Chef: Directly assists the chef and takes responsibility for the kitchen personnel and
the preparation of the food when the chef is not present, or when delegated to do so.
Night Chef: Has responsibilities for the chefs duties at night.
Garde Manger: Prepares cold food dishes, such as cold meat, sandwiches, and leftovers.
Pastry Cook: Makes pies, cakes, cookies and other pastry desserts.
Roast Cook: Prepares and cooks meats and soups and may supervise personnel when
necessary.
Broiler Cook: Broils meat, fish, and poultry.
Fry Cook: Fries meat, fish, poultry, eggs, or vegetables in deep or shallow fat.
Relief Cook (Swing or Roundsman): Does all types of cooking during rush periods,
unusual hours, or as a substitute for absent personnel.
Short Order Cook: Prepares, cooks and serves to order all kinds of foods which require
only a short time to prepare, such as chops, cutlets, and eggs.
Vegetables Cook: Broils, bakes, or steams vegetables for service to customers or for use
of other cooks.
Steward (hotel kitchen): Purchases food, sometimes acts as personnel
Kitchen Steward or Floor Steward (hotel kitchen): Supervises dish manager in kitchen,
may be in charge of all sanitation, machine operation and all kitchen sanitation.
Catering Manager (hotels): In charge of food and beverage departments. Often
concentrates on banquet sales and service.
Food and Beverage Controller: Computes costs daily, may operate forecasting system
and do analysis of operations.
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147
Kitchen Porter: Does general utility and cleaning work.
Cook's Helper: Assists cook as directed in preparing and cooking
foods.
Butcher: Trims, bones and cuts raw meats into portions for cooking. Fish Butcher:
Prepares and cuts fish into portions for cooking. Oysterman: Prepares oysters, clams,
shrimp, crab, and other shellfish
for service to customers.
Baker: Bakes bread, rolls, muffins, and biscuits for serving. Baker's Helper: Assists
baker by greasing pans, cleaning pans and
equipment, getting supplies, and other unskilled tasks. Saladman: Prepares salads,
cocktails, canapes, and other cold dishes. Steam-Tableman: Prepares and fills steam
table, carves meats, serves
foods, and cares for steam table. Store-Room Man: Receives and checks stores,
inventories, issues food
and supplies. Kitchen Helper: Washes pots and pans, polishes silverware, scrubs
tables and floors, removes garbage, and supplies ice and clean
linen.
Dishmachine Operator: Sets up, operates, and maintains a dishwashing machine that
cleans and washes plates, cups, saucers, and
other dishes. Food Checker: Checks the quantity and quality of food against the
order as the food is carried from the kitchen. Tabulates the total
bill on a checking machine.
The job titles above are the ones commonly used. Other titles are also used, but not so
generally.
Disadvantages of Restrictive Job Titles
In naming jobs, be careful to pick titles that will not restrict the duties performed. With
unionization, glass washers are likely to be able to do nothing but wash glasses; pot and
pan washers, wash pots and pans only. This hampers the employee's development and
learning as well as making for inefficiency in the kitchen. Instead of calling a cook a fry
cook or a vegetable cook, set the cooks up as Cook I, Cook II, Cook III. Cook Ill's work
is that of a learner or cook's helper. Cook II can do breakfast work, grilling, and other
duties as required by the restaurant. Cook I is the top level and is reserved for persons
with all-around skills or serving as supervisors.
Instead of pot and pan men, employ utility men who may also
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operate the dish machine and do porter's work as needed. Sholl's Cafeteria, Washington,
D.C., one of the most efficient in the country, has a utility man who is training to be a
cook, and also does the meat cutting. His wage is $75 a week and the job is so set up that
he is well worth it.
With this personnel structure jobs can be grouped so that a Cook II may be doing some
meat cutting as well as soup making or other work as required by the layout and menus of
the restaurant. A definite line of advancement is set up so that each person sees clearly
his next step up. Versatility and the learning of multiple skills is encouraged so that
personnel may fill in as needed when the kitchen is short-handed or business is off.
How to Organize
Organizing anything is breaking it into parts and relating the parts to the whole.
Organization makes an unwieldy mass of people into an integrated team. It permits
specialization of work and fast communication between parts. Everybody has a place, a
function and fits into the total picture. Traditionally a restaurant is divided into two parts:
food production and food service. Someone is in charge of each. These people report to
the manager or his assistant.
A well organized restaurant would be set up similar to the chart on the opposite page.
In the usual restaurant that is not part of a chain, the manager does several of the above
functions himself. Nevertheless the functions remain and as the volume of sales permits,
the functions can be separated, insofar as is practical. The housekeeping function may be
taken on by the kitchen steward, the promotion and advertising may be handled by an
advertising agency, a food and beverage controller may be hired, and a maitre d' hotel
placed in charge of the dining room.
Maintain Flexibility
Each section of a kitchen that performs a specific function can be set up as a department
or station with someone placed in charge. Coffee, sandwiches, and salads are often
grouped together into a pantry with a head pantry woman. All sanitation including
warewash-ing, mopping, and pots and pan washing is often placed under a kitchen
steward. The warewashing crew should have a head warewasher. Delegate authority as
far down the line as possible. Then work through these authorized employees.
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At the same time, try to avoid the idea that each job can do only one kind of work. This
makes for high wage cost and low efficiency. In one city the Hotel and Restaurant
Employees Union has a contract with operators that will not permit glass washers to work
on the dish machine. Highly specialized cooks often refuse to wash a pan or to mop up
around their station. While it costs excessively for a $3.00 an hour cook to do $1.00 an
hour mopping, there are times when such mopping is reasonable. Requiring each person
to keep his own station clean makes sense generally. Unless there are apprentices or
helpers, assign cooks to do the clean up and rough work.
CHAPTER
Labor Cost
12
Labor cost in the restaurant field has risen to the point where increased sales can no
longer offset the increased cost of labor. Over a period of ten years this cost has increased
from an average of 25 percent to nearly 30 percent of sales. Payroll control is the most
discussed subject in the restaurant industry today. The concern is not only for the
immediate problem of controlling payroll now, but also the readily visible danger of
further sharp increases because of the increasing growth of unionism, increased
competition for labor by members of the hospitality field and by competitive industries in
the labor market.
In the future, survival of both the chain and independent food service operators will
depend primarily on their ability to control the cost of labor. Unfortunately many of the
restaurant operators continue to rely on a periodic check of the relationship of cost to
sales to control payroll. If the cost is less, no greater, or slightly greater in proportion to
sales, they stop at that point. If the labor cost exceeds the previous period, they demand
an immediate reduction of these labor costs.
The significant number of failures and mediocre operations silently testifies that this is an
inconsistent and an illogical procedure to follow. The control of personnel involves two
major considerations: control of the cost of personnel in terms of total payroll dollars and
control of the number of people employed in an operation. The first consideration may be
regarded as a dollars-spent approach; the second, number-of-employees approach. The
successful operator utilizes both methods by determining the cost and number of man
hours required to produce a given amount of sales, by setting up basic performance
standards for each employee and each department, and by providing suitable checks and
limits of supervisory power so that all the employees func151
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How to Operate a Restaurant
tion effectively, economically, together, for their own good and for the ultimate good of
the food service operation with which they have identified themselves.
Several highly successful operators that were interviewed in the Can Manufacturers
Management Study presented an important concept of labor cost control. In essence, they
stated that no one can control labor cost until he realizes that he is not hiring people but
purchasing a potential to do work.
This theory is significant in two respects. First, each operator must determine what work
is required. Is this job necessary? Can it be done by another employee? If it isn't
necessary or if the work can be done by another employee, added potential to do work is
not needed. Second, if the job is necessary and an additional employee is needed, the
prospective employee must have the potential to do the work well. The qualifications of
the prospective employee must match the specifications of the job. Stated another way,
the only conceivable reason to hire an additional employee is that certain work must be
done and he will be able to do this work well.
There are eight basic reasons for high labor costs. A study of these reasons, keeping in
mind that we purchase ability to do work—not people, will materially aid a good operator
in controlling his labor costs. These eight basic reasons are:
1.
Failure to obtain a sufficient number of applicants for the posi
tion open.
2.
Poor selection of applicants.
3.
Impulsive, unplanned hiring and consequent over-staffing.
4.
Poor employee work habits—lack of proper training, no follow
through on instructions given to make the work more produc
tive; inadequate supervision.
5.
Poor scheduling of employees. No knowledge or use of wage,
hour, position or sales schedules as they relate to employees. No
performance standards for departments and employees.
6.
Poor layout of kitchen and dining room equipment and facili
ties.
7.
Lack of labor saving equipment.
8.
No regular detailed system of analyzing and using data to con
trol payroll.
In attempting the reduction of labor costs an operator cannot begin by haphazardly
attacking a particular cost that looks important at the
Labor Cost
153
time because it was only recently noticed. A labor cost control system must be an
organized, planned, frontal attack on all the causes for high costs. Here are the rules with
which one successful operator makes his labor cost control system work for him:
1.
Determine what work must be done and what jobs are or will
be open so that your restaurant will operate successfully.
(a)
Is this work necessary? What is the basic purpose of the
job?
(b)
Is there a better way to accomplish this purpose?
(c)
Can you eliminate unnecessary parts of the job?
(d)
Can you combine or distribute various elements of the job
to another job?
(e)
Can you simplify the job so it can be done by a lower
priced employee or so it can be done in less time?
(f)
Can it be done earlier, later, faster, by different people
or with different equipment, layout, methods, materials
or inventories?
(g)
Can it be done by machinery instead of labor; is it cheaper
to purchase or to process and manufacture?
2.
Once the determination is made that a job or series of jobs are
necessary, set up a basic manning table.
(a)
Personally check your assistants, supervisors, department
heads, etc. to determine which are worth keeping.
(b)
Ask your supervisors to fill out cards on each job within
their department indicating the jobs that are necessary to
the operation and the employees that are most capable of
filling these jobs.
(c)
Consider each job as a single unit having its own particular
work schedule and area or station.
(d)
Name and number each necessary job.
(e)
Make it a rule that new employees can be hired only if one
of the numbered positions are open.
(f)
Determine minimum and maximum wage levels for each
position.
(g)
For control and budget purposes, classify and identify each
job within a department. Payroll cost breakdown can be
accomplished in many ways depending on the size and type
of operation. A departmental classification of jobs may
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How to Operate a Restaurant
be done by listing your employees under the section or department in which they work.
For example:
Receiving, Storing, and Issuing Receiving clerk Other receiving help
Preparation
Vegetable cleaners Salad preparation workers Butchers, etc.
Processing Cooks Bakers
Service
Counter girls Waitresses Bus boys Head waiters
Junior Administrative Bookkeeper Office help Cashiers Food checkers
Administrative Manager
Day assistant manager Night manager Food Production Supervisor
(h) Determine fixed and variable positions within each department. A fixed position is
one that must be filled regardless of decrease in sales volume; a variable position is one
that can be eliminated if sales decrease.
(i) Organize your executive control through people occupying fixed positions.
(j) Determine production and/or performance standards for all variable positions. How
many customers should be served per waitress? How many sales per cashier? How many
covers per dishwasher?
Labor Cost
155
(k) Assemble performance standards in table form to show number of employees needed
for various volumes of work.
(1) Check to see that the number of employees needed in any one department is not based
only on peak load requirements.
3.
Set up job analysis and job specifications for each position.
(a)
Job analysis serves management by organizing and analyz
ing the details of the job—purpose of the job, requirements
of the job, methods, tools, equipment used.
(b)
Job specifications describe in detail the physical, mental,
and emotional demands on the individual doing that par
ticular work.
One is used to analyze the job, the other to fit the proper person to the job.
4.
Purchase the potential to do the work.
(a) Install a detailed system of hiring, selecting, training, motivating, and maintaining a
productive labor force. The complete details of personnel management will be discussed
in the fourth section of the management study.
5.
Set up proper schedules for employees.
(a)
Position or station schedules—a schedule of employees
listing name and station of work for each day. This is used
by the employees in an operation that rotates workers to
different stations; by management to check how effectively
each station is covered during the day and under varying
volumes of sales.
(b)
Hour schedules. This is the common type schedule used
in many operations. It is composed of a list of employee
names and their respective hours of work during each day
of the week. Unless this schedule has incorporated enough
payroll statistics so that cost per man hour can be related
to sales per man hour, it will have no value except to the
employee.
(c)
Wage schedule. On this type of schedule the first row con
tains a list of the employee names classified according to
the departments in which they work. The second row con
tains a list of their daily wage rates or hourly wage rates
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How to Operate a Restaurant
if they are part-time workers. The succeeding seven rows (if this is a seven-day
operation) are headed by the days of the week each row represents and contains the total
daily wage of each employee for that day. If this wage schedule is used in conjunction
with a daily sales figure, management will be able not only to judge the relative
productivity of labor per day—that is, compare cost of labor to sales for each day—but
also to check labor productivity by departmental standards and, if necessary, determine
cost per man hour with sales per man hour. Where proportionally large increases of labor
cost occur because of slow days or slack periods within any one day, days off and reliefs
can be adjusted on the work schedules or part-time (and occasionally full-time) workers,
dismissed to make labor more productive.
6. Several restaurant operators have added the pre-cost concept to steps outlined above.
They have evolved a system for their operation to forecast their sales volume, and on the
basis of the sales forecast, forecast their costs for that period.
(a)
On the basis of past sales records, general, and local eco
nomic conditions, forecast your sales volume by months
one year in advance.
(b)
The week before the month becomes current, divide the
month into weekly forecasts.
(c)
Refine your next weeks forecast by considering unusual
local events, holidays, weather, and other special items that
may affect next week's business.
(d)
Set up a standard payroll budget for each department in
your operation for one month in advance.
(e)
On the basis of your next week's sales forecast, refine that
week's payroll budget and set up a system of weekly and
daily reporting of payroll cost by each department.
(f)
Compare actual costs with budgeted costs. Any excess be
yond budgeted costs requires a detailed explanation. The
excess represents the amount of money that might have
been saved if each department stayed within its budget.
(g)
Find out when and why each excessive cost fluctuation
occurred. The cost may have occurred because of overtime
Labor Cost
157
hours, hiring of part-time employees or extras to replace those on vacation or those
absent for the day. Or the excess costs may have occurred because the operation stayed
open too long (check the closing point of an operation, section one of the management
study) or the fact that the number of employees needed was determined by peak load
requirements. Whatever the reason, when you eliminate the cause, you will eliminate the
cost.
Many restaurant operators may feel that the pre-cost pre-control system cannot be
followed and that it is too much work. But every day these same managers or owners
must spend money for food and labor. The reason is that they anticipate sales. The reason
they spend a certain amount of money for food or labor is that they forecast a certain
amount of sales. Since a forecast of sales and cost is made one way or the other in any
operation, it is obviously better to design a detailed, organized system of forecasting
based on actual sales and cost records than to depend on intuition or a hunch.
The six rules described above can decrease the labor costs and increase the profits of any
food service operation because they eliminate the basic causes of high payroll costs. To
make these rules effective, two others should be mentioned. First, the ideas that apply to a
particular operation must be studied by the individual operator and put to use. An idea or
improvement is useless unless it is used. Secondly, the operator must continuously check
to see that the improvements stay in effect. There should be a complete follow-through.
For example, one cause of high labor cost may be that the number of employees required
was based on peak loads. This cause, like the others, should be analyzed, checked to see
if it applies to your own operation, and followed through until that particular cause of
high labor cost is eliminated.
To illustrate the analysis and application of this idea, consider a restaurant that has its
peak period at lunch. During this period 12 to 1:30 it serves 225 customers. From 1:30
until 2:00 it serves 25 customers. At two o'clock this restaurant closes for three hours—it
opens for a small dinner business that begins at 5:00.
The idea that the number of employees required in any department should not be
determined solely on peak loads can be illustrated in any department that contains
variable positions—the service department
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How to Operate a Restaurant
(waiters, waitress, bus boys), the preparation department, and the cooking department. As
an example, we will select the dishwashing department.
Since the restaurant serves 225 people in an hour and a half, it will serve, on an average,
75 customers every half hour during its peak period. If this same operation averaged six
dishes per customer, the dishwashing department will clean 75 times six, or 455 dishes
every half hour.
Looking at our investment requirements, if we bought about eight dozen of each dish
item, we would have based our investment in china on peak loads. This in turn means that
we must have enough dishwashing employees to supply our guests with clean dishes,
glasses, and silverware at the rate of 455 for every half hour, because a little after the first
half hour we will be out of clean dishes.
With this situation we will probably need three dishwashing employees: one to scrape
and pre-flush dirty dishes, one to stack and load the machine, and one to remove clean
dishes, stack on clean dish table and transport clean dishes to the area of use. Moreover,
if we purchased a machine capable of washing 455 items of china, silver and glassware
every half hour, the three dishwashers would be through with their work about 2:00 and
we would have to put them to work doing something else.
However, if we increased our investment in dishes and glassware from eight to 15 dozen
of each item, we could buy a smaller machine and base our labor requirements on the
total operating period instead of peak load period. The peak load is 225 customers from
12:00 to 1:30 and 25 customers from 1:30 to 2:00. Consequently, from 12:00 to 5:00
P.M. we would have to take care of 250 customers times six items per customer or 1500
items. Since we may want to give the operator time to change the tank water, clean out
the dishwashing machine and prepare for the evening peak period, we might want him to
be through by 4:00 with the dishwashing. This gives us four hours— from 12:00 to 4:00
to wash 1500 items or about 375 items per hour. On an average, a 20x20 rack holds 25
items and since 375 divided by 25 is 15, the capacity of the machine should be about 15
to 20 racks per hour. But one operator can certainly handle 15 to 20 racks per hour.
Therefore we not only can save by purchasing a smaller dishwashing machine but also
eliminate at least one dishwasher.
One successful restaurant operator in California solved a similar problem without the
mathematics outlined here. He had six dishLabor Cost
159
washers that were being paid a dollar an hour or a total of $288.00 a week. The
dishwashers were usually through at 2:30 and the manager had to run around finding
something for them to do.
When he got tired of doing this, he dismissed one dishwashing employee. The
dishwashers were now getting through with their work about 3:00. The manager reflected
on this situation and decided to dismiss another dishwasher and raise the remaining
employees' wages 10^ an hour. The dishwashers were getting through with their work
around 3:40. The manager finally decided to make one of the remaining four dishwashers
the head dishwasher, give him a raise of 20^ an hour, dismiss another dishwasher and
increase the pay of the remaining two dishwashers another 10^ an hour. The head
dishwasher was now paid $1.30 an hour and the two dishwashers, $1.20 an hour. Their
total wage for a 48 hour week was $177.60, a savings of over $110 a week or $5,720
annually!
Management's Goal is Profit
Toward this end, successful management seeks to eliminate excessive and unnecessary
costs.
To reduce the high cost of labor turnover, effective methods of employee recruitment and
selection must be used. Go out after the kind of person you want. Positive recruitment
usually gets better results than the kind that waits for the girl to appear and ask for a job.
Stouffer's Restaurant's, with one of the finest personnel staffs in the country, go after the
kind of waitress they want with this kind of a newspaper advertisement:
WAITRESSES
18-25
to train for permanent positions as
STOUFFER GIRLS
in our new restaurant. Experience not
necessary, salary while training. High
school graduates preferred. Meals, uniforms provided. No Sunday work.
Note that in this ad "experience is not necessary." Stouffer's have a systematic training
program for waitresses and would prefer to train waitresses in their own way of doing
things. Waitresses or carhops who have learned poor work habits are harder to train than
inexperienced girls. They must first "unlearn" the wrong ways of doing things.
Note also that the job title is "Stouffer Girls," which implies a job
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How to Operate a Restaurant
that is a cut above the usual waitress position. Permanency, no Sunday work, meals and
uniforms furnished, are listed as added inducements to attract the girls wanted.
Restaurants usually find that at least some of the personnel should be middle-aged or
older to give stability to the place. Many restaurants have only middle-aged waitresses
and a few with excellent turnover rates have only waitresses with children and families.
Points on Hiring
Every time you hire a new employee you are betting with yourself that he or she will be
an asset to your restaurant. You make a prediction that your choice is good. Sometimes
you win. Sometimes you lose. How can you increase the odds in your favor?
Like any gambler, you would like a sure thing. But this is impossible, since there are
many factors in the new employee's life over which you have no control. Still, there are
many things you can do during the initial employment interview which will help to
identify useful employees. Let's consider some of the ideas now used by successful
restaurateurs around the country.
A Boston restaurant operator is very much interested in whether or not an applicant for
short-order cook or fry cook has had radio training in the military services. He finds that
such people are ear-trained— that they are more sensitive to picking up orders placed by
waiters, waitresses or kitchen supervisors. They make fewer mistakes because they are
alert to sound and are trained to organize sounds.
A New York City operator arranges to observe the alertness of prospective executive
employees by inviting them to wait for him in the dining room.
"Order yourself anything you like," he tells the candidate, "and I'll be down in a few
minutes."
He then watches the applicant to see what chair he chooses. Does the person pick a table
where he can observe the entire section of the dining room? Does he sit with his back to
the wall so that he can see what is going on? According to this operator, his surreptitious
observations of candidates have paid off in better supervisory employees.
An operator of a Florida health resort says that he has hit upon the critical question to ask
an applicant. This question, he says, tells him at once whether a particular girl is suited
for waitress or other guest contact work, or whether she would be better placed in the
back of the house. The question he asks is "Were you born happy?" If the girl
Labor Cost
161
breaks into a smile, he feels she has a sense of humor and will be generally pleasant in
her relations with patrons.
Age limits have proved important to many restaurant operators. The Soreno Hotel Dining
Room in St. Petersburg wants older, mature women for hostesses and waitresses. These
ladies mix well with the hotel guests, who usually fall in the over-fifty age bracket. At the
same time, this dining room uses young busboys and young roll-and-relish servers. The
thinking is that the hotel's guests like to feel themselves in the competent hands of older
waitresses but like the touch of youth too.
Drive-in operators catering to a young crowd usually use young girls—but not always.
Where there is a problem with rowdyism, older married girls—perhaps those who do not
fill out the abbreviated costumes quite so well—help to set a more conservative
atmosphere. It can be said that the customers themselves select the waitresses,
determining the correct age group and personality type.
A Chicago operator has a special technique for spotting prospective waitresses who
would fail to be alert and fast on their feet. He asks a waitress applicant to follow him
upstairs to his office. On the way up, he walks fast, then glances back over his shoulder to
see if the girl is at his heels or has lagged behind.
This same operator does as some of the soap ads suggests. He gives them the "smell" test.
If they have body odor when applying for a job, he assumes they would certainly have it
on the job.
The distance that an applicant lives away from the restaurant often determines if the
person will get to work on time and will remain with the restaurant very long. Some
operators find that any persons living more than an hour's ride from work soon look for
other employment.
Each food service job requires some special skills, body or personality traits. Probably as
important as anything else for the pot and pan job is the resistance to skin infection.
People well suited by temperament, intelligence, and physical stamina often fail on this
job because of skin infections.
Employ people who have a natural resistance to skin infections. To help avoid infections,
provide vaseline or special skin lotions. Have the pot and pan man apply these to the
entire backs of fingers and hands.
Better yet, if your place is big enough, install a pot and pan washing machine. Or use live
steam to clean pots and pans and save the hands.
Where the job is not too heavy, use women rather than men. Women
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How to Operate a Restaurant
are characteristically more patient than men and are more likely to enjoy routine jobs.
Women are more careful than men on dish machines and are being used in a few places
on the pot and pan sink. One study showed that women dish machine operators broke
fewer dishes than men. Where some of the work is too heavy for women, put in a mixed
crew.
Some operators have observed that overweight people make poor cooks, especially shortorder cooks. They cannot move around the kitchen equipment easily. Usually they cannot
react fast enough to keep pace with the work and their tolerance to heat is low. A good
short-order cook, they say, is a particular type, usually thin and wiry, unusually alert and
fast moving.
All of these methods used for selecting employees are what might be called unscientific.
What might work well for one manager might not work at all for another. Some managers
who are autocratic and dictatorial will find that only submissive employees will do a
good job for them. Other managers who are paternalistic may help dependent persons to
blossom forth in the work situation.
Psychological tests for identifying well adjusted, happy employees are just beginning to
be used with success for selecting waitresses. Van de Kamps, one of the best operated
drive-in and service restaurant chains in the country, is now using a test developed by
Ward Jenssen, management consultant of Los Angeles. Van de Kamp management has
had little problem with turnover but asked for the test with the hope of improving
customer relations. Even so, savings have resulted. Van de Kamp officers estimate that it
costs about $50 to train a waitress. Dr. Jenssen, the psychologist who developed the test,
figures that savings should run about $10,000 a year.
The manner in which the test was developed is interesting in itself. In interviews with
restaurant managers of Van de Kamps, four key factors in waitress performance were
evolved—1) attention to detail, 2) speed of work, 3) effect on co-workers, and 4)
customer service.
Eighty waitresses were rated by a scale developed around these four factors. They were
divided into two groups, those who were outstanding or well above average in
performance and those who were average or poor in performance. These waitresses were
then given a series of psychological tests covering temperament, personality and general
intelligence.
Finally, a single test which is a measure of temperament was selected. This test—the
Guilford-Zimmerman Temperament Survey—
Labor Cost
163
was found to distinguish between the girls who had been rated in the high group and the
girls who had been rated in the low group. Of course, no psychological test can be
expected to differentiate completely between "good" and "bad" employees. With this test
Dr. Jens-sen discovered it had these results.
Of those selected, 75 percent would be in the "Desirable" group, 25 percent would be in
the "Undesirable" group. Of those rejected, 11 percent would be in the "Desirable" group,
89 percent would be in the "Undesirable" group.
Incidental to his study, the psychologist found that the major causes for waitress failure
were that they were either too slow or that they were highly active ("manic" in the
psychologist's terminology). Other reasons for job failure were that some of the girls
were critical or intolerant of others, hypersensitive about themselves and subject to
occasional moods of depression.
Further analysis of this test is being made. It can be expected that the test itself will be
improved to make it even more sharp in identifying applicants for the job of waitress who
will be satisfactory on the job or who will not work out well.
Use of an application form as a screening device and as a permanent personnel record can
aid in successful hiring. It should include questions that give management information
that has a practical value in identifying those persons who will fit into the operation. Use
a heavy card application form which can be handled easily and readily filed.
The form shown on page 164 is an example of what can be developed. Each item on the
sample form has been found useful in some restaurant.
Several of the items bear on the problem of the applicant's stability —number of
dependents, marital status, car and home ownership, and business ownership.
Items 16 and 17 having to do with bonding and arrests would seldom be answered
honestly but may be of some psychological value in making management's interest in
such things known to the applicant.
Item 20 regarding the distance the applicant lives away from the job has proved critical
for several restaurants. People being more than an hour's ride from the restaurant do not
stay long regardless of other factors.
Item 14—"list your physical disabilities"—may provide an opportunity for the employer.
Partially disabled employees often are more
164
FRONT
How to Operate a Restaurant
Labor Cost
165
stable and motivated to do good work than unimpaired persons. No job requires all of a
person's faculties to perform. Hire faculties that are needed.
The back of the employment application is a record of the applicant's recent employment.
Chances are an employee who moves about frequently will continue to do so. The best
prediction of what a person will do in the future is what he has done in the past.
Do not expect, however, to hire highly motivated, well trained employees. You must train
and motivate them. It is easy to fire, but hard to replace.
Every time we fire a person we have failed! We failed either in making a wise selection
or in training and motivating that person.
Employee Scheduling Cuts Labor Costs
A food service operation in the South doing a business of $80,000 a month recently
reduced its dishwashing crew by 20 people. Wages paid each warewasher was only $25 a
week, but over the year this reduction in personnel cut the payroll by over $25,000.
When the Hilton people took over the Plaza Hotel in New York they reduced the
dishroom crew by 40 percent—at a savings of over $500 a week.
The principles of effective work scheduling apply to the two-man hot dog stand and the
hamburger heaven as well as to the diner and the restaurant doing a million dollars a year
in business. These principles can be simply stated:
1.
Determine standards of production per man hours. How many
covers can be washed by one man working one hour? How many salads
can be made by a pantry girl per hour? How many pies can be pro
duced by a baker per hour? These standards must be set for your own
operation, since layout, style of operation, and equipment will be
unique for each establishment.
2.
Try to spread the work evenly throughout the hours of opera
tion. Instead of having a crew large enough to handle all work during
the rush hours, spread all work evenly throughout the day. Prepreparation of food and dishwashing are good places to start.
3.
Adjust employee schedules to fit the work load left. After the
work has been spread as evenly as possible, there will still remain
peaks and valleys in the production schedule.
Since few restaurants operate a straight eight-hour day, employees must be scheduled to
fit the work load as it rises and falls throughout
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How to Operate a Restaurant
the operating day. Scarcely a food operation exists which cannot reduce its payroll by at
least 10 percent by rescheduling employees to fit the ups and downs of the work flow.
Instead of having one or two crews reporting together at particular times, schedule the
individuals as needed.
Here is the schedule of cooks as used in one food operation:
Breakfast Cook
6 a.m. to 3 p.m.
Roast Cook
7:30 a.m. to 2 p.m.
then 5:45 p.m. to 8:30 p.m.
Chef
8 a.m. to 2:30 p.m.
then 6 p.m. until finish of work
Swing Cook
scheduled on days
and substitutes for cook's day off. Pantry workers (two)
One on at
6:30 a.m. to 2:00 p.m.
5:30 p.m. to 7:30 p.m.
One on at
7:30 a.m. to 2:30 p.m.
6:00 p.m. to 9:30 p.m.
The swing or relief cook is scheduled at only the busiest hours when he is not relieving
the regular cooks. He is paid extra for the inconvenience caused him by the odd-hour
scheduling. Of course, with some union contracts such an arrangement is not possible.
4.
Fit in part-time employees as needed. Part-time employees can
be good or bad depending upon the way they are treated, their skill
and training, and their own personal circumstances. Training and
morale is largely dependent upon management. Most jobs, if sched
uled tightly, can use one or more part-time employees to fill in during
rush periods or to fill in at the end of the operating day.
Theoretically, it should be possible to spread the work out evenly throughout the day and
schedule full-time employees to do the work. Practically, such a schedule seldom is
possible. Where split-shifts are not permitted by contract or custom, two half-time
employees are often more effective than one full-time employee.
Tight scheduling requires adjustments for seasonal peaks and valleys as well. Schedule
maintenance tasks and vacations, when possible, for slow periods. Often, one week of
vacation can be taken during a summer low spot, another week during a winter slow
period.
5.
Small operators should schedule employees for multiple jobs.
167
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How to Operate a Restaurant
The dish machine operator can be placed in charge of all kitchen sanitation under the
kitchen manager. If he is of average intelligence, the dish machine operator may also be
the storeroom clerk, general maintenance man, or any of the other jobs around a small
restaurant that do not require full-time personnel.
Give the multiple-job man an appropriate title if you want to get best performance. The
title "utility man" is better than "dishmachine operator." "Sanitation superintendent" may
be stretching a point, but has been used effectively in some restaurants. Titles are
important for the self-respect of the job holder and as an indication of the job content. Try
to give the most prestige-sounding title consistent with the actual tasks performed.
Be certain that the new employee knows that he is responsible for all of the duties which
go with his job. Many an employee hired as a cook finds himself doing a porter's work.
Resentment in such a case is natural. The same person may well be happy to do a porter's
work, however, if such work is assigned to him when hired.
A large part of labor cost in a restaurant is directly related to the selection and scheduling
of employees. Employees who are well equipped physically and in personality to do the
work of the restaurant make the job of management comparatively easy. Scheduling
employees and planning work right makes possible maximum productivity and high
morale. The usual "idle" or "working" time which may approach 50 percent of available
labor can be drastically reduced to the benefit of everyone.
CHAPTER
12
Training Employees
Training is a word like "education," easy to say but not too clear at times as to what is
meant. Education, it is said, can cure most of the world's woes. Certainly training is a
keystone of good food service. But what kind of training? Who is to do it? How?
The European restaurant of quality has a built-in training program. Learning any part of
restaurant operation or management is a well defined process. Everyone—rich or poor—
who wishes to learn the business takes part in the program which is the apprenticeship
system. In the dining room the learner starts as a commis (assistant to a waiter) or
debarraseur (bus boy). Over a period of years he may arrive at being a full fledged waiter
or chef de rang. In the kitchen the new employee may begin his career as a dishwasher
and after five years be appointed a department chef.
Time was when highly skilled cooks from Italy, France, and Germany came to this
country in large numbers and it was not unusual to hear no English spoken in the kitchens
of the fine restaurants. When the Ritz Hotel in New York City was opened, for example,
recruiters were sent to Paris to bring an entire brigade of French cooks to man its
kitchens. Today this source of skilled labor is negligible, and high cuisine is less popular,
not as highly prized as it was before World War I.
The apprenticeship system, long a source of trained culinarians, has found few persons
interested in it in the United States for the last 20 years. The system which provided well
rounded experience over a period of two to five years has little appeal to the young man
today. He can get a fairly well-paying job without the years of apprentice169
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How to Operate a Restaurant
ship. Most restaurant jobs are taught in a few days or weeks, especially in restaurants that
have semi-fixed, cycle, or fixed menus.
Academic cooking schools have never supplied a large number of cooks, bakers, waiters
and hostesses for restaurant work. Some public school systems—Chicago, Detroit,
Seattle are examples—offer cooks' training. A few private schools give courses for
cooks, bakers and stewards. The Army, Navy and Air Force, of course, are constantly
training cooks and bakers but on an elementary, institutional feeding level rather than
what is needed for commercial cookery.
Management's Responsibility for Training
This leaves the big job of training to restaurant management. Trade schools and colleges
are not going to do it. Trade associations will not be able to do it. You, the operator on
the job, will do it by training on the job. State restaurant associations like Texas and
Indiana are showing how a training program can train supervisors to train employees.
Fine educators like Travis Elliot can help managers learn how to train. The National
Restaurant Association can sponsor management short courses. But, when the chips are
down, 85 percent of the training must be done on the job. Food sanitation courses and
traveling training courses can supplement what you do, but they can never substitute for
on-the-job orientation and training.
The chains such as Howard Johnson's, Stouffers, Hot Shoppes and Morrison's Cafeterias
have specialized training personnel—chefs, hostesses, salad makers, bakers—who travel
from unit to unit teaching their skills both to supervisors and employees. These traveling
trainers teach mostly by demonstration and actually working with a crew in setting up a
cafeteria line, cooking, and other job performances.
Training is a continuous function in restaurants, the process by which information, skills,
and attitudes are communicated to others. Inexperienced employees are taught how to
perform their jobs. New employees, experienced or not, must learn the particular recipes,
equipment, and ways of doing things in their new jobs. Better methods, better equipment
replace yesterday's ways and are explained to all employees through training. Microwave cookery, for example, will necessitate re-training of all cooks using it.
Supervisors tend to work at and emphasize those aspects of their job which management
emphasizes. Management must continually emphasize training and give recognition to
supervisors who are trainTraining Employees 171
ing-conscious. Giving salary increases and promotions to supervisors who are good
trainers is part of insuring employee training.
Through training we give something more valuable than money by giving the person new
skills and information. We help to make the employee more valuable to himself and to
the restaurant, give him self-reliance and make management's job easier.
Most of us are enthusiastic about training as long as we don't have to do it or when it
applies to someone else. But in restaurants training is management's responsibility and,
except in large restaurants or chains, much of employee training is done by the manager.
Today we cannot rely on our competitors to train for us (then hire away his employees).
Do not expect an employee to perform, prepare, or serve food the way you want it done
until you have trained him to do it that way.
A fine restaurant centered its service around a beautiful copper cart, a rolling cart from
which roast beef was carved and served directly to the patron. The cart was
showmanship. But it is not being used now. The restaurant cannot find a trained carver
who also has the personality to go with the dining room service. Why not train a carver
and server? This kind of question can be asked in many restaurants. Why not train for the
skills needed?
Kinds of Training
Employee training can be divided into the following: Induction or Orientation Training,
Job Instruction, and Refresher Training.
Induction training acquaints the employee with the restaurant, the other employees, the
supervisor, and the restaurant's goal—food service at a profit. It comes in the first
interview between manager and employee when pay periods, overtime work, uniforms,
and similar matters are explained. Tell the new employees what the job entails. Tell them
the worst along with the best. If the cook is hard to get along with, let this be known to
the new waitress—"When the cook gets tired, he may blow his top. But don't let this
upset you." If the new assistant cook is responsible for keeping the preparation area
clean, tell him, "The floor around the broiler and deep fat fryer is mopped at least twice a
day, or oftener if needed. You also empty the garbage can when three-fourths full." When
such sad parts of a job are not told the new employee, he resents their being added later.
Be sure to explain to new waitresses that side work is very much
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How to Operate a Restaurant
a part of the job. Maybe they also make the salads and help with vegetable preparation. If
cooks are entirely responsible for keeping their own stations clean, that too should be part
of the hiring information. Refresher training is that training given to old employees to
keep them abreast of new developments, and upgrade their skills. The daily line-up of
waitresses or counter girls is an example of refresher training. The day's menu is
explained and current problems discussed. Refresher training can be a part of weekly
employee meetings. Every restaurant that is not stagnant holds regular refresher training
sessions in one form or another, sometimes by skilled groups—waitress meetings are an
example—sometimes in small groups.
If You Are Going to Train
First and most obvious is the necessity for you, the manager, to know every job in the
restaurant yourself. You are the "best man" in the operation.
Consider the dish machine, the number one headache of most restaurants. Who is to train
the dish machine operator? Can the chef do it? Many fine chefs do not know how to
operate a dish machine—least of all do they know when something is out of order. To be
a good chef does not require any degree of mechanical interest or aptitude. One restaurant
operated its warewashing machine for three days without any detergent. No one had told
the new crew about detergent. Another crew operated the dish machine for two days with
the rinse line out of action. The manager must know the dish machine like a brother— its
temperament and shortcomings, its strong points and how to make it perform.
You will need to know how to teach and what to teach. Recognize that many restaurant
employees have at best only high school education, come from low social-economic
groups and have little motivation to learn. Instructing requires teaching skills, job
information, and above all, enthusiasm.
Don't expect miracles. In training employees, you mustn't expect too much. Patience is a
great virtue in training. Restaurant employees have about average learning ability. In
many cases they may have less than average. Learning typically starts fast, then slows
down or levels off for periods.
"But I told him to use the slicer to cut turkey." This kind of statement is common in the
restaurant. Sure, you told him, and you tell them and you can expect to continue telling
them as long as you are
Training Employees 173
a manager. Check back, check back, check back. Correct work practices before they jell
into fixed habits.
And don't spare the approval. The restaurant operator, being one of the world's busiest
men, usually feels that he cannot take the time to train thoroughly. Rather, he gives the
new employee the "once over lightly" treatment, expecting to come back for more
detailed training later. Being in a hurry, the trainer often is tense and keyed up. This
tension is quickly sensed by the employee, who in turn becomes nervous.
An excellent way to reduce tension is to praise the newcomer for any slight improvement
shown—"That's fine, now you're getting the feel of it." Implying failure only seems to
upset the new employee more.
A "learn it now, dammit" attitude by the restaurant operator is also poor tactics. The
autocratic approach not only keys up the employee unnecessarily, it chases away a good
many people who might otherwise be assets to the restaurant. Resentment toward the
abrupt approach burns slow or fast, depending upon the person involved, but it always
burns.
Wanting to learn is half the battle. The person who is eager to learn is the one who
usually learns the quickest. Tell the new employee about the job, what it can do for him.
Making learning pleasant helps learning. It is safe to say that most restaurant employees
are not particularly excited about learning how to operate the fry kettle, how to grill a
hamburger or how to cut a steak. Neither are most of them particularly ambitious. The
manager has to provide some of the incentives and try to make the learning fun. We all
like games, and learning can be a game. Keep the learning situation pleasant. Avoid
tension in yourself and in the new employee where possible. Give the employee
something to strive for—"You can make two of these salads a minute after a little
practice"—"Our waitresses can make as much as $20 a day on a weekend."
However, in setting goals, be careful to avoid giving the new employee the feeling that he
has failed. "Our waitresses can make as much as $20 a day on a weekend, but you will be
making real progress if you make $5 a day during this first week"—"You can make two
of these salads a minute after a little practice but if you make one a minute during the
next few days, we'll be proud of you."
Give them plenty of show-how and do-how. Most restaurant jobs involve muscular skills.
Muscles learn skills in the same general way
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How to Operate a Restaurant
that the brain learns ideas. In teaching a cook how to carve, the muscles must learn. So
give the cook plenty of show-how. Let him watch you. Then give the knife to him and let
him plunge into the meat for better or for worse. The expert who is not such a good
teacher is likely to show-off more than show-how. To avoid this, let the learner show you
how. Most of learning comes in the doing.
Presentation of job skills is by "tell and show."
After demonstrating and explaining, you should ask the employee to play back what he
has learned. He "tells and shows" you. In the "play back" the employee learns perhaps as
much as by watching and hearing the demonstration.
Follow-up is the last step in job instruction. A review of what has been taught may be
highly informal. It might take place ten minutes after the instruction or the next day, and
again later next week. The instructor suggests improvements and compliments the
employee on what has already been learned.
Coaching goes on continuously in a successful restaurant; it may be subtle or direct. Resetting the oven thermostat when it is too high—and it usually is—is coaching. Of course
the roast cook must be aware of your action. Wiping a spot from the steam table in the
presence of the dishing-up cook is coaching. Stepping in to demonstrate a faster way of
picking plates from a washing rack is coaching. Re-arranging a salad plate for a salad
maker is coaching. This kind of instruction must take place every day and constitutes the
greater share of instruction.
Training Pointers
1.
Have Patience. Rome was not built in a day. Neither can a good
fry cook, dishwasher, desk clerk, or porter be trained in "one easy
lesson." Expect to repeat... and repeat... and repeat.
2.
Avoid Criticism of the Old Way. No one wants to feel that the
way he has been doing a job is wrong. Use the approach, "Here is a
better way." Never put anyone "on the spot."
3.
Put yourself in the Learner's Place. Recognize that learning is
work. Take the learner along with you a step at a time. What seems
easy to you may have taken you months to learn.
4.
Speed Learning with Plenty of Praise. Praise, not criticism,
speeds learning. Encouragement is oil to the wheels of the mind. Most
supervisors give far too little praise. Look for things to praise.
5.
Set Realistic Goals. Set a goal that the learner can reach. Let
Training Employees 175
him experience success in each step of the training road. Start off with easy standards.
Step them up as the learner progresses.
6.
Recognize Different Mental Capacities. Some employees can
learn twice as fast as others. Don't be disappointed with our friends
who are not very bright. They may make the best porters, dishwashers,
or maids.
7.
Start with a Job Breakdown. The trainer needs a plan of teach
ing. Without the plan he is like a home builder without blueprints.
8.
Space the Training Periods. Learning is more efficient when it
is spread out. A half hour a day is probably enough training for most
jobs. Learning goes on in the mind between training sessions.
9.
Be Positive, Encouraging, Optimistic—But Do Not Expect
Miracles. Remember also that if the employee has not learned, the
trainer has not taught.
How to Make a Job Breakdown
System applied to training is a job breakdown. Set down in writing the steps and points to
be stressed. Then you won't forget some points and can move efficiently in presenting the
job to the employee. Here is a sample job breakdown:
JOB BREAKDOWN SHEET
for
Carving Meat
IMPORTANT STEPSKEY POINTS
Place carving board and receiving tray in position.
Select sharp carving knife and fork. Be sure knife is sharp.
Place meat on carving board.
Cut and trim meat for carving.
Place trimmings in pan to be used later.
Carve across grain of meat.
..
Arrange symmetrically
Place carved meat in receiving tray. in serymg portions
Place meat scraps from carving board in pan with
trimmings.
Wash board with steel brush and hot soapy water. Do not soak.
Wash carving knife and fork.
Dry all equipment.
Store in proper place.
Most restaurant work is taught by demonstration and telling. Setting a table, bussing
dishes, working a cash register can be taught by
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How to Operate a Restaurant
THE FAT IS THE KEY! Use a quality, hydrogenated fa!. It lasts longer, gives food
better flavor with less fat absorb-tion. DON'T use or mix with kitchen renderings.
USE LOW TEMPERATURE TO MELT FAT. Set thermostat at 200° when loading
kettle. Advance thermostat to cooking temperature when heating units are completely
covered with liquid, melted fat.
FRY FOODS AT THEIR RECOMMENDED FRYING TEMPERATURES. Different
foods will require different fat temperatures. Refer to wall chart or instruction book for
proper temperature setting to use for each frying job.
Training Employees
177
DON'T OVERLOAD BASKET. Overloading drops fat temperature, results in
greasy, fat-soaked food, takes longer cooking time.
DRY FOODS BEFORE PUTTING THEM IN KETTLE. Excess water kills fat
temperature, causes sputtering, may cause foaming over. It may result in painful burns
and poorly soaked food.
FRY FOODS OF SAME SIZE TOGETHER. Only by frying units of similar size and
iype in the same bath can you insure that all will be cooked and finished alike.
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How to Operate a Restaurant
DRAIN FOODS BEFORE SERVING. Drain excess fat from food either over the kettle
or on the racks before serving. Keep food hot so fat will remain liquid and run off.
NEVER SALT OVER THE FAT. Salt, and
also copper and brass, even in small
quantities will make fat break down
and become rancid very quickly.
DEFROST FROZEN FOODS BEFORE FRYING. Dropping chunks of ice in your frying
fat is a sure way to "kill" its heat. Only small frozen items can be cooked right from the
frozen state.
Training Employees
179
CHECK THE THERMOSTAT. Compare the thermostat setting when the kettle is idling
with the reading on the thermometer with its bulb in the fat. If readings vary by more than
10°F., report the thermostat to the head cook or manager for adjustment.
KEEP THE FAT CLEAN! Drain the kettle daily. Strain out food particles. Flush out the
fat container with hot, strained fat to remove the sticking particles. Put strained fat back
in the clean kettle. Add enough new fat to bring the level to normal. THE BEST TEST
FOR FAT IS TO TASTE IT.
CLEAN THE KETTLE THOROUGHLY EVERY WEEK. At least once a week, fill the
empty kettle with water. Bring to a boil with the kettle's own heat source. Add 2 ounces
of alkaline detergent per gallon of water (NEVER use soap). Brush all interior parts
thoroughly while boiling. Drain kettle. Rinse thoroughly with clear water four or five
times. Use I ounce vinegar per gallon of water in final rinse to insure neutralization of
any remaining alkali.
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demonstration. But system is needed. What is important is the way the task is broken into
easily learned parts and presented step by step. No matter how simple the job may seem
to you or the experienced worker, it is probably far from simple to the learner. Consider
making a cheese sandwich. Slap a piece of pre-cut cheese on some bread and you have it.
Far from it! The bread must be buttered. The sandwich must be sliced by sliding the
cutting edge across the sandwich rather than chopping through. Finally, presentation of
the sandwich on the plate—showmanship and artistry are part of the job.
Training with Pictures
"A picture is worth a thousand words."
Yes, and when it comes to training restaurant employees, a picture can save a great deal
of the manager's time and energy. A job breakdown in pictures as shown here also helps
the manager remember all parts of the instruction.
Photographic sequences taken of restaurant tasks are simple to set up. They cost little. If
the job changes, more pictures can be taken inexpensively. A job breakdown in pictures
can be shown to new employees or used as a refresher for suggesting improved ways of
doing the job.
You may have a better way of working the fry kettle. That's fine. But your knowledge is
of little value until it is a part of the nervous system of your fry cook. Pictures will help
you improve your work methods and provide a vehicle for getting your knowledge to the
employee. Why not work up a series for every job in the restaurant? Somebody in your
family or restaurant may be an amateur photographer who could easily photograph the
various jobs.
Blow up the pictures to 8 by 10 inches, put them in plastic and insert them in a looseleaf
notebook binder. Then you've got yourself a real training aid, something you can pull
down from the shelf over your desk and use in explaining the job to the new employee.
Later you should tell and actually demonstrate the job.
Let the employee take the book of pictures and study it. Discuss and change it if he has
better ideas. That's training.
Training Films
Films and film strips can be excellent aids in training if they apply to jobs in your
restaurant and if they are well presented. For films to
Training Employees 181
be effective they must be introduced and discussed. An old saying among audio-visual
people is:
Tell 'em what you're going to show 'em.
Show 'em.
Then tell 'em what you've shown 'em.
Few people learn anything from one exposure. The tell 'em, show 'em, and tell 'em what
you've shown 'em techniques gives three exposures.
A few restaurant chains make their own training films.
Most of the training films available are made by food or equipment vendors and naturally
are aimed at increasing the use of their products. A list of such training films that will be
helpful for most restaurants and are available will be found in the appendix on page 270.
Teach more than the Job
Development of people is a key to productivity and high morale. Teach something more
than the job. Restaurant employees who know more about the restaurant than just how to
wash glasses, take in cash, or take an order probably are more productive than those who
know only their job. We have no results of scientific studies on this point in the restaurant
field, but railroad section laborers who were taught "more" by their bosses produced
more than those who were told only how to tamp crossties and level rails. The same
results are likely to be found in kitchens, behind counters and in restaurant dining rooms.
To Summarize
1.
Become training-minded yourself.
2.
Know how to do each job in the restaurant yourself.
3.
When hiring, tell the new employee just what the job involves—
both pleasant and unpleasant duties.
4.
Break the job down and present it to the learner step by step.
5.
Set goals for the learner—goals that he can reach today.
6.
Give plenty of praise. Get him interested—enthusiastic if pos
sible.
7.
Show how, then let the learner show you.
CHAPTER
14
How to Control and Manage Individuals
The title of this chapter is purposefully worded to emphasize the fact that the employees
of any organization are individuals. The title also suggests that effective personnel
management is based on techniques and methods used to control individuals within a
group rather than the group as a whole.
It is true that as a group employees have several common needs such as the need for
shelter, recognition, food and water and economic security. We can also agree with those
who feel that because of these basic necessities, employees can be motivated so that they
become more productive for themselves and for the food service operation that employs
them.
However too many operations adopt group management techniques as the easiest and
perhaps the only tool to control human behavior. The point emphasized here is that
although the use of certain principles of group behavior are important, nothing can or will
take the place of an employee-management relation based on a sincere and an honest
effort to respond to the fundamental needs of the individual employees. In fact without
this approach to personnel management there can be no permanently satisfactory group
response or motivation.
Unfortunately, after establishing a long pattern of management thinking in terms of
employee groups, a few managers begin to consider the individual employee as a time
card number—if they consider him as an individual at all! Expressions such as: "The
dishwashing man is doing a good job," or "Sales have been dropping recently. You have
14 men in your department. Drop two." are common in the field.
The reason for this attitude is a forgetfulness that each employee
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How to Control and Manage Individuals
183
is significantly different from his fellow worker. For example, each employee has
considerable differences in one or more factors such as: dependability, loyalty, industry,
perseverance, honesty, physical capacity, mechanical ability, social awareness, interests,
temperament, and desires. The list of possible differences can continue indefinitely.
Is this awareness of employee differences important to owners or managers of a
restaurant? Many of the leading operators say that success in the restaurant field may
very well depend on the degree with which each manager understands and uses his
knowledge of these basic differences in his daily task of managing personnel.
Is there any justification for this belief? There is, if consideration is given to the concept
of increased sales and profits as a measure of success. There are only two known methods
that can be used to increase or create profits: either increase sales or reduce costs. Good
or poor personnel management cannot help but significantly influence both sales and
costs.
Consider also, that employees are people and a business is people. Business is not a store
front, a building, or a series of doors. It isn't the mirrors, the seating capacity, or a
detailed knowledge of cost accounting—it's people. And in no industry on earth is
success or failure so dependent upon people as it is in the restaurant industry.
The relation of the restaurant manager to his employees, his customers, his purveyors, his
competition, his community is a vital factor in his ultimate success or bankruptcy. The
employees, for example, not only receive, store, prepare, and process the food product,
but deliver the food directly to the customers. They not only see to it that the floors are
clean, the atmosphere is attractive, but also that the silver, china, and glassware is
sparkling, the cash is rung up at the register and the books are properly kept. What they
do and how effectively they do their job determines if the owner of the restaurant will
remain in business.
Are there any rules that will effectively trigger the right reaction and assure success in the
control and management of individuals? Not only do these rules exist but more to the
point most of us know them instinctively. However, human nature being what it is, we
look for the dramatic and the spectacular. Most of us cannot conceive that a great truth
can be contained in a basic uncomplicated statement. In our search for self-satisfaction
for happiness, how many are unaware of the commandment, "thou shalt love thy
neighbor as thyself." Yet,
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How to Operate a Restaurant
how many realize that this simple statement, briefly comprehended, is the essence—the
only basis with which an eternal life filled with happiness can be built.
In the same manner, the rules that can guarantee success in human relations are simple
and commonplace. They have been noted centuries past, rediscovered in the present, and
perhaps will be lost and recovered in the future. Briefly the rules are as follows:
1. Search out methods and principles to use in creating a desire on the part of employees
to work with you instead of for you or worse, against you.
Some of these principles are:
(a)
Create an atmosphere in which the individual employee
obtains a large measure of satisfaction in his environment.
(b)
Take a personal interest in each employee—treat him as
an individual.
(c)
Make him feel important. When he is doing well, give him
recognition. Praise him publicly, censor him privately.
Pass along guest compliments.
(d)
Demonstrate confidence in him—asking for suggestions
and advice—this builds self confidence.
(e)
Give him security—be fair, don't take sides or play favorites.
Train him to do a job right. Plan and organize work in
advance so he knows what is expected of him—what to do,
when to do, how to do. Develop standards of work and
take prompt action at the time standards are not met—not
a day or week later.
(f)
Build teamwork. Show him by your actions that you con
sider each position vital to the success of the restaurant.
Demonstrate the principle of "pitching in." Give concrete
examples of how this principle lessens the total work load
on all employees, assures better service, increases wages
and tips, creates a pleasant working atmosphere. Set aside
regular time for employee meetings on a friendly personal
basis.
(g)
Expect him to fail occasionally. If you expect too much,
set too high performance standards without relating the
standards to the individual, or do not train the employees
properly they cannot help but fail.
(h) Control employees through their individual needs and deHow to Control and Manage Individuals
185
sires. Show them how they can obtain self fulfillment in their work.
2.
Determine your objective in initiating an action before, not after
you act.
3.
Concentrate your attention on the best procedure to use in
attaining your objective.
4.
Follow through.
The first rule regarding use of methods and principles so that employees are working with
you instead of for you or against you is fundamental. Each of us has different problems,
different needs, different goals. Man does not live by bread alone. In study after study
results have shown that wages do not rank as high in the list of causes for dissatisfaction
as one would believe.
After employees gain a living wage, there are many other considerations that would tend
to make them happy or unhappy, productive or unproductive. An employee wants job and
income security. He also needs to feel that he "belongs" in the organization, that the
community respects the employer and the employee for the work they are doing, that he
is provided with leadership, that he finishes the day with a feeling of creative satisfaction
and personal achievement from his work. He wants to be given work that he can do well
so there will be no initial frustration, in a working environment acceptable to his
particular standards, and with an opportunity to develop if he so desires.
Most of all, the individual employee may want to work in order to express his own ego.
Some of the employees may have an unhappy, frustrating home life, others handicapped
with a lack of friends may live alone existing from day to day. For all employees work
represents most of their daily life. If they can find an opportunity to express themselves,
to obtain recognition for a job well done, security, and friends, in the organization; if they
can work toward common goals, together as a team for an employer they can respect, and
who respects them, these employees will never leave.
The second rule of effective human relations is equally fundamental. Most of us act
impulsively without thinking of the possible effect an action may have on the employee
and the organization.
The objective of personnel management is to get the job done effectively, on time,
through our employees. This objective limits and directs our actions in the following
manner: it states that an employee will
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do the job, not you, and that the job must be done according to predetermined
performance standards set by you, not the employee.
Specifically, the objective commands if something is not done right —an employee
forgets to shut off the water faucet—do not correct the fault yourself. Call the employee
and have him shut off the water. If you disregard this command, you will eventually find
yourself running around completing every task in the restaurant.
If you like to remove the luncheon menu from the window because it is now six o'clock
and someone forgot to replace it with a dinner menu, if you like to turn the outside lights
on because its dark outside, if you like to run back to the kitchen and obtain hors
d'oeuvres for the cocktail lounge because someone forgot to put these out at 4:00 o'clock,
if you like to cover your terraza customer traffic aisle with a non-skid protective pad
because your employees can't see the relationship of heavy rain or snow with accidents in
the dining room; if you like to do all these things, you should pay yourself a bus boy's or
a porter's salary. This is their job, not yours.
The objective commands that you not only work through your employees but also see to
it that they perform their assignment according to the methods you outlined, within the
time limits, quantity and quality that you set. This objective is based on the legal
definition of an employer. A man is not an employee unless he is given a job to do and is
asked to do it in a prescribed manner. To qualify as an employee the man must do both. If
a man can select his work for the day or do it in the way he believe it should be done, the
man is not an employee—he is a consultant. Consultants are very very costly, especially
when most of the labor force is composed of consultants.
With the objective firmly fixed in one's mind, any manager can gradually limit or
eliminate the mistakes that are commonly made and build a stable productive labor force.
To illustrate this concept consider the following situation:
You, as a manager, are seated in the dining room talking with a guest. Suddenly there is a
loud crash in the kitchen. What can you do?
1.
You can hurriedly excuse yourself, rush to the kitchen, find out
who broke the dishes, point a finger at the employee and yell, "You're
fired. You . .. you ... get your things together and draw your pay."
2.
You can also storm, rave, and sputter. "Dammit, why can't you
be careful. Don't you know this cost money? The costs are going to be
deducted from your pay."
If the objective is to see that a job is done effectively through people,
How to Control and Manage Individuals
187
the first action is obviously irrational. Firing the employee does not get the job done
effectively: in fact it does not get the job done at all! Moreover, you will now have to
spend much of your valuable time recruiting, selecting, and training a new employee to
acquire the skills of the former dishwasher.
In the second case; losing control of emotions, storming and raving will only fluster the
employee. If he is proud or sensitive, he will quit because he has lost face when you
demonstrated in front of his friends that he was a crude, bumbling, stupid, idiot. If on the
other hand he needs his job very much and remains, the net result of your loss of control
is that he will resent you, his work, and will do his job ineffectively.
In both instances the intelligent manager realizes that the objective is not to fire the
employee or to create resentment, friction, and inefficiency, but to get the job done
effectively. If this is the objective then the actions of the manager should be directed and
controlled to achieve this goal.
The immediate objective is to eliminate dish breakage. This goal and other goals can be
achieved in the following manner:
1.
Do nothing until all emotions are controlled.
2.
Get the facts. In the above example we do not even know who
broke the dishes. If the dishwasher broke the dishes, was he bumped?
Is it his fault? Did it result from a poor layout, insufficient space for
stacking? Was it caused because of water spillage on the floor—why
did the accident happen?
3.
Plan your actions to gain your objective and to do something
so that this incident will not happen again. Don't correct the employee.
Concentrate on the factors that created the accident. If the work area
is not enclosed, enclose it so he will no longer be bumped. If there is
not enough space in the dirty dish or clearance table, correct the layout
so there is enough space to handle the dishes during the rush hours.
If the employee is using wrong methods of stacking, transporting,
retrain him so that he can do his job effectively.
The point to all this is—how can anyone react to something unless he knows what it's all
about? The accident may be your fault—the result of poor management and poor
planning. In this instance like every other case of misadventure in the restaurant, the
objective is not to release irritation, blow off steam, fire employees. The objective is
simply to get the job done effectively through your employees.
The fourth principle regarding the creation of an effective, satisfy188
How to Operate a Restaurant
ing program of management control is simple: follow through! There are no magic
formulas or short cuts to effective personnel management and human relations. More and
more books will be written on personnel management; many will provide the reader with
a great deal more detail; most may be better written or perhaps more stimulating; all will
contain the basic principles outlined here.
Success in personnel management and human relations can be obtained through the use
of these principles. The rules will work for you as they have for others. Our effectiveness
in this field can be measured in direct proportion to the degree we manage ourselves, our
understanding of our aims, and of the people who work with us to achieve those goals.
If we know our objective, direct and control our energy in terms of the objective, have a
deep understanding of the individuals who are working with us, and persist in our efforts
to do a better job in a better way, we will succeed in increasing our effectiveness in
managing others and ourselves.
CHAPTER
15
Menu Planning
and Purchasing
An error in planning any of the following processes will cause food costs to rise:
purchasing, receiving, storing, preparing, processing, serving or selling. A repeated
consistent error in any one of these phases can conceivably put an operator out of
business!
Consequently, a competent food service operator must know how (1) to plan a profitable
menu, (2) to purchase quality food at economical prices, (3) to receive and store his food
items properly, (4) to control the food issues from the storeroom, (5) to prepare and
process foods according to a determined cost and quality, (6) to serve foods attractively
and (7) to account for sales of food.
Analyzing the Menu
Planning a menu involves the following:
1.
A careful study of sales information so that the menu will reflect
the desire of the guests. Many forms for analyzing menu sales are
available on the market, ranging from simple to complex. These may
be purchased for an operation, or the operator can design his own
form. Some operations use a copy of the menu and as each item is
sold, a check is made to indicate how many times that item was sold.
Over a very short period of time analyses of sales will tell what the
customers want and the prices they are willing to pay. The study will
enable the operator to pinpoint and push the popular menu items,
remove the less popular items and consequently increase his volume
of business.
2.
Once the most popular items have been determined, a method
of rotating the menu will have to be decided upon. No matter how
189
190
How to Operate a Restaurant
much a customer may like breaded veal cutlets he doesn't want to find this item on the
menu every day or every Wednesday.
The menu should be limited and varied. To accomplish this variety of menu items on any
particular day, most operators base their sequence of menu offerings on an even number
of days that are not multiples of seven.
For example, their basic menus are planned 10, 16, 22, 40 or more days in advance. Each
day's menu is different. In the case of the 10-day menu plan, if the first day's menu was
offered Monday, it would take 12 Mondays before the same menu was offered again to
the customer.
3.
When an operator learns what the more popular menu items
are, he must next figure out a basic rotating pattern to even the load
on the kitchen equipment and kitchen personnel. All fried items or
all baked items, for example, would not utilize equipment properly.
A roast rib of beef, broiled lamb chops, extender-cooked macaroni, breaded veal cutlet,
cold seafood platter, and baked salmon may be decided upon. This will give the guests a
variety of foods to select from, keep the kitchen personnel busy, and not overload any
piece of equipment.
4.
The day must be considered also (e.g., Friday, fish; Monday,
less volume; Sunday, family patrons; holidays), the time, the weather,
quantity, quality, size, grade, the market, the season, refrigeration,
inventory, and the price.
Balancing the Menu
Specialty and fast food restaurants and the typical drive-in have menus which are limited
in number. In the drive-in for example, the milk shake, hamburger, hot-dog, fried
chicken, and french fries are the big leaders. No attempt is made to offer a meal which is
balanced nutritionally or any other way.
The operator of the usual table service, cafeteria, or even counter service restaurant,
however, must balance his menu. This requires time, study, imagination, and knowledge
of food.
1.
Fill in those items which are run as features or regular items,
such as a Key Lime Pie, the standard ice creams, standard juices,
steaks, and sandwiches.
2.
Select the entrees so as to achieve variety of meat, fowl, and sea
food having a variety of preparation methods. A soft dish such as a
Beef Goulash, a seafood item such as Broiled Snapper, a fried item
Menu Planning and Purchasing
191
such as Porkchops Piquant, and a fowl such as roast chicken would be a minimum menu
offering variety. Avoid having more than one entree which is exotic or borderline such as
frog legs, kidneys, or tripe.
Select the entrees for several days in advance so that they do not repeat so often as to
become monotonous to the guest. Chain organizations fill in many of their entrees for a
month in advance, supplemented by seasonal items and good buys.
3. Select the juices, soups, vegetables, salads and desserts, to complement the entree.
Offer a variety of color in the juice, a heavy and a light soup, a variety of textures and
colors in the vegetables, at least two salads with a choice of about three dressings, and a
choice of at lease three desserts, perhaps up to 10 on an elaborate menu. Plan so as to
avoid overtending the kitchen as regards to equipment and skills of the cooks.
Menu planning is a complicated matter and the beginner should read extensively about it.
The book, Profitable Food and Beverage Operations, by Brodner, Carlson and Maschal
has several excellent chapters on the subject. Menu planning can be a full time job with
consideration given to balancing the menu in terms of shape and contour of the food, its
color, texture, blandness—sweet, sour, and spicy combinations, richness, fatty content,
number of calories, and temperature.
The menu gives the operator an opportunity to exercise system as well as ingenuity and
artistry. The menu should have new items introduced continually and unpopular items
withdrawn. Menu planning without system is chaos; without imagination and innovation,
boring. The happy compromise gives interest and efficiency. A rotating menu seems to
be a good way to attain balance, eliminating the hours of work needed to construct a new
menu each day. The fixed menu with a few carte du jour items, and daily specials, is
another way of saving time and energy.
Purchasing
Food purchasing is a subject that demands study to get what you pay for. We can think of
it as being divided into three phases—
1.
Determining what is required.
2.
Learning the market and getting the best buy for your purposes.
3.
Checking on what is received for specification, quality and
quantity.
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How to Operate a Restaurant
The menu and style of operation determines the best size and kind of food item to buy.
A very successful Los Angeles drive-in features fried fish and specifies that the halibut it
orders be between 60 and 70 pounds in weight.
A highly profitable sea food specialty house uses only 200 pound swordfish and allows
only a plus or minus of 10 pounds in weight. "The size of the fish determines the
portion," says this operator, "and we are willing to pay 2 to 3 cents a pound more to get
the size we want."
The operator who knows his clientele, knows his prices, and what he is trying to do
usually knows the grade he should buy. But he should have reasons for his selection. Do
not be like the manager who was recently seen cutting up U.S. Choice sirloin steak for
stew meat.
A food management teacher recently remarked that if specifications were drawn up
properly it is not necessary to spend a lot of time learning to identify the different grades
of meat. She was so wrong! Two weeks after her remarks I was privileged to tour five
packing houses in a major Western city. We passed by row after row of hanging beef, all
of which had been graded "U.S. Choice." The variations within the grade were
tremendous. Some of it was well feathered with fat inside the ribs, beautifully marbled,
and well covered with a creamy fat. Others the same, poorly marbled, the fat covering
spotty and the spread of the ribs unsatisfactory. A grammar school boy could have noted
the differences once he knew what to look for.
Oddly enough, in none of these packing houses was any beef graded "U.S. Prime." It
seems that in this Western city no one wants prime meat even though the price be the
same as for U.S. Choice.
A restaurateur selecting his own meat in this situation would have been able to get a
much higher quality of meat than if he had merely ordered a "U.S. Choice" grade.
Actually, the meat graders themselves are quick to agree that there are "grades within
grades" of beef, and variation of quality within a grade is inevitable.
As with any purchasing, the restaurant operator must decide what he needs. It would be
folly for him to buy Prime beef for hamburgers. Some highly successful operators use
Commercial grade of beef for hamburgers, being certain to grind the meat coarsely rather
than fine and to get the right proportion of fat into the meat patties.
Pre-fabricated meats are fine for small operations that have high labor costs and limited
menus. Larger places are usually money ahead
Menu Planning and Purchasing
193
to buy wholesale cuts; as they can well use the scraps and odd pieces for stews, soups and
braised entrees.
Most restaurant operators seem to prefer frozen vegetables and use canned vegetables as
a reserve supply to back up their service should the frozen items run out. Other operators
prefer the canned items. Still others depend upon fresh vegetables during their season.
As restaurant operations become more sophisticated, they will cook vegetables only a
few minutes in advance of serving them. This means small quantity preparation
continued throughout the serving period. By preparing only small quantities, the big
problem of buying only those vegetables which hold up on the steam table will disappear.
In buying detergents, the restaurant operator has only a few guides to go by. Not being a
chemist or a detergent specialist, information about the composition of the detergent
means little. He may know that the amount of polyphosphates in the detergent largely
determines how effective it will be in hard water. He may know that the amount of
polyphosphates determines its cost. He can find out the hardness of the water from the
municipal water officials. But he still is not certain of which product to buy.
Probably the best test is the practical one—does the detergent do the job? Equally
important is the matter of service. Will the detergent representative train the dish machine
employees and clean and maintain the machine? Dishwashing is one of the two or three
biggest restaurant problems. Unless the operator understands this problem well, he is
wise to consider buying from the detergent company that provides specialized service.
The same principle is true in buying equipment—service for the equipment is probably
more important than original cost. Buy a product for which service and replacement parts
are immediately available.
Pre-packaged and Pre-portioned Items
Theoretically the purchase of pre-packaged and pre-portioned foods can be done cheaper
on a volume basis than when its cans are fashioned by the individual operator. The food
producer who is doing the packaging usually has the capital to purchase more specialized
equipment than the individual restaurateur can afford. Packaging on a volume basis can
be done with specialized personnel and by use of methods which permit greater
production per man hour than can be done by the restaurant operator. The cost to the
restaurant operator should be less
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How to Operate a Restaurant
than if he does the packaging and pre-portioning himself. In many cases this is not true,
and the restaurant operator must arrive at an accurate cost of doing the job in his own
restaurant as compared with the price of the packaged or pre-portioned item.
Restaurant operators have made large savings in some cities by purchasing pre-cooked
frozen potatoes. In other places the operator saves money by peeling and cutting the
potatoes himself. Commercial mixes unquestionably reduce labor in the restaurant. For
example, one USDA-Minnesota Experiment Station found that commercial mixes cut the
time of preparation by % for cakes, Vi for cookies and % for biscuits and pie crusts. The
cost of the commercial mixes was 20% higher for cakes, 50% more for cookies and
biscuits, and 75% more for pie crusts.
The Department of Baking Science and Management at Florida State University did a
comparative study of baked items prepared from certain mixes and those similar products
prepared by good standard recipes. In every case the mix product was as good or better in
taste, and when the cost of labor was carefully computed, the mixes also had an
advantage. On the other hand, a series of studies conducted at Pope's Cafeterias in St.
Louis showed that the cafeteria's recipes were superior to the mixes. Harry Pope,
President of the Cafeterias, concluded that it would be economical for the cafeteria's
employees to make their own mix during times when employees would otherwise be idle.
The mix could be made in fairly large quantities, packed, and marked for quick simple
use later. Mr. Pope found the same sort of results when he studied the commercial costs
of pre-packaged vs. bulk crackers.
All sorts of ready-mixed and pre-packaged foods are available, and more of them will be
so in the future. In each instance comparative costs should be figured for such items and
compared with the bulk item, taking into consideration the availability of labor that
would otherwise not be used. Dehydrated onions, pre-packaged jellies and syrups, and
dehydrated potatoes are a few of such foods which, along with bakery mixes, are
becoming widely used in the commercial restaurants, as is pre-portioned meat. Some of
these foods may offer advantages; others may not. Automation, the use of electrically
controlled machinery to perform work, will not solve labor problems in the restaurant
industry in and of itself. There will always be a necessity for planning and scheduling
labor and a necessity to compare the advantages of one form of purchase against another.
Menu Planning and Purchasing
195
Quantity to Purchase
A food service operator in the South bought a carload of beef, expecting meat prices to
rise. He had to rent refrigeration space and pay for moving it in and out of the rented
space. He also had to pay insurance costs on the refrigeration and no doubt lost some of
the meat through thievery. If meat prices had risen, he probably would have broken even.
Instead, meat prices fell, and his little speculation cost his operation more than his annual
salary.
Most of us do not have the time to study market trends and make intelligent guesses
about whether prices will move up or down. There are some exceptions. A very
successful operator in the East buys frozen shrimp in quantities large enough to last him
four months. The shrimp is delivered as he needs it so he has no storage, thawing, or
spoilage losses.
Frozen shrimp in his area has consistently varied from about 70 cents a pound up to $1.25
a pound, depending upon the season of the year. He buys when it is at 70 cents. He also
buys corn oil, turkey, frozen apples, and frozen eggs in quantity.
This operator wisely does not store these items himself but has the vendor deliver them as
needed. Items which do not meet the operator's specifications are returned. The vendor
has his money, the operator has saved money, and both are happy.
The chain operator can buy in quantity and store the merchandise himself. Usually,
however, he is better off to do contract buying, asking for delivery as needed. The large
operator, by buying in quantity, can gain about a 3 percent net profit advantage over the
individual operator, and that's stiff competition indeed.
The usual restaurant operator is well advised to buy daily, to pay weekly, and to take to
heart the thought that "there is no future in futures."
Try to keep everything possible turning over daily or at least weekly. A clean refrigerator
and a small supply of stores means finer, fresher food served, less, and fewer headaches.
Ordering and Receiving
Set a time to place all orders and a time to have the goods delivered. If ordering is not
planned, there's always something that is overlooked and another telephone call is
made—another delivery is necessary— additional expense is incurred both in the
operator's time and in the
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How to Operate a Restaurant
extra delivery. Also, deliveries that come in at all hours of the day break into the work
routine of everyone concerned.
One of the most successful restaurant operators in the country orders and receives this
way—
1.
He inspects his refrigerators and storerooms by 4 P.M. to see
what leftovers should be used on tomorrow's menu.
2.
After incorporating the leftovers into the menu, he itemizes
what is needed for tomorrow.
3.
At about 6 P.M., just before his evening business, he calls for
purveyors and places his orders. The purveyors welcome his
"after hours" call because it makes their work easier the next
morning.
4.
The next morning the deliveries are made between 8 and 10 A.M.
This plan eliminates second orderings and conserves time taken for receiving. Receiving
is accomplished during a specified and predicted period. Each operator can plan thus to
fit his own schedule.
To keep the purveyors interested in sending the best food products and the correct
amounts, pay vendors' bills at least weekly.
Bankers and others in business to loan money enjoy loaning money at interest. Purveyors,
who do not officially get interest on their "loans" to restaurant operators, do not enjoy
extending credit over long periods. Unofficially, "interest" is charged. Slow payers are
likely to find that they do not get what was ordered, either in quality or quantity.
A friendly customer-purveyor relationship based on good business controls and mutual
respect should be maintained. At the same time prices must be compared and all items
received, inspected for quality, weighed or counted.
Purchasing Procedures
Mechanics of purchasing are simple or complex depending upon the size of the restaurant
and the kind of organization.
Purchasing procedures vary with the item to be bought and are usually divided as
follows:
1. Staples and Groceries:
These include all canned, bottled, and packaged items which are relatively not perishable
and can be stored without refrigeration. Such items are usually purchased on bid which
may be received in writing or over the telephone.
Menu Planning and Purchasing
197
2.
Perishables:
These foods include all fresh fruits and vegetables and all meats and dairy products.
Since this purchasing is done rapidly, there is no time for written bids ordering is done by
telephone after receiving quotations from three or more purveyors.
3.
Standard Contract Purchasing Items:
Items such as milk, bread, ice cream, and coffee are usually bought from a single
purveyor who delivers daily, leaving as much merchandise as is required by the food
buyer or restaurant operator. These purveyors come as a matter of routine and prices of
their products usually remain about the same over a period of time. The "standard orders"
are usually not contracted for by written agreement, but may be so made.
Written contracts for large purchases of corn oil, fish, shrimp, canned tomatoes, and other
items are becoming more common. By such contracts the restaurant operator agrees to
buy a specified amount of the food item over a definite period of time, usually 6 months
to a year. The purveyor delivers the merchandise as called for by the operator. The
operator usually gets a marked price advantage by buying an item such as shrimp at a
time when shrimp are in large supply and at a low in the annual price cycle. The operator
has the added advantage of not having to receive all of the food when he makes a
contract. The vendor stores the item and delivers it to the operator as he calls for it.
Purchasing Forms
To simplify and speed up the process of purchasing, most restaurants have either printed
or mimeographed forms developed to fit their own situation. Larger restaurants give a
code number to each food item which aids in bookkeeping and maintaining a system.
Perishable items may be classified as fresh fruits, fresh vegetables, frozen fruits, frozen
vegetables, beef, pork, poultry, fish, lamb, veal, and dairy products.
Staples and grocery items may be classified into these groups: Condiments and
seasonings, general provisions and staples (such items as baking soda, cocoa, crackers
and gelatin), canned fruits, vegetables, juices, canned fish and sea foods.
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How to Operate a Restaurant
For ordering perishable items, a quotation sheet can be drawn up to fit the restaurant. The
buyer calls three or four vendors and pencils in the price quotation given by each. He
then selects the purveyor who has given the lowest quotation, if he knows that this
purveyor will give good service and meet the specifications ordered.
Purchase Order forms for other than perishable items are used in large restaurants.
Here is an example of a form itemizing the various foods which are used regularly by a
restaurant:
CODE DESCRIPTION
UNIT
101 FRESH FRUITSApples, Cooking
102
Apples, 88's Bx
103
Avocados
Fit
Bx
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
Bananas
Lb
Cantaloupe Crt
Cherries
Lug
Grapes Lug
Grapefruit (45's)
Crt
Lemons (150) Bx
Limes Bx
Melons, Casaba
Crt
Melons, Honey Dew Crt
Melons, Persian
Crt
Oranges
Bx
Peaches
Bu
Pears Bu
Pineapple
Crt
Plums Lug
Strawberries Qt
Watermelons Ea
FRESH VEGETABLESAsparagus Crt
Beans, Green Bu
Menu Planning and Purchasing
CODE DESCRIPTION
123
Beans, String Bu
124
Cabbage
Sk
125
Cabbage, Red Sk
126
Carrots Sk
127
Cauliflower Crt
128
Celery Crt
129
Celery, Pascal Crt
130
Chives Dz
131
Collard Greens
132
Corn on Cob Crt
133
Cucumbers Bu
134 Egg Plant
Bu
135
Endive Crt
136 Escarole
Crt
137
Garlic Lb.
138
Kale Bu
139
Lettuce, Head Crt
140
Mushrooms Bskt
141 Okra Bu
142
Onions, Green Dz
143 Parsley Dz
144 Peppers
Bu
145
Potatoes, Idaho
UNIT
Dz
100#
199
146
147
148
149
150
151
152
Potatoes, Sweet
Radishes
Dz
Spinach
Bu
Squash, Yellow
Tomatoes
Lug
Turnip Greens Dz
Water Cress Dz
Bu
Bu
CHAPTER
16
Receiving and Storing Food
After food has been ordered, management is concerned with seeing to it that what was
ordered is received and stored so as to retain its quality until prepared or served. In a
small restaurant, the manager himself receives the food, checks it to see if it meets the
specifications, weighs, and/or counts it. Large restaurants can employ a part-time or fulltime stewards or storeroom clerk to receive, store, and issue the food. But it must be the
responsibility of one person and no one else.
In the larger restaurant, the storeroom clerk may have an assistant who is also the steward
in a hotel kitchen. The job offered includes the responsibility for supervising the
dishwashing crew and kitchen porters. Where food production is on a production and
formula basis the storeroom man issues quantity in accordance with standard recipes. For
example, shortening, flour, eggs, and milk would be issued to the exact measure required
for a specific recipe. The shortening would be scooped out of its original container onto a
piece of wax paper and scaled, flour would be weighed and put up in a separate container,
the exact number of eggs required for the recipe, and only the milk needed for the recipe
should be issued. This procedure saves time for the cooks and bakers, time which is
usually more needed by them than by the storeroom keeper.
The storeroom man usually is not a meat expert and so his judgment cannot be relied
upon completely as to the quality of beef or other meat which is received. His main
function is to determine if the food received is in the quantity or weight which was
ordered. The more he knows about food standards, of course, the more valuable he can be
to the restaurant.
A storeroom keeper should be the kind of person who is highly
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Receiving and Storing Food 201
reliable and stable; usually a person of middle age or older, who is not bothered by
working alone a good part of the day; who enjoys having his environment orderly and
arranged systematically. He need not have a particularly attractive personality or
appearance, although these factors are valuable in nearly every position in a restaurant. It
is important that he get along with others easily. Above all, he must be honest for a
dishonest steward or receiving clerk could increase his income at the restaurant operator's
expense.
In some parts of the country it has been more or less customary for purveyors to give a
steward or other persons in charge of buying and receiving a percentage of the purchase
price. This vicious system of kick-backs has made rich men of many food buyers and is a
practice which should be eradicated completely. Ultimately, of course, the amount of the
kick-back is paid by the restaurant in higher prices. To guard against such practices, food
and receiving clerks should not be permitted to take "gifts" of any kind, including
Christmas presents of any value.
Careful receiving procedures avoid mistakes which may cause the restaurant delay, and
encourage honesty on the part of suppliers and delivery people. When a delivery person
is short, he may make up that shortage at the expense of a restaurant which fails to
carefully check on incoming merchandise.
The delivery invoice should be checked to make certain it correctly describes the
merchandise received. Each item on the invoice should be checked off if the weight or
count is found to be accurate. In checking deliveries for weight, it is important not to
weigh containers or wrapping material. If this is impossible, weigh the complete package
including the container, then transfer the contents to another container and weigh the
empty container or wrapping. This weight is then subtracted from the total to arrive at a
net weight.
It is not wise to permit receiving clerks to pay C.O.D. charges. This should be done by
the manager himself or his assistant manager. Checking personnel should be instructed to
call the manager if there are any shortages or discrepancies in quality.
Ordinarily, meat is not received in the exact amount that was ordered. The receiving
person writes in the correct weight on the invoice and initials his writing. When poultry is
checked for weight the ice should be shaken from it before weighing.
When the description of an item is incomplete on the delivery invoice, the delivery
person completes the description by writing it in.
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How to Operate a Restaurant
Potatoes that are delivered in bags which are supposed to weigh 100 pounds usually do
not weigh the full amount. Many restaurants have a policy of not accepting "100 pound
bags" of potatoes that weigh less than 97 pounds.
Receiving
The delivery slip which the deliveryman brings is checked against the purchase order in
the case of staple foods; against the quotation sheet for perishable foods.
If there are errors in weight or count, corrections are made on the delivery sheet. If
quality is not as specified, this is noted on the delivery sheet; or if there is serious
discrepancy in quality, the restaurant manager is notified. The delivery may be rejected.
Otherwise, the delivery sheets are signed by the person doing the receiving. At the end of
the day quotation sheets, purchase orders, and delivery sheets are taken to the
bookkeeping section or manager's office as a record that payment is due the purveyor.
When there are mistakes in delivery or inferior quality of food has been received, it is
proper to insist on pick-up by the purveyor. In such cases the delivery man should sign a
credit memorandum in duplicate showing the quantity and description of the merchandise
picked up. The delivery man gets one copy, the other copy goes to the manager's office.
At the time of delivery, the receiving clerk uses a wax crayon to mark the date on each
container or case. All meat is tagged showing the date, name of the cut, and weight.
Storage of Food
Food is stored pending its use in such a way as to improve its quality or to minimize loss
of quality. U.S. Choice and Prime beef is "hung" (stored) for two to three weeks by the
more expensive restaurants so as to give it a proper "age." During aging enzymatic and
bacteriological action takes place which imparts tenderness and increases flavor.
Aging beyond three weeks (after the animal has been killed) makes for a "high," or
gamey flavor enjoyed by some connoisseurs. Venison and other wild game is similarly
aged. Veal, lamb, poultry, and fish are used as soon as possible since aging results in loss
of quality in these meats.
Receiving and Storing Food 203
Aging is expensive since it is done either in a refrigerator or in special aging rooms of
70°-80°F. with high air circulation. Shrinkage and loss from trimming can be expected to
total up to 10 percent of the weight.
Unripened fruit is stored so that it is ripe when needed. Other foods are stored to
minimize deterioration and infestation by rodents and insects.
Refrigeration and freezer spaces are needed so that these temperatures are maintained:
Meat, meat products
Poultry:
31-35° F.
Boned meat should be used in less than three days.
Individual cuts such as steaks, chops, stew meat, and ground meat should be used within
two days, preferably on the day cut. Livers, hearts, sweetbreads, and brains should also
be used within 48 hours. Store poultry surrounded by ice.
Fresh Fish and Seafood:
29-33° F.
Store in ice, and use as quickly as possible.
Dairy Products and Eggs:
33-37° F.
Use as quickly as possible. Store eggs in an upright position, on the pointed end of the
shell, never on the large end or on the sides. The pointed end is the hardest part of the
shell; the round end contains the air cell which should be undisturbed. Keep butter
wrapped to prevent absorption of odors.
Frozen Foods: 0° or less
Frozen foods should be held at less than 10° F., preferably at zero. Temperature rises
above 10° F. will damage food by discoloration and loss of vitamin C, and lowering the
temperature again does not correct the damage.
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How to Operate a Restaurant
Ice Cream:
6°-10° F.
Dried Fruits: Refrigerate during
summer at 32°-45° F.
Storing of Staples and General Stores
Dried vegetables, flour, other cereals, and cereal products should be stored in metal cans
with tight-fitting lids or in aluminum, portable bins which can be wheeled to the point of
preparation.
Adjustable Shelves For Canned Goods
Lower shelving should have a space of 18" to 36" between shelves; upper shelves 12" to
16", depending upon the size of cans used. Shelving should be 16" deep which permits
two rows of No. 10 cans or three rows of No. 2 or 2.5 cans.
Issuing Food
Perishable stores are usually issued directly to the kitchen to be used in the succeeding
day or so. Staples are stored, then issued as needed by the kitchen. Institutions usually
buy in quantities to last several months; smart commercial restaurant operators buy only
as much as needed to hold them over until the next delivery can be made. Restaurants
doing as much as $500 daily may have a storeroom which is only 10' x 15' in size,
evidence that small storerooms are feasible.
Food is issued from general stores by requisition only.
Here is an example:
REQUISITION
The storekeeper is careful to store incoming cans or cartons on the rear of shelves—older
merchandise in front—so that the oldest item is issued first. In issuing he takes from the
front, "first in first out," new stock being placed in back of previously delivered stock.
To summarize: The first problem of receiving is to make sure that
Receiving and Storing Food 205
the quantity, quality, size, weight, and number of food items that were purchased have
been received. The receiving and storeroom man must have a sense of responsibility,
must be able to come to an intelligent decision under stress, must know food thoroughly,
and must be able to follow the procedures and methods of receiving that have been found
effective for the operation.
These qualifications are necessary because, once the decision is made to purchase food
and the food is delivered to the receiving area and accepted, that food represents money.
If net profit is 10 per cent of sales with a 40 per cent food cost and $10 worth of food is
purchased, the value of the food in the storeroom is $25. Net profit will be $2.50; the
remaining $22.50 must be used to pay for the food, rent, labor, equipment, utilities, and
other expenses.
If the storeroom man accepts merchandise that is not counted or weighed; if he doesn't
check for spoilage, rot damage, improper grades; if he doesn't check the specifications; if
he doesn't remove frozen items to the freezer immediately; if he doesn't store properly; if
only one-tenth of the cost of the food is stolen or lost in terms of yield, the entire profit
has disappeared. Whether a menu item is profitable or not depends not only on the
purchase price but also, and most importantly, on the cost per edible portion.
After the items have been checked, they must be stored promptly and efficiently. There
are many recommended temperatures for proper refrigeration. Effective ranges of
refrigerating temperatures for various food groups are: meat and poultry 31°-35°F., fish
below 32°F., vegetables 36°-40°F., dairy products 33°-37°F.
In terms of dry storage, important points are: "first-in first-out" inventories, protection of
food from soil, dirt, vermin, and spoilage and storing in temperatures of approximately 68
°F.
Issuing must be controlled and storerooms kept locked. Goods should move out only with
requisitions.
Food must also be prepared, cooked and served properly. And after all these details have
been worked out, there still remains a vital part of the operation that can put an operator
out of business. Food has to be translated into sales. For every item leaving the kitchen,
every cent of value must be accounted for in the cash register.
Management has countered the latter problems with such measures as food checkers
using food-checker machines, double-die system, duplicate orders, numbered checks,
check machines and cashiers at ends of serving lines.
CHAPTER
17
Restaurant Standards
Not so long ago a management consulting firm was called in to examine a large
restaurant company and to make recommendations. One of the recommendations
presented to the company was that a separate department should be established with the
department head to be called the Director of Standards. The owners and management of
the business were puzzled. What would a Director of Standards do? What kind of
standards were to be included in the man's job? They were only reflecting the restaurant
business as a whole. "Standards" as such were a new idea to them and to most restaurant
operators.
Heavy industry with its professional industrial engineers has been talking and thinking
"standards" for many years, going back to the turn of the century in some progressive
companies. Restaurant chains, though big enough to hire standards men, have only
recently talked standards as something separate from food purchasing, food production,
and food service. What is meant by standards? If you were to hire a Director of
Standards, what would he do? As a small operator, what do you do to set up and follow
standards?
Standards are measures against which something is compared. In a well operated
restaurant they are measures of what is bought and sold, how it is prepared, of the
sanitation and appearance of the restaurant, and of the appearance and performance of the
management and personnel. Standards are criteria of what is desirable in product,
personnel, and service. All restaurants have standards, some vague, some clearly stated;
some only in the minds of the managers, some written and distributed to all employees.
Everyone has standards. How clear are yours, how well stated, how well known by the
people who work with them?
206
Restaurant Standards 207
Here are examples of standards.
Food Standards
Example: Buy hamburger ground from U. S. commercial grade chuck. Use eighteen
percent cod fat.
Purchasing Standards
Example: The re-order point for catsup is two cases of #10 cans. Do not order more than
five cases.
Receiving Standards
Example: Weigh all fish and chicken with the ice removed.
Storage Standards
Example: Store all new items behind old items and use the old items first.
Preparation Standards
Example: Temperature for frying shoestrings and shrimp 345 degrees
Temperature for frying chicken
315 degrees
Portion Control
Example: A ten cent ice cream cone should contain 3.5 ounces of ice cream, no more, no
less.
Personal Standards
Example: All lady employees in the restaurant are required by state law to wear hair nets
while at work.
Service Standards
Example: Each customer is entitled to the same courtesy and treatment regardless of his
or her station in life.
Selection Standards
Example: Preference for car hostesses will be given to married girls with small children,
between 5' and 5'5" in height, not over 130 pounds, and having their own transportation.
Sanitation Standards
Example: Check all glasses and dishes for appearance and chips before using them.
Cash Control Standards
Example: At closing, each cash register will retain a bank of $25 for change. All other
money and checks are deposited in the night deposit box at Williams Bank and a
duplicate deposit slip sent to the home office.
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How to Operate a Restaurant
Production Standards
From a cost viewpoint, production standards are the most important of all. These are the
expectations of work to be accomplished using the personnel, equipment, and layout at
hand. Necessarily, production standards must be set for a particular work situation. As
better methods, equipment, and training are introduced, production standards change.
Making sandwiches by the assembly line method, for example, requires only 6/10 of a
worker minute. Sandwich making by an individual requires at least twice as long per
sandwich. It takes several minutes to make a pie when made by an individual. Using an
assembly line, pumpkin pies were produced in one kitchen at the rate of one a minute.
Production standards can be expressed in any meaningful unit. Meals produced per man
hour is one way. Following are statistics from the American Dietetic Association:
Here are some production figures found by the writers in terms of meals produced in an
eight hour working day:
School Lunch—100 meals produced by each kitchen employee Industrial Food Service
Cafeteria—90 meals produced by each
kitchen employee
Commercial Cafeterias—60 meals produced by each kitchen employee
Set Standards for Yourself
Management would be an easy job if all that were needed were to set up standards and to
see to it that people followed them. This can be done in a concentration camp with plenty
of guns, whips, and electrified fences. But not in a restaurant. Leadership is an essential
inRestaurant Standards 209
gredient of management. All eyes are on the manager. Employees imitate the manager.
He leads by living up to high standards.
As has been said, "The speed of the boss is the speed of the gang." Don't expect others to
knock themselves out for the Corner Drive-in if the boss is taking it easy. A good way to
insure employees being on time for work is for you to be there early. All eyes are on the
boss. What he does, his attitudes, and his disposition are reflected among the employees.
To expect high morals among employees, practice high morals yourself. A snappy
appearance in the boss is apt to be seen also in employees. And so it goes. The boss sets
the pace for standards.
Standards are applied to things done by employees in a restaurant. When these standards
are applied to a manager, they are usually expressed more broadly and fall into the
category of policy. For example, a chain of restaurants may expect its units not to exceed
a 3 8 % food cost. This is a policy. Every multi-plant operation should have both a
standards of practice manual for supervisors and a policy manual for managers. Standards
are set up to implement policies.
Standards are easy to talk about, more difficult to establish, and a problem to enforce.
Here are some guides in setting standards.
I recently witnessed the development of a cycle menu over a period of months. Outside
consultants started the ball rolling and management kept it going—but with poor results.
Only after several hours of consultation with the chefs who used the menus was success
achieved.
New standards are reluctantly accepted by persons already on the job. They are more
readily accepted by new employees because they have nothing to unlearn, no old habits
to give up. It's easy to get new waitresses to wear stockings and hair nets; a major
operation in some cases with employees who have worked without them.
Changing the work pattern of any person is best accomplished by consulting them first.
Some Standards are Flexible; Others Inflexible
Some standards are necessarily flexible. Sanitation is always a relative standard. A
restaurant is never completely clean, yet the violation of some sanitation standards is
immoral, dangerous, and could even lead to loss of life. In a South American restaurant I
visited, the dishes, utensils, and glasses looked fairly clean. On visiting the kitchen I
learned that the dish machine, a good modern one, had no hot water. This was in a
community where disease was rampant. Dishwashing
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How to Operate a Restaurant
standards are of the most difficult to maintain, but should be fought for if necessary.
Progressive.management seeks to improve its standards. Cold water glass washing using
an iodine compound may well supersede the old hand-brushing of glasses and the glass
washing machine itself. A small cold water glass washing machine placed at the point of
use can save thousands of steps in transporting glasses from counter to dish room. As
more is learned about our business, standards are changed to reflect that learning.
Standard Setting Is Part of Leadership
Studies have shown that the best managers are those who are themselves striving toward
goals and who can get employees to accept these goals. Standards of production and
service are goals. Trying to set realistic standards and getting an organization to live up to
them is a soul-wearing, ego-smashing, everlasting job—one that can destroy a manager's
faith in human nature if he fails to recognize that achieving standards is a major
responsibility of management, one that never ends.
Setting standards makes life easier for employee and manager. Supervision by coercion is
partly replaced by objectives to be reached by employees. Don't expect perfection. Expect
that you, the manager, will have to initiate standards and continually work to get
employees to accept them as goals.
CHAPTER
18
Control of Food Costs
Food accounting systems represent methods of accounting for food costs and not control
of food costs. Accounting systems aid in scientifically fixing prices and in pointing out
areas of high costs. These functions ought not to be confused with detailed procedures to
control costs.
Not so long ago operators were taking their total purchases for the month and dividing by
sales to find food cost percentage. Drawbacks to this were:
(1)
The operator never knew until the end of the month whether
his costs were too high—then it was too late.
(2)
The food cost thus obtained was a blanket percentage. It indi
cated whether costs had risen or fallen in terms of relative sales, but
did not tell what action could be taken to reduce costs. All foods—
meats, fish, fruits, vegetables, poultry, etc.—were lumped together. If
food costs were high the operator did not know what to do; if food
costs were low he did not know why.
The next development was to get cost information daily. To separate food purchases in
terms of time used a daily purchase journal was devised. This classified food into food
direct and store issues. The daily food cost, therefore, was the cost of the food that went
directly to the kitchen from the purveyor plus the cost of food issued to the kitchen from
the storeroom.
Under this system the owner or manager knew food cost the next day. He was thus
warned when yesterday's food cost was high, but the system still did not tell him where or
why it was high.
The next and logical step was to set up a daily cost system in terms of commodity
groupings. Purchases were separated into meats, fish,
211
212
How to Operate a Restaurant
poultry, fruits, vegetables, dairy products and groceries. At the end of any one day,
therefore, the owner knew his total food cost, the blanket percentage, and also the
detailed cost of each commodity grouping. This was obviously much better than the
blanket percentage methods, but brought on new problems.
First, in any one commodity group the cost rose or fell, depending on current prices and
seasons. Second, the price of any one item within the commodity group could change
while other items stayed fixed. Third, as relative sales of the group or any items increased
or decreased, the costs rose or fell proportionately.
Portion costing complete dishes
What was needed, then, was a method for relating costs of items to sales of items. The
first development along this line was costing and pricing complete dishes in terms of
portion cost.
The cost of roast beef per portion is determined by dividing the total cost by the number
of portions prepared after cooking, trimming, shrinkage, and bone losses have been
deducted. The total cost of potatoes is divided by the number of prepared portions in the
same manner. If the costs of a portion of roast beef and potatoes are 30 and 5 cents
respectively, the total cost is multiplied by 2Vi, or whatever figure will give the desired
food cost percentage, to obtain the selling price.
Unfortunately, if this is as far as the operator goes with his analysis, the resulting figures
are meaningless. True, at least some semblance of order has been achieved in terms of
daily costs and portion pricing, but there is no record of individual item sales—without
which the cost figures are not accurate.
To illustrate, if a 20 lb. round of beef is purchased at 60^ per pound, the total cost of the
beef is $12. If shrinkage and trimming loss is 25 per cent, 15 lb. of roast beef remain.
Cost then becomes 80 cents per pound. If portion size is 8 oz., the prepared cost per
portion according to this system is 40 cents, and the selling price for a 40 per cent food
cost would be $1.
Note, however, that a $1 selling price assumes sale of the entire 15 lb. of beef, or 30
portions. If instead only 22 portions are sold and no use is made of leftovers, the food
cost percentage of the beef is 54 per cent instead of 40 per cent.
Some operators say that this type of problem can be avoided by adjusting the multiplier.
That is if a 40 percent food cost is desired,
Control of Food Costs 213
multiply the food cost by 2.7 or 3 to fix selling price, instead of multiplying by 2.5.
Avoid pricing out of the market
The two chief arguments against this line of thinking are (1) the operator will price
himself out of the market, and (2) by adjusting the multiplier, the cost of poor
management is being passed on to the customer. If competitors are selling the same roast
beef item for $1 and another operator is attempting to get $1.20, sooner or later the latter
won't be selling any roast beef. The customer is interested in obtaining good quality food
at low prices. He is not interested in paying for the operation's leftovers. It is up to
management to adjust the demand for a product with the production by an adequate
system of sales analysis. This analysis can be and is made by analyzing waiter or waitress
checks, food checker sheets, etc.
This brings us to the second major development of totaling costs and sales of menu items,
the Horwath and Horwath system of food cost control. The system is based on relating
the sales and cost of each ingredient on the menu.
The authors state that in its practical application the primary purpose of food control is
not to reveal the exact cost of a ham and egg sandwich or a Virginia ham dish, but to
apply that portion of the selling price represented by an ingredient with the cost of the
ingredient to determine the return on each.
To illustrate, if an operator wishes to find out the cost of ham and egg sandwiches sold,
he would have to determine the quantity of the ham, eggs, and bread used for the
sandwich each day, then calculate the cost of each ingredient. After individual costs of all
ingredients and beverages have been computed, total costs are determined.
Following the same procedure for all menu items, the total returns for ham, eggs,
vegetables, potatoes, etc., can be determined and the cost of each ingredient easily
calculated by consumption figures. The system is fairly complicated but readily
understood with study. The Horwath and Horwath book of Hotel Accounting goes into
considerable detail on the system. The following summary offers a brief acquaintance
with their method of control:
1.
All ingredients are first divided according to the departments
where they are prepared.
2.
The ingredients are then placed in logical groups within each
department.
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How to Operate a Restaurant
3.
Departments included in the Horwath and Horwath system are
kitchen, pantry, pastry shop, bakery shop, ice cream shop, and dining
room butler.
4.
The total costs and sales are then subdivided into these six di
visions in the cost and sales records.
5.
Costs are summarized on a distribution sheet for daily food
costs. The details of the costs are taken from department requisition
forms which show cost of each item and total cost of all items. These
totals are checked and totaled for all departments, and the direct food
cost to the departments is verified from receiving records. Costs are
then summarized on the cost distribution sheet.
6.
Sales are summarized on the sales distribution sheet. Sales are
first analyzed on the basis of waiters' checks, with the number of por
tions of each dish sold, counted and inserted on the sales distribution
sheet. Total sales of dishes (number of dishes multiplied by selling
price) is then calculated and entered. Sales are next distributed to
proper ingredient items, and the net sales transferred to the next col
umn, totaled by groups, then departments. Finally, total is compared
with cashier's sales report.
The figures for costs and sales for the day are transferrred to the daily report and
summary where they are compared with costs and sales for the month to date and trends
noted.
Control costs in advance
The last food control system to be described here is that of Harris, Kerr, Forster &
Company. Up to this point we have been discussing control food costs after the costs
have been incurred. That is, we have set up a series of cost control measures that are
based on an analysis of costs in the past. We study our costs in the past, find out why
these costs have gone up or down, then install correct procedures, techniques, and
methods to reduce costs.
Harris, Kerr, Forster & Company noted that all operations must prepare menus at least
two or three days ahead. Since the menu is known in advance, why not figure out how
many portions of each item are probably going to be sold, and how much it is going to
cost? This method gives estimated costs and profits two or three days ahead of time to
permit control of costs and therefore of profits before and not after the food is sold.
This system, therefore, is divided into two major categories: a forecast of estimated sales
and a forecast of estimated costs.
Control of Food Costs 215
To forecast estimated sales, forms are set up to permanently record:
1.
The volume of business at breakfast, lunch and dinner.
2.
Number of portions sold of table d'hote, specials, and a la carte
items.
3.
The date, day, weather, house count, special events, and num
ber of patrons.
4.
The ratio of each entree sale to total sales.
From these records and others, days and periods of good volume, customer likes and
dislikes, and the popularity index of each food item are computed. The usual procedure
after this information is gathered is to begin eliminating less popular items, then
forecasting estimated sales of menu items two or three days ahead.
To precontrol food costs:
1.
Standard purchase specifications are set up, giving definite
grades, sizes, weights, quality, numbers, etc., of each item on the
menu.
2.
Standard recipes are set up for each menu item.
3.
Standard cookery and processing procedures are set up.
4.
Standard portion sizes are fixed.
5.
Standard portion-cost factors are determined by dividing the
original purchase price per pound (or other appropriate measure) into
the cost per saleable pound.
The cost factor is used to precost the menu. Current market prices are multiplied by the
cost factor per pound per portion to precost the menu.
Daily Comparison
A menu precost and the forecast of sales is made up the day before and this is compared
with the actual costs and sales the next day. If all of management's decisions regarding
purchasing, processing and serving are carried out, there should be very little discrepancy
between the forecast and actual costs, and the discrepancy can be measured.
A more detailed account of this system can be found in Profitable Food and Beverage
Operation, edited by Joseph Brodner, Howard M. Carlson and Harry T. Maschal of
Harris, Kerr, Forster & Co.
Seventy-five Basic Causes of High Food Cost
In the first section of this text are four basic causes of failure in the restaurant industry. At
the head of this list is lack of knowledge regarding food. Evidently the food service
industry is the only field that
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How to Operate a Restaurant
the general public believes can be entered with little or no training. A study by the United
States Department of Commerce of new stores established since 1942 showed that
relatively few operators had even attempted to analyze whether an opportunity to succeed
was present.
Walk up and down any business street of any city in the United States. You will find one
restaurant for about every 750 persons. People seem to think that because they can cook
at home they can cook for the public, that because they like to meet people or understand
bookkeeping they can succeed in the difficult job of restaurant management. As long as
the public believes that a person can open a restaurant without a thorough knowledge of
menu preparation, food purchasing, receiving, storing, issuing, preparing, serving, and
selling, without understanding people and business, and unaware of the complex
changing environment, that long will the restaurant industry have this high a percentage
of failures.
The restaurant business is very hazardous, not only because of its extraordinary
complexity, but also because of the differences that exist between it and other retail
operations. The chief difference between the goods sold in other industries and goods
sold in the restaurant industry is that the product sold is food, and food is perishable. This
difference accounts for the majority of failures.
A dress manufacturer, for example, may have problems regarding changing styles—
hemlines go down an inch one year and up 3 inches next year; public tastes and opinions
change and the product that was in style a season ago is not in style now.
However, tastes and fashions in other fields change with comparative slowness. The food
industry, on the other hand, must change menu items daily. The public demands fresh,
high quality food every day of the year.
Notice also that whereas in other industries the main problem is inventory control—
relating size of inventory with demand for goods— the food service operator not only
must worry about the size of his food inventory and the fact that potatoes will rot, lettuce
will wilt, milk will sour, and cheese and butter turn rancid; he also must worry about the
fact that once he processes the raw material he must sell it immediately or try to use it as
leftovers tomorrow. Once prospective food service operators realize that the product they
serve is perishable in its raw state and perishable in its processed state, they can begin to
understand why so many operators fail.
The problem of food and food cost has many dimensions. The sueControl of Food Costs
217
cessful operator must consider in detail every aspect of food from the time it leaves the
purveyor until it reaches the customer. No detail can be omitted.
Listed below are seventy-five basic causes of high food costs. The list is an organized
digest of replies given by the successful operators who were questioned during
management study interviews. Although some of the reasons enumerated will not apply
to all restaurants because of the operating differences that exist among the various type
food service operations in the industry, the condensed summary will provide a valuable
checklist for individual management use.
Major Area Causes of High Food Cost
Menu Planning
1. No consideration of the time of day, day of week, holidays,
weather, temperature
2.
Poor format—the menu is not clean, understandable,
or dramatic
3.
Too many or too few items on the menu
4.
Monotonous menu
5.
No balance between high and low cost items for
higher average check
6.
Poor promotion of low cost items
7.
No consideration of food supplies available on the
market
8.
No thought to the appearance and conjunction of the
food on the plate
9.
Poor pricing of menu items
10.
No consideration of type and amount of labor re
quired for various menu items
11.
No consideration of type and amount of equipment
needed to process the menu items
Purchasing
12. Purchasing too much
13.
Purchasing for too high a cost
14.
No detailed set of specifications governing quality,
weights, types, etc.
15.
No competitive purchasing policy
16.
No centralization of purchasing power and responsi
bility
17.
Poor relationship with purveyors
18.
No cost budget for purchasing
19.
No audit of invoices and payments
20.
Use of fixed instead of flexible standing orders
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How to Operate a Restaurant
21.
Speculative purchasing
22.
Graft between purchasing agent and purveyors
23.
Theft by receiving man
Receiving
24.
No check on prices, quality, or quantity
25.
No system of obtaining credit for damaged goods or
goods not received
26.
No checks on receiving methods and procedures
27.
Lack of facilities such as scales
28.
Poor receiving equipment
29.
No record and subsequent check on goods received
30.
Perishable foods left out too long before storing
Storing
31.
Food placed improperly in storage areas (e.g., fats,
eggs, and milk near strong cheese and fish)
32.
Stored at wrong temperatures and humidity
33.
No daily inspection of foods stored
34.
Poor sanitation in dry and refrigerated storage areas
35.
Theft in storeroom
36.
No periodic report of dead stock or record of inven
tory turnover
37.
No physical or perpetual inventory
38.
No policy of one man's responsibility for food stor
age and issues
Issuing
39.
40.
issues
41.
42.
No control or record of foods issued from storeroom
No authority or responsibility for requisitions and
Careless pricing of issues
No forced issues
Preparing
43. Poor or no mechanical equipment for boning, slicing,
cutting, carving, trimming, and peeling
44.
Excessive trim of vegetables and meats
45.
No check on raw yields
46.
No use of end products for production of low cost
meals
Processing
47.
Over production
48.
Using wrong methods of cooking
49.
Cooking at wrong temperature
50.
Cooking too long
Control of Food Costs
219
Service
Sales
Controls
51.
Faulty scheduling of food to be processed (too early
—too late)
52.
No use of standard recipes
53.
Faulty and/or dirty equipment
54.
Not cooking in small batches when possible
55.
No standard portion sizes
56.
No standard size utensils for serving
57.
No care of leftovers
58.
No record of food served or leaving the kitchen
59.
Delay in bringing food to the customer
60.
Carelessness (spillage, waste, etc.)
61.
Waitress theft
62.
Cashier theft
63.
Carelessness with "walk-outs"
64.
No food popularity index or comparison of sales and
inventory consumption
65.
No sales records to detect trends
66.
Unattractive food, poorly served in a dirty atmos
phere
67.
Poor promotion and advertising (internal and ex
ternal)
68.
No audit of daily sales (register readings, waiters
checks, food checker reports)
69.
No forecast of sales or cost budget
70.
No record of price trends (best times to buy)
71.
No checks on authority and responsibility of per
sonnel
72.
No control through the use of forms
73.
No use of systematic procedures and policies for
control purposes
74.
No accounting for employee and officer meals
75.
No control of facts
CHAPTER
19
The Profit and Loss Statement
Definition and purpose
The profit and loss statement is a financial summary of the money or claims for money
received by a business unit and the cost in terms of money to produce the goods and
services that a business unit sells during the accounting period. The basic purpose of the
statement is to present management with an analysis of the business changes that have
taken place from one balance sheet to another.
This financial record should not only provide management with a detailed summary of
sales and costs, trends of business volume and expense, but also give each operator a
comprehensive report of managerial efficiency and responsibility, an accurate measure of
the various revenue producing departments' productivity, a break even point and a closing
point of operations, and a host of other aids to use for increased over all effectiveness.
Unfortunately the design and format of the typical profit and loss record makes it difficult
if not impossible to use as a major management tool. Customarily, different type sales or
costs are grouped together in such a manner that the important information is distorted or
completely hidden. The only use a financial statement of this type may have for a
manager is to provide him with a record for income tax purposes.
Effective format and design
There are three basic rules that can be used by any operator to materially increase the
usefulness of the profit and loss statement. These are:
220
The Profit and Loss Statement
221
1.
All operating expenses should be placed into two broad classi
fications: controlled and scheduled expenses.
2.
In order to compare the relative productivity of revenue pro
ducing departments, the revenue and cost of goods or services
sold and other direct departmental costs should be distinctively
grouped and kept separately classified by departments.
3.
To provide exact measurements of changes in sales or costs,
columns for comparative analysis should be added to the for
mat. Space should be provided so that each major cost figure
can be compared both as dollar amounts and as percentage of
sales.
Explanation of Format
The reason that the term "period" is used instead of current month, current quarter or year
is that restaurant operators use various accounting cycles. A profit and loss statement may
be made annually, bi-annually, quarterly, monthly. The principle disadvantage of an
annual statement as opposed to the monthly is that the pertinent information comes too
late to be of any value. For this reason, also, a monthly statement is illustrated. (See
following pages.)
This statement compares February's operation with January's. An accounting cycle of 4
weeks is much more valuable for the simple reason that a 4 week cycle would contain the
same number of days and the same number of week ends and week-days. Thus, for
comparative purposes one accounting period is comparable with the other and trends in
sales or costs are determinable and predictable.
The sales percentages were obtained by dividing each departmental sales figure by the
total sales figure. For example, the 74 percent food sales figure was obtained by dividing
$30,000 food sales by 40,500 total sales.
The cost of sales and the departmental payroll percentages were obtained by taking the
cost of sales and the direct payroll figures of each department and dividing each figure by
the sales of the department involved. For example, the $12,000 food cost was divided by
the 30,000 food sales to obtain the 40 per cent food cost. Similarly, the food departments
direct payroll of 6,000 was divided by food sales, 30,000, to obtain the payroll cost
percentage shown—20 per cent.
All other percentages were obtained by dividing each expense figure by total sales.
In the sales row the department shown as "other" represents any one
222
How to Operate a Restaurant
of the various revenue producing departments (including food and liquor) that may be
found in larger restaurants. Examples of other revenue producing departments may be
cashier's sales (the sales of gum, candy, cigarettes, etc.), gift shops, take-out departments
such as frozen food, bakery, boxed candies. The principle emphasized here is that the
only way to judge any revenue producing department's profitability is to keep
departmental sales separate from total sales and departmental costs separate from total
costs.
Statement analysis
Notice that the departmental sales figures give management considerably more
information than the gross sales figure alone can give. The gross sales figures point out
that sales have dropped $1,500 in February compared to January's operation. Thus, gross
sales data only reveals trends in total sales. The departmental sales figures, however,
show a $2,000 loss in food sales, a $1,000 increase in bar sales and a 100% increase in
other sales. This specific information pinpoints a definite area. In contrast to the general
information provided by gross sales figures, the departmental data tells the manager not
only what happened but where.
Knowing the area of trouble, the manager can now direct his attention to the proper
revenue producing department and discover the cause for drop in sales. Did sales drop in
the food department because of poor quality food, a change in menu prices, poor service,
inadequate promotion? Now that we know where to look, we can find what the trouble is
and eliminate it.
Departmental Productivity
To determine the relative productivity of each revenue producing department is also very
simple with this type statement. The total columns point out that up to this time in the
current accounting period the food department has accounted for 75 percent of the gross
sales; the bar, 23 percent of gross sales and other sales were less than 2 percent. The costof-sales section in the to-date columns reports that in order to obtain $100 worth of sales,
the food department spent $41 for food, the bar only $29 for liquor and the "other"
revenue producing departments $50. Stated simply, for every $100 sales the food
department contributed $59 to the gross profit, the bar $71 and the "other" revenue
producing department only $50.
The Profit and Loss Statement
223
The figures become even more practical and interesting when the direct labor cost of each
department is added to their respective cost of sales. For every $100 sales, after cost of
sales and labor are deducted, the food department contributed only $40 to pay for other
expenses, the bar $61 and the "other" revenue producing department only $27.50. The bar
is obviously the most productive and the "other" revenue producing department the least.
The cost of sales figures in the February and January columns emphasize the importance
of the bar to gross profit. Although bar cost for February was 2 percent higher than
January, an 11 percent increase in sales resulted in an additional $520 bar contribution to
gross profit —almost 21 percent higher than its previous base.
Each restaurateur has his own ideas on policy formulation. One may want to emphasize
food sales and another to emphasize liquor sales. Whatever the case may be, the
comparative operating statement points out that if promotional costs are the same for both
the restaurant and the bar, the gross return on advertising expense necessary to create an
additional $100 sales is $40 from food sales and $61 from bar sales.
Gross Profit
Although a $1,500 decrease in sales was recorded in February, the gross profit percentage
figure shows an increase of 1.8 percent. Generally, the reverse is true—as sales decrease,
expenses increase. What happened in this operation that created an increase in potential
profit? Was it due to the manager's ability? Was it caused by a shift in sales? If the cause
for the increase is determinate, we may be able to duplicate the condition again.
Since gross profit is the deduction of cost of sales from sales, an analysis of changes in
gross profit involves an analysis of changes in sales and in cost of sales. In this case,
February food sales were $30,000 and food cost was 40 percent or $12,000. If the
manager had not actively intervened, the food cost percentage for February would have
been 42 percent or $12,600. One reason for the percentage increase of gross profit
therefore is the additional $600 saved from cost of food.
February's bar sales increased $1,000 over January and bar cost rose to 30 percent during
the same period. The bar sales and cost figures show, however, that the net bar
contribution to gross profit in January was only $6,480 compared to the $7,000
contribution made in February. Consequently, gross profit was increased by $520.
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How to Operate a Restaurant
Departmental Performance Standards
The calculations above bring us close to a subject dear to the hearts of many competent
restaurant operators—the establishment and maintenance of proper departmental
standards. On the basis of the operating statement shown, for example, what should the
food cost percentage be? As an owner, should we ask the manager to maintain a 40 per
cent food cost, a 42 per cent food cost, or take the average of 41 %?
Closer study of the profit and loss statement shows that during February when food costs
were 42 per cent, sales were $32,000. In January, however, a 40 per cent food cost
grossed only $30,000 food sales. Is this information significant? Which is better for the
operation, $32,000 sales volume at 42 per cent or a $30,000 volume? Dollar-wise, the 42
per cent cost contributes $18,560 to gross profit and the 40 per cent cost contributes only
$18,000, a difference of $560 a month.
The problem of determining the proper standard, therefore, is to determine what caused
the decrease in sales. Did food sales drop because there was a change in menu pricing, a
shift from larger to smaller portions, a change in quality? Almost anyone can reduce costs
in this manner. The wise owner, however, concentrates on reducing costs but maintaining
or increasing sales. It is possible for an operation to have a 10 per cent food cost.
However, what good is a low food cost percentage if there are no customers?
Looking at the statement, we can't say that food sales dropped because of local economic
conditions. Why did the sale of liquor increase? In any event a standard cannot be
determined until the cause for sales decrease has been discovered. If a 40 per cent food
cost was the result of elimination of theft, poor purchasing, receiving, preparation habits,
perhaps the 40 per cent food cost can be made a standard for the department. However, if
a lower food cost means poorer quality food, smaller portions, higher prices, the 42 per
cent is a much better standard.
Bar Standards
The bar figures present an interesting contrast to the food figures. As the cost of the
liquor sold rose from 28 per cent in January to 30 per cent in February, sales volume
increased from $9,000 to $10,000. Dollar-wise this rise in sales accounts for an additional
$520 contribution to gross profit. Two per cent rise in liquor cost is equivalent to $200
extra cost on the basis of $10,000 sales volume. Perhaps it is
The Profit and Loss Statement
225
wise to serve better drinks at a lower price, thereby increasing costs $200 if we can also
increase gross profit $520. Only a detailed examination of the cause for sales increase can
aid us in determining the proper bar cost percentage.
Payroll Standards
The direct labor costs of the food department presents no particular problem in this case.
If, during the month of January, the food department could prepare and serve $32,000
worth of food with a direct labor cost of 18 per cent, and if, during that time, there were
no guest complaints regarding service or food, there is no reason why this department
could not serve 30,000 at approximately the same percentage.
In justification to the manager's efforts, mention should be made that he evidently did
reduce the dollar amount of his payroll. As sales decreased during the month of February,
he reduced his payroll by $760. True, this is 20 per cent of food sales. However, if he did
absolutely nothing, the payroll percentage would have been 22V^ per cent.
This is one of the cost areas that creates a particular problem to the sophisticated
operator. It is difficult to set a standard for all levels of sales. The problem of
performance determination is complicated not only because of the amount of sales aids in
setting equitable standards but also because the direction of sales is a determining factor.
If sales increase, the labor cost percentage should go down, if for no other reason than the
fact that all the employees in a restaurant are working at maximum productivity most of
the time. On the other hand, as sales decrease, the alert operator can change time off,
stagger schedules, split shifts, employ part-time help, dismiss other employees, yet
invariably if he was operating at peak levels, labor cost cannot decrease in identically the
same proportion as sales. Consequently, if an 18 per cent direct labor cost is determined
as the proper performance standard for the food department, the manager will find it
relatively easy to maintain this percentage if sales are moving upward and extremely
difficult to maintain if sales move downward. In the first instance, with sales volume
increasing, we are giving the manager undue credit for maitaining the "status quo" and in
the second case not enough credit for almost perfect performance.
Ideally, with young growing operations not one, but several, performance standards
should be determined for each significant change in sales volume. If the standards are
determined correctly, they become
226
How to Operate a Restaurant
a major tool of management and an invaluable aid to the owner in forecasting and
budgeting future labor expense.
Percentages
A blanket percentage figure such as 30 per cent labor cost for the entire operation is
generally useless as a management tool. A blanket percentage figure tells what happened
but does not tell who created the cost, was it necessary, where was the cost incurred.
Notice that percentages alone do not tell the entire story. Percentage data must be
compared to the dollar value. In the food department's payroll, for example, the labor cost
percentage shows a rise of two per cent. However, when these are compared with the
dollar value of the payroll, the manager effected a savings of $760.
Several items on the statement do not have percentage values. The reason for this
omission is to illustrate that any percentage figure used must be of value to management.
If a manager cannot use the information, there isn't much sense of incurring expense to
accumulate data that is not or cannot be used to tighten the control of the operation.
For this reason, also, several percentage figures shown were not carried out to the last
decimal point. Why should any figure including percentages always total 100 per cent?
What good does it do management to know that a certain expense varied one hundredth
of a percentage point?
The percentage figures shown in the scheduled expense columns are also meaningless
from a comparative standpoint. Since all of the expenses are fixed dollar-wise, a
percentage fluctuation of 100 per cent is indicative of a sales volume increase or
decrease, not a fluctuation in cost.
Management Index of Effectiveness
This statement is deliberately designed to record and emphasize those costs that can and
should be controlled by competent management. In addition to the item, cost of sales, all
expenses listed under the heading Controlled Expenses can be controlled and should be
the main responsibility of the manager. His effectiveness in operating a food service
operation can be measured accurately and definitely in direct proportion to his ability in
increasing his sales and reducing the cost of sales or any excessively high controllable
expense.
Below the controlled expense category are scheduled expenses. This
The Profit and Loss Statement
227
classification includes all expenses that, because of some law or prior agreement with
outside agencies such as local and state governments, banks and landlords, are relatively
fixed and predeterminable. The time to consider these expenses is before they are
incurred. After a law has passed or a ruling has been made regarding valuation of real
property, licenses, taxes; or when an agreement is reached concerning the amount of rent,
depreciation, insurance, or interest expense, the cost passes beyond the immediate control
of the operating manager.
The immediate value of this classification is that any owner can glance at his statement
and know instantly how productive he or his manager is. Without this classification of
expense the costs that are a manager's responsibility are distributed over the entire profit
and loss statement. With the customary format one item of cost is pointed out at a time
and then another cost is located and discussed. This is not only time consuming but
indicates disorganization and faulty cost distribution.
A profit and loss statement should not only dramatically emphasize those costs that are
the manager's responsibility but also provide him with an accurate index of his ability as
the operating head of his unit. The classification of expenses as shown in the illustrated
operating statement will achieve both those objectives.
The most significant features of the operating statement are not that they provide a record
of sales and costs—more important than this is the fact that the sales and costs have been
pinpointed, summarized in a single, easily comprehensible digest for evaluation and
spotlighted as the sole responsibility of the operating manager.
Once the competent operating manager realizes that these records provide the owners
with a comprehensive index of his ability and make him solely responsible for abnormal
fluctuations in sales, food, labor, and other controllable costs, he will use these statements
as valuable, additional tools to increase his efficiency and to assure the success of the
food service operation.
CHAPTER
20
Let Your Profit and Loss Statement Work for You
The preceding chapter described how the incorporation of three basic rules transformed a
simple one-page financial statement into a dynamic management tool. Mention was made
of the importance of the organized data not only in determining managerial efficiency
and departmental productivity, discovering reasons for sales and cost fluctuations, and
establishing forceful sales promotion campaigns but also planning expense programs.
This section elaborates on the theme of planned expense and points out the enormous
value a properly designed comparative operating statement can have for any food service
operator.
The importance of a planned expense program cannot be overemphasized. Many
successful food service owners throughout the United States are operating with a
satisfactory profit margin because they analyze the expenses of the past period, determine
the reasons for the cost's existence and institute cost control systems that are designed to
reduce or eliminate those costs. In essence the planned expense concept states that the
time to control or eliminate costs is before the costs are incurred, not after.
This is a vital distinction. In times of severe competition or economic depression, the
difference may mean survival or bankruptcy!
If we agree that it is wiser to direct our efforts so that costs are eliminated or controlled
before instead of after they are incurred, then we are simply saying that a system of
information must be installed that will enable us to predict the minimum necessary
expense at each variation in sales level and to create a planned program of budgeting
based on this determination.
Can this system be installed?
Will it be practical in terms of time, effort, and expense?
Will the system do what it's supposed to do?
228
Let Your Profit and Loss Statement Work For You
229
The answer to all of these questions is "yes." Not only can it be installed, but in all
instances where a properly designed profit and loss statements exists, the system has been
installed!
To plan expenses properly we must know the answers to three important questions:
1.
At what level of sales will the revenue obtained from sales equal
the total costs—how many sales dollars must be obtained before
I begin to make a profit?
2.
At what level of sales will the revenue obtained from sales equal
the additional amount of money spent to obtain the sales
volume—how much additional money must be spent in order
to open my doors for business on any one day?
3.
At what level of sales will my profit be $100, $200 or any given
amount—with the existing cost structure how much sales volume
do I need to make a given amount of profit?
The first question is answered by the break-even point. This point is defined as that level
of sales volume where total sales are equal to total cost. Every operation has a break-even
point. At that particular sales volume, since every cent that comes into the operation as
sales goes out of the operation as costs, there are no profits and no losses.
If sales drop below this point for a sufficient period of time, the operator will lose his
business. If sales are higher than the break-even point, he will make a profit. Finally, all
things being equal, the higher sales volume is above this point, the greater the amount of
profit that will be gained from operations.
There are many formulas for determining the break-even point. All the formulas,
however, require detailed analysis of fixed, variable, and semi-variable costs. This
analysis examines the relationship of each cost to sales. If costs stay the same as sales
fluctuate, they are called "fixed." If the costs vary in the same proportion and direction as
sales, they are called "variable." If the costs vary in the same direction as sales volume
fluctuates but not in the same proportion, they are called "semi-variable."
The following example should make this clear.
January
February
March
Sales 10,000 15,000 8,000
Food cost
4,000 6,000 3,200
Labor cost
Rent 500
2,000 2,700 1,760
500
500
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How to Operate a Restaurant
In the example preceding food cost is a variable cost. As sales increased in February and
decreased in March, food costs not only moved in the same direction—an increase in
February and a decrease in March—but also moved the same, proportionally. In each
instance food cost is 40 percent of sales.
Labor cost is a semi-variable cost. As sales increased and decreased, labor cost fluctuated
in the same direction; however, not in the same proportion. The labor cost in January is
20% of sales; in February, 18% of sales, and in March, 22% of sales.
Rent expense remained $500 a month regardless of the changes in sales volume.
Therefore, rent is a fixed expense.
A formula for determining the break-even point of an operation is:
Fixed costs + semi-variable costs + variable costs = total cost =
break-even point. Substituting identifying letters: FC + SVC + VC = TC = BP
Within a given range of sales, if an operation had the following average cost schedule:
FC = $500, SVC = $1,000 and VC = 50% of sales, the break-even point could be
determined in the following manner: $500 + $1,000 + 50% = Total Costs = 100% =
breakeven point; we can eliminate TC and BP because things equal to each other are
equal to the same thing. In this case, finding 100% is the same as finding TC or BP
because both TC and BP are equal to 100%.
Consequently, $500 + $1,000 + 50% = 100%
and
$500 + $1,000 = 100% - 50%
$500+ $1,000 = 50% $1,500 = 50% therefore $3,000 = 100% = total cost = breakeven
point
Although the formula is relatively simple to work mathematically, its apparent simplicity
is very deceptive. The principal difficulty in
To prove the correctness of the formula insert sales levels above, below and at the
breakeven point. Above the breakeven point there should be a profit; below, a loss; at the
breakeven point, neither loss nor profit.
Let Your Profit and Loss Statement Work For You
231
applying any formula is encountered in determining the exact nature and relationship to
sales of every expense itemized on the Profit and Loss statement.
Food cost, for example, is considered by many to be a variable cost. But is it? At a given
level of sales, say $10,000, food cost may be 42% or $4,200. However, as food sales
increase, food cost will not necessarily rise proportionally. At a sales volume of $15,000
for example, the food cost could drop to 40% or $6,000 because of less waste, better
utilization of food, a shift to heavier specifications for various food items, proportionally
less cost for employee meals and other reasons. In the same manner, as sales drop, the
dollar amount of food costs should drop, but percentage-wise food cost may very easily
rise. Consequently, in a practical sense there are no strictly variable costs in a food
service operation.
The analysis of semi-variable costs brings up other problems. Labor cost, for example,
will stay fixed for a given range of sales. Thereafter, because labor is employed up to
maximum productivity, any increase in sales will bring a disproportionate increase in
labor cost.
To illustrate, suppose I have 4 waitresses that I am paying $1 an hour and each waitress is
capable of serving 20 customers, during a one hour period. My average check per
customer is $1.50. If in any one hour my sales are $120, my waitresses are working at
maximum productivity, for each waitress can produce 20 times $1.50 or $30 in
sales. Under these conditions my labor cost is 4/$120or 3⅓ percent.
If my sales drop to $95, I will still need 4 waitresses, therefore my labor cost is still $4 an
hour and my labor cost percentage becomes
4/$95 or 4.2%. If sales increase to $125, I will need another waitress,
for each waitress can handle only 20 customers. Consequently, my labor cost percentage
will shift to 5/$125 or 4%.
The specific problem illustrated above asks the question—if you were trying to determine
the breakeven point of this operation, what figure will you insert in the semi-variable cost
section of the formula? The dollar figure or the percentage figure? If you use the dollar
figure, which figure should you select? If you use a percent figure, which percentage will
you choose?
There is an answer, but as you can see, the determination of the exact figures or
percentages can be quite complicated. Is this intensive study of costs and its relationship
to sales worth the time and effort
232
How to Operate a Restaurant
of the manager? Yes, it has enormous value in planning an expense program, but is of
little or no consequence in determining the breakeven point.
There are two reasons why the average operator should not use the formula. First, the
formula method of determination is only an average. Certain cost or percentage figures
will be used because they are typical. Secondly, there is a much more simple method of
determining the break-even point.
The profit and loss statement can give you the same information in a few minutes with a
greater degree of accuracy than a formula. All a manager needs is several consecutive
profit and loss statements of his operation, a sheet of graph paper, a ruler and a pencil.
To illustrate, suppose that the following figures were obtained from your profit and loss
statements and you wished to determine a daily break-even point for your operation:
January
February
March
Monthly sales 8,525 8,540 10,850
Number of operating days
31
28
31
Average sales per day 275 305 350
Monthly profit 775
980
1550
Daily profit 25
35
50
All the steps taken to arrive at the breakeven point are listed below in proper sequence
and illustrated on figure I.
1.
Place a zero at the lower left hand corner of the graph paper.
2.
Since $350 is the largest sales volume in this operation, start at zero
and plot $350 horizontally. In this case, each square represents $5,
therefore $350 equals 70 squares. This is your sales scale.
3.
Beginning at zero again, plot $350 vertically. This is the cost scale.
4.
At right angles to the horizontal and vertical $350 figures draw a
straight line to the point "S" where they will intersect.
5.
Connect "S" and "O" by drawing a straight line through these two
points. This is the sales line "OS". For example, a hundred dollar sales
figure can be illustrated by placing a point at "L" shown on the graph
and reading down to the sales scale.
6.
Since a daily breakeven point is required, plot the average daily sales
of $275, $305 and $350 as points on the sales line. On the graph they
are shown as Si, s2 and s3 respectively.
7.
Deduct the amount of average daily profit from the sales of the same
period by counting straight down from their respective sales the num
ber of squares equivalent to the dollar profit. For example, when
average sales were 275, average profit was $25. Since each square is
Let Your Profit and Loss Statement Work For You
233
equivalent to $5, a point was placed five squares directly below its respective sales point.
See Pi.
When all the profit points have been plotted, draw one straight line as close to or
connecting all points. Extend the line from the right side of the graph to the scale on the
left. This is a profit-cost line "PC". The squares below the line measure total costs at
varying volumes of sales. The squares above the line to the sales line measure total
profits at varying sales volumes. However, the number of squares do not have to be
counted. For example, at sales of $305 point s2 on the graph, costs are at p2 and p2 is on
the $270 line on the cost scales. Therefore, costs were $270 and profits were $35.
150
200
SALES SCALE
10 SQUARES TO THE INCH
Notice at the $200 level of sales and costs the two lines, sales and profit-cost, intersect.
At that point there are no squares above the PC line and below the sales line, therefore,
there are no profits at this
234
How to Operate a Restaurant
sales volume. Also, the cost scale indicates that at $200 sales total costs are $200.
Consequently, at this point of sales volume total sales are equal to total costs. The
breakeven point for this operation then is $200. The breakeven point for any operation is
that point where the profit-cost line intersects with the sales line.
The graph of the breakeven point of an operation provides considerable information to
the owner. On the basis of any forecasted level of sales he can immediately see how
much profit he will obtain, what his total costs should be in order to make this profit.
Because of this knowledge he can plan an accurate expense program and determine
performance standards for various cost and sales areas.
He also knows that under the existing cost-revenue relationships if sales drop for a
prolonged period of time below $200, the breakeven point, he will fail in his business
venture.
In addition he can see on the graph a visual presentation of what will happen under
various hypothetical conditions. For example:
Situation I:
The owner plans to increase advertising expense $150 a month for three years. His sales
volume is now $275.
Typical questions:
1.
What will happen to his breakeven point?
2.
How much increase in sales is needed to justify the expense?
Answers:
1.
His breakeven point will change from $200 to $215.
2.
At a minimum, sales should increase $15 daily.
Solution:
1.
To determine the change in breakeven point, consider the new cost.
His proposed spending is $150 a month or approximately $5 a day. But $5
is an additional cost therefore it is a deduction from profit. Since profit is
measured from the sales line to the profit-cost line and each square is valued
at $5, the distance between the 2 lines must be shortened by one square.
This is shown as point 1 on the graph (Fig. 2). From point one, if a straight
line is drawn (2) parallel to the profit-cost line, it will intersect with the
sales line at point 3. The intersection of the two lines marks the new break
even point, in this case $215.
2.
In the past, at the $275 level of sales profit was $25 without the addi
tional advertising expense. Therefore, at a minimum, sales must increase
so that at least the cost of advertising is absorbed and daily profits are $25.
Considering the new profit-cost line as the line that would exist if advertising
is increased, sales must reach at least $290, for only at the sales level are
Let Your Profit and Loss Statement Work For You
235
profits $25. (Measure distance between point 4 and price-cost line (2) on graph.)
Situation II:
The owner believes that if he were to install a tighter control system, he could maintain
the same level of costs even if sales were to increase $600 a month or approximately $20
a day.
50
IOO
150
TOO 250
SALES SCALE
10 SQUARES TO THE INCH
300
350
Typical questions:
1.
What change will occur in the breakeven point?
2.
How much additional profit will be gained?
Answers:
1.
The new breakeven point will change to $142.50—a difference of
$57.50.
2.
As long as the cost figures remain proportionally the same, the amount
of additional profit will be $20 daily.
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How to Operate a Restaurant
Solution:
1. The new breakeven point may be determined by considering the relationship of cost to
sales. Since costs are going to be maintained at the same level, the price-cost line will not
change. At the former $275 sales volume, the owner believes that he will obtain $20
more sales daily at the same cost, $250, see (5), therefore $20 is added to the sales line at
that cost point, see (6). If a line is drawn from point 6 parallel to the sales line, it will
intersect at 7, the new breakeven point.
There are many possible situations involving the use of the breakeven point in the
specialized food service industry. Perhaps one of the most interesting uses to prospective
buyers of restaurant operations is the demonstration of the feasibility of purchasing or
building an operation.
Let's assume that a prospective owner plans to build a food service facility and wishes to
investigate the feasibility of his action. Analysis of various contractors', jobbers',
equipment dealers', estimates indicate that total investment in the proposed operation will
be $100,000 for the building, fixtures and equipment. The owner desires a net profit
before income taxes of 20 percent of his investment or $20,000 annually.
1.
What is the minimum sales needed to break-even?
2.
How much volume must be obtained to earn $20,000 annually
in the form of net profit before taxes?
Solution:
Based on his previous experience and an investigation of typical operating costs in the
area, the prospective operator determined that the following estimates of costs should be
correct.
Estimated Profit and Loss Statement
Recovery of principal (annual depreciation) 10,000
Food Costs 40%
Labor Costs 28%
Administrative Costs 7%
Supplies
3%
Repairs and Maintenance
2
Legal and Auditing 1
Utilities
2
Advertising 2
Other Costs 3
I. Total costs 88% plus 10,000
Profits before taxes 20,000
II. Grand total, costs and profit
88% plus 30,000
Let Your Profit and Loss Statement Work For You
237
Since the breakeven point is that point in sales volume where total costs equal total sales,
the breakeven point is equal to the total costs without consideration of the profit figure.
The total costs of this operation are 88% plus 10,000 (see I above);
therefore
88% + 10,000 = Total costs = Breakeven point
and
88% + 10,000 = 100%
consequently 10,000 = 100% - 88%
or
10,000=12%
and by dividing 10,000 by 12% $83,333 = 100% = annual breakeven point
To determine the sales volume required to obtain $20,000 annually in the form of net
profit before taxes with the existing cost schedule, profit must be added to the total cost
figures. Because total costs plus profit is 88% plus 30,000 (see II above), total sales must
equal 88%, plus 30,000;
therefore
88% plus 30,000 = total sales required
and
88% + 30,000 = 100%
consequently 30,000 = 100% — 88%
or
30,000=12%
and by dividing
30,000 by 12%
250,000 = 100% = total sales needed to obtain
$20,000 net profit before income tax
Is the prospective owner's plan feasible? The practicability of his plan will depend on the
sales potential of the area. The analysis above states that with the existing cost structure,
the operator will need $83,333 sales annually just to break even. He must obtain a
minimum annual sales volume of $250,000 to make the profit he desires.
Knowing the annual sales volume required, the operator can now make a detailed
analysis of sales potential in the area. By studying the direction, density, duration, type,
sex, age, and income levels of the traffic at the proposed site, and investigating the past
sales history of the particular neighborhood and relating this information to the average
check, the type of menu and services he plans to offer his patrons, the number of
operating days, he will be able to determine whether he should begin building or find
another location.
CHAPTER
21
The Dynamics of Accounting
History
Long before the birth of Christ, the Phoenician, Roman and Greek businessmen were
devoting a definite period of each day to the time-consuming task of recording every
transaction that affected their business on the pages of a simple record now called a
journal. Sometime during the Middle Ages or before, the Italians discovered a more
workable system of accounting called "double entry" bookkeeping. In 1494 Luca Paciolo,
an Italian monk, wrote the first publication of its kind describing the features and
practices of accounting in "the Italian manner."
Evolution
Since those early days the rules and procedures derived from trial and error have been
subjected to constant research, study, and change. As the need for more and more
detailed recording systems grew, a body of accounting theory was created to explain and
modify the existing rules and procedures. Each additional rule, explanation or
modification of an existing principle brought with it an attendant annoyance and
confusion to the untrained observer.
Evaluation and Misunderstanding
Since accounting principles and practices change as the need for greater detail or
additional information regarding revenue, expenses, profits, production, auditing, cost
and budget is requested, there is no basic or universal theory in accounting. This lack of
exactitude and the constant additions, deletions, and interpretations of accounting
principles require considerable academic training and experience in
238
The Dynamics of Accounting 239
accounting that the average owner of a business is not willing to obtain.
In self-defense most of them regard figures and accounting as a "dry" subject. The
operator of a small restaurant feels that there are too many more important managerial
problems to resolve such as food purchasing, food preparation, sales promotion or
service. They state, justifiably in some cases, "Cost of accounting fees is less than 1
percent of sales. I have major costs to consider such as food and labor which account for
70 percent of my total costs. Furthermore, even if I took time out to thoroughly
understand accounting, a few months after I complete the study, new rules and
interpretations will make most of what is learned valueless."
The fact that this attitude is prevalent is understandable. However, to proceed from this
statement and unequivocally state that the attitude is proper is questionable. Without an
adequate system of accounting, how can questions be answered such as:
1.
What am I worth today?
2.
Did my operation make a profit or suffer a loss in the past six
months?
3.
What did it cost to make each of the food items I sold?
4.
What did it cost to operate the various departments?
5.
Were the prices of various menu items correctly related to cost
of those items in a manner designed to obtain a reasonable
amount of profit and an increase in sales?
6.
Can my records provide a plan for the future, a budget of costs,
revenue and income, and a financial check of the entire opera
tion?
7.
Are my records sufficiently detailed to comply with the require
ments of annual federal and state income tax regulations?
There are many other fundamental problems that accounting resolves, such as investment
of capital, coordination of facilities, executive control, and labor-management disputes.
Indeed it is difficult to conceive how a highly productive operation or civilized society
can exist without a system of accounting.
This chapter will familiarize the new or prospective owners of restaurants with the
terminology and use of accounting. Study after study has aptly demonstrated that one of
the major causes for failure in the restaurant industry is a lack of familiarity and
understanding of the terms and basic purposes of accounting. Effective, profitable
management decisions cannot be made unless they are based on a
240
How to Operate a Restaurant
system that furnishes the manager with all the operating facts related to the restaurant.
The Accounting Cycle
The first function of accounting is to accurately record all the transactions of a business.
This recorded information is then classified into various accounts, evaluated, and
summarized in the ledger. From the summary information a trial balance is determined
and the two financial statements—the income statement and the balance sheet—are
prepared.
The Journal
The daily record of itemized business transactions is called a journal. The journal may be
defined as a book that provides management with a chronological record of all business
transactions. The purpose of the journal is to record all transactions as they occur, to
classify these transactions so they may be posted to their proper account and to indicate
whether a transaction increased or decreased the account involved.
The Ledger
A journal differs from a ledger in that it is a daily record of transactions whereas a ledger
is a book containing all the accounts of the business. Any business that is transacted is
first recorded in the journal and later posted to its proper account in the ledger. The
purpose of the ledger is to classify and summarize all the business transactions in their
proper accounts.
An account is a page or card of a ledger used to accumulate the business transactions
which take place within a classification. A separate account is designed for each
classification. For example, a restaurant operator may have one account for food sales,
another for payroll expense and accounts for other classifications such as rent, utilities,
cash in bank, or food inventory. Every item listed on the balance sheet or profit and loss
statements has its individual account.
Number of Journal and Ledgers Needed
The number of accounting books needed in any operation will vary according to the
detail of management information needed and the volume and type of business
transactions found in each enterprise. In a small restaurant the owner or part-time
bookkeeper may need
The Dynamics of Accounting 241
only one journal to record the transaction and only one ledger. In a large operation, on the
other hand, because of the many business transactions that occur, one bookkeeper or one
journal or ledger may not be enough to record the various transactions efficiently. In that
case, various special journals and ledgers are used to provide more adequate records and
summaries and to distribute the work load efficiently. The journal, for example, may be
divided into three or four books: a cash receipts, cash disbursements, purchase, and a
general journal.
As the name implies, the cash receipts journal is used to record all cash receipts; the cash
disbursements journal, all disbursements of cash; the purchase journal, all purchases on
credit; and the general journal, all business transactions that are not recorded in the
special journals.
Similarly, the ledger may be divided into accounts payable, sales and expense,
equipment, a general ledger, and so on.
The Trial Balance
The trial balance is a work sheet on which the accountant prepares a list of all the
accounts in the ledger having a balance. The preparation of the trial balance is one of the
final steps in the procedure of preparing the financial statements. At the close of an
accounting period the accountant determines the net balance in each account. Since open
accounts will have either debit or credit balances, the list is prepared on a sheet of paper
which has two columns. The name of each account is written on the left side of the work
sheet and its balance is entered in the left hand column if it is a debit balance and in the
right hand column if it is a credit balance.
All of the accounts in the ledger which have been used during the period and which have
balances are listed. Since equal debits and credits are made in the ledger, the total of the
debit column of the trial balance should be equal to the total of the credit column. When
the columnar totals of the trial balance agree, the list of accounts is said to be "in balance"
and is a presumptive test of accuracy.
The two purposes of the trial balance are to aid in the preparation of the balance sheet and
the profit and loss statement and to serve as prima facie proof of the accuracy of the
ledger. The proof is not infallible because it is possible to have a trial balance which is in
balance even though errors have been made in the bookkeeping. For example, an entry
may be made to the wrong account or one error in an account
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How to Operate a Restaurant
may be offset by another error yet the trial balance will still appear to be correct.
Debits and Credits
Perhaps the most confusing set of terms in the entire accounting field to the layman is
debits and credits. Much of the confusion can be eliminated by understanding that these
terms are merely technical symbols of addition and subtraction. By noting at the time the
transaction occurred whether the value of the individual account is increased or
decreased, considerable time is saved later in summarizing each account.
The fundamental rule regarding debits and credits is that for each debit there must be a
credit. The rule demonstrates the dual nature of any transaction by stating that for every
addition there must have been a subtraction. For example, if a dollar is deposited in the
bank, double entry bookkeeping requires that we record not only the addition of one
dollar to the bank account but also the subtraction of one dollar from the cash register or
whatever the source of the money.
To introduce the use of debit and credit terms at this time, note diagram below which
shows two of the many ways an account can be shown in the ledger.
Cash on Hand
Date
Ref. Explanation
Debit Credit Balance
9/30
10/1
10/1
10/1
Debit
800.00
J-l
Sales Receipts
600.00
1400.00
J-2
to Petty Cash 200.00 1200.00
J-4
to First National
800.00 400.00
Date or Cash on Hand Ref.
Explanation Credit Balance
9/30
800.00
600.00 10/1 J-l
Sales Receipts
1400.00
10/1 J-2
to Petty Cash
200.00 1200.00
10/1 J-4
to First National 800.00 400.00
Both accounts show that on October 1, three transactions affecting the asset account
"Cash on Hand" were recorded in the journal on pages 1, 2 and 4 and then posted to the
account. The effect of the
The Dynamics of Accounting 243
debit entry of $600.00 is to increase the balance of the asset account to $1400.00.
Conversely, the two credit entries, $200 and $800, reduce the balance to $400.00.
The following diagram demonstrates the use of debit and credit entries to indicate a
decrease or increase in the value of any account.
Any Asset Account Any Liability Account
If possible, forget any previous associations or meanings of the terms debit and credit. To
make the terms meaningful regard them as technical symbols of addition or subtraction.
In every instance a debit is a left hand entry; a credit, a right hand entry. A debit is always
a transposition of value and a credit a source of value. Stated simply, credit—the source
of the value, and debit—what you did with the value.
For example, if $200 was removed from cash register and deposited in the bank, the
source of the money is the register and the transposition of the money is to the bank.
Consequently, $200 should be credited to the account named Cash on Hand or Cash in
Register and $200 debited to the account Cash in Bank. The net effect of posting the
transactions to the ledger is to subtract the $200 from the Cash on Hand account and to
add $200 to the Cash in Bank account.
In a similar fashion, if you purchased $100 of food on credit from a purveyor, the source
of the food is the purveyor, the transposition of food is to the food inventory.
Consequently, $100 is credited to the purveyor in the accounts payable ledger and $100 is
debited to the asset account called Food Inventories.
If you paid cash for the food, the source of the food value is Cash on Hand. Therefore the
asset account Cash on Hand is credited with $100 and Food Inventory is debited $100.
The Balance Sheet
This financial statement is an organized, classified list of assets, liabilities, and ownership
interest. The balance sheet answers the ques244
How to Operate a Restaurant
tion, "What am I worth today?" It provides its reader with an instantaneous exposure—a
single picture—of the financial condition of a business at the close of a particular
business date.
To understand how the balance sheet shows the financial condition of a business, certain
terms must be defined and clarified. An asset, for example, is an economic good which is
owned by the business unit. It represents something which has a measurable monetary
value. It may be a tangible asset such as the building or equipment or an intangible asset
such as good will. Assets are further classified as current— those assets which will be
utilized or consumed during the coming year, such as cash and food inventories—and
fixed—those assets which will not be fully utilized or consumed during the year, such as
land, buildings and heavy equipment.
A liability is a claim against the assets of the business. For example, if we purchased
$100 of food on credit from a purveyor, the balance sheet will show $100 food
inventory—a current asset—and $100 accounts payable, a liability or claim against this
asset. Liabilities are also classified as current—short term or less than a year—and fixed,
or long term liabilities, representing claims such as mortgages or long term notes payable
that will not mature during the coming year.
The last section of the balance sheet shows the claims that the owners of the business
have against the assets of the business. If the business is organized as an individual
ownerhip, the ownership equity is represented by ownership capital and earned surplus.
Partnership form of organization differs from single ownership interest in that the equity
or claim of each partner is listed separately. A corporation on the other hand has its
ownership claims listed as capital stock, classified according to type of stock, such as
common and preferred.
A balance sheet, therefore, classifies all the assets in one section— shows how many
economic goods the business owns; the liabilities and ownership equity in the other
section—shows the various claims against these assets. Note that since the whole of one
section of any balance sheet represents the total of all the assets of the business and the
whole of the remaining section represents the total claims against the assets, the two
totals will always equal each other, for any two figures are equal to each other if they
equal the same figure.
To demonstrate this equality, study the following transactions and trace them by their
reference numbers to the balance sheet shown below.
The Dynamics of Accounting 245
1.
John decides to invest $50,000 in a restaurant. He purchases
land for $5,000, a building for $15,000, heavy equipment for $20,000,
and deposits $10,000 in the bank.
2.
He purchases various food items valued at $2,000 from several
purveyors on credit.
3.
He signs a five year note for $6,000 at 5% interest to purchase
an air conditioner unit.
If these were the only business transactions that were made that day, at the close of the
day the balance sheet would look like this:
The balance sheet shows that as of June 30, this restaurant was valued at $58,000. The
business possessed $58,000 of assets. The balance sheet also shows the interest or claims
against the total assets by the owner and by people not connected with the ownership of
the business. In this instance, the owner contributed $50,000 to the business, the
purveyors, $2,000 and the bank, $6,000, a total of $58,000 claims against the assets of the
business. Since all the assets and claims are shown, the balance sheet is "in balance,"
$58,000 of assets equals $58,000 of liabilities and capital.
Profit and Loss Statement
This financial statement is a schedule which summarizes the revenue and expense
transactions for the period between the date of the last balance sheet and the next balance
sheet. The time elapsing between the two balance sheets is the period for which the profit
and loss statement provides a summary of the various business transactions that occurred.
The period may be monthly, quarterly, semi-annually, or annually. The purpose of the P
& L statement is to present an analysis of the business changes that have taken place from
one balance sheet
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How to Operate a Restaurant
to another and to summarize the revenue and expense transactions during that given
period.
The general practice is to list first the various revenue items according to their relative
importance, the more important revenue items being listed first. These revenue items are
followed by a summary of the cost of raw materials purchased called "cost of goods
sold." The deduction of cost of goods sold from the revenue or sales of goods is called
the "gross profit" or "gross margin." A list of various expense items such as rent, utilities,
and supplies follows the gross profit figure. These expenses are deducted from the gross
profit figure to obtain the net revenue or profit for that period. If the period is for a full
fiscal year, the result is called "net revenue" or "income before income taxes." After the
tax charge has been deducted, the remainder, if there is a profit, is called "earned surplus"
and transferred to the capital account on the balance sheet.
PROFIT AND LOSS STATEMENT
JULY 1 TO SEPTEMBER 30,
Sales
Food Sales
50,000
Liquor Sales 25,000
Total Sales
75,000
Cost of Goods Sold
Food 23,000
Liquor 7,500
Total 30,500
Gross Profit 44,500
Expenses:
Labor
Rent
Supplies
Utilities
Adm. & General
Advertising
Miscellaneous
Depreciation
Total 32,000
Net profit before income taxes
12,500
The balance sheet and profit and loss schedule are the two final financial statements in an
accounting cycle. The balance sheet gives picture of the value of the restaurant; the profit
and loss statement,
The Dynamics of Accounting 247
a summary of the revenue and expense transactions. The first is accurate only for the
given date; the second is accurate for a given period.
The purpose of this chapter is to familiarize the owner of a food service operation with
the basic fundamentals of accounting. You should know the principles and procedures
used to arrive at a balance sheet and a profit and loss statement. You should know the
purpose of a ledger, a journal, and terms such as debit and credit.
The attempt has been made to remove part of the "iron curtain" surrounding the
accounting field. There are many methods of arriving at accurate information that will tell
you what your business is worth and how you arrived at that particular financial position.
There is no mystery to this problem. Basically, all accounting systems record the business
transactions in one or more journals. The figures are later posted from the journals to the
various accounts in the ledger or ledgers so that each account may be summarized. At the
close of an accounting period a list is prepared showing the title and the net balance of
each account. This is called a trial balance and is a presumptive test of accuracy, for if
equal debits and credits have been made in each transaction, the total of the debits should
be equal to the total of the credits. After this schedule has been completed, the accounts
are organized in statement form and the balance sheet and profit and loss statements are
prepared.
CHAPTER
22
Simplified Records
for Income Tax and Controls
This chapter is especially designed to aid the owner of a single unit food service
operation doing less than $200,000 gross sales annually to install a simplified set of
records for tax and control purposes.
Flexibility in Accounting Systems
Regarding the need for tax records, the rules and regulations of the Internal Revenue
Service state that all business organizations must keep adequate records to reflect clearly
taxable income. To comply with this ruling the records must show all the sales of the
operation and all the expenses that were incurred to create taxable income. Note that
nowhere in the internal revenue code nor in the expanded rules, regulations, or
interpretations is mention made that taxpayer must keep a certain set, type, or number of
books. The taxpayer is free to choose or design any record or set of records for income
tax purposes. He is only limited to the end that the records selected accurately reflect
income of the operation.
Consequently all that is needed for the food service operation is one or more journals to
record chronologically all the transactions that affect the business, and one or more
ledgers containing all the accounts of the business. In an average operation one journal
and one ledger may be sufficient for income tax purposes.
THE JOURNAL
The journal in any operation as previously noted is used to provide a daily record of all
the transactions affecting the business unit, to identify each transaction so that it can be
later posted to the proper
248
Simplified Records for Income Tax and Controls
249
account in the ledger, and to indicate if the transaction created an increase or decrease in
the account involved. In its most simple form, the journal is a book containing columns
for the date, for explanation of the entry, for posting reference, for debit, and for credit.
This two column journal records that on October 1st $600 obtained from food sales were
added to cash receipts. Since the source of the value was food sales this account is
credited with $600 and the account cash receipts showing what was done to the money
received from sales is debited $600.
Posting to the Ledger
The cash-on-hand account below indicates how the posting is made to the accounts in the
ledger. The reference J-l on the account shows that the posting originated from the first
page of the journal and the check mark in the reference column of the journal shows that
the complete transaction has been posted.
Cash on Hand
Advantages of Multi-Column Journals
The process of recording the transaction in the journal and posting of figures to the
various accounts is very time consuming and laborious. With the traditional two column
journal each debit and credit of every business transaction must be posted to the accounts
in the ledger. To save time required in posting, to conserve space in the journal, to aid in
analyzing and classifying the various debits and credits, the obsolete two column journal
has been replaced by the multi-column and special journals.
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How to Operate a Restaurant
Since the purpose of this chapter is to show how any food service operation with less than
$200,000 annual sales can install a complete accounting system with only one journal and
one ledger the use of special journals will not be discussed. The problem of installing an
accurate accounting system with one multi-column journal revolves around two basic
points: the construction or design of the journal with appropriate columnar headings and
the record of underlying memoranda such as waiters checks, register readings, deposit
tickets, and petty cash vouchers.
Design of the Multi-Column Journal
The design of the journal is relatively simple if the business enterprise has been in
operation for some time. In this case all that is required is to study the past transactions of
the business and determine the frequency of entries in each account. Each column is then
headed with the names of the accounts that are used the most. Entries to the remaining
accounts are then recorded in one or more miscellaneous columns. If the operation is
newly established and there are no past expenses to guide the selection of columnar
headings, the owner selects the headings by anticipating the type of transactions that will
occur most frequently.
In an average restaurant there are certain transactions that occur at least daily if not more
frequently. Typical of these transactions are receipts from sales, sales tax liability, cash
receipts and disbursements, purchases of food, paper, cleaning supplies, and other items.
To illustrate the construction of a multi-columnar journal see page 258.
The multi-columnar journal shows that on October 1st the following transactions took
place:
1.
Food sales were $600.00, State Sales Tax collected $18.00, total cash
receipts $618.00. Since the money came from food sales and sales tax
$600.00 was credited to food sales and $18.00 to sales tax by entering this
amount in their proper columns and $618.00—the total receipts were
debited to the cash account in its respective column.
2.
The owner purchased meat from Wilson Meat Co. for $80.00, gave
them a check for $40.00 and obtained credit on the remaining amount of
the bill. Accordingly, the food purchase column was debited $80.00, the
bank account and the accounts payable columns credited with $40.00 each.
3.
The owner purchased a toaster from American Supply. He paid this
in full by drawing a check for $110.00. This is an expense that will be
capitalized—cannot be written off as a current operating expense. The
Simplified Records for Income Tax and Controls
251
$110.00 is entered in the general ledger column and the bank is credited for this same
amount.
4. $600.00 was taken from the cash register and deposited to the First National Bank.
Consequently the source of the money is credited with $600.00—a credit to cash—and
the transposition of the money to the bank indicated by debiting $600.00 to the bank
deposit column.
Note how use of a multi-column journal aids in classifying the various debits and credits
to each account. The principal advantage of this type record is the time saved in posting
to the accounts. Instead of posting the numerous debit and credit entries to the respective
accounts daily, the columnar totals can be posted once at the end of the month. The only
transactions that should be posted daily are those that are not analyzed in the
miscellaneous and general ledger columns.
Test of Accuracy
Before posting the columnar totals to the accounts a test should be made to see if the total
of the debits is equal to the total of the credits. This is a "presumptive test" of accuracy.
For example, in this journal, this is done as follows:
Installation of Multi-Column Journal
To illustrate how an operator of a food service operation can logically construct and
install a single multi-column journal as a record of transactions and as an efficient device
for posting to the accounts in the ledger, consider owner "A" and his operating plan.
"A" plans to operate a food service unit that will concern itself only with the sale of food.
Depending on the purveyors involved, he expects to obtain 30 days credit for most of his
food, paper, and cleaning supplies. The supplies not purchased with credit will be paid
for by check if the amount is more than $2.00 and from petty cash fund if less than $2.00.
He plans to purchase ice daily and for control purposes he desires that ice, and repairs
and maintenance be accounted for sepa252
How to Operate a Restaurant
rately. Payroll and employee and employer taxes will be accounted for on a weekly basis.
All other expenses such as rent, power, water, fuel, telephone and telegraph are billed
monthly. He wants a simplified accounting system installed with one journal and one
ledger.
Since he plans to sell only food he will need only one column headed food sales. If other
type sales were contemplated such as alcholic beverage, additional sales columns would
be needed. Moreover, since cash will flow in through sales and out through minor cash
disbursements and deposits to the bank, a column for cash receipts and disbursements and
a column for petty cash will be needed. If the state in which he is operating levies a sales
tax on food sales, a column will be needed to accumulate the daily tax receipts. In this
case no state tax is levied, therefore no column is needed.
Regarding the food, paper, cleaning and other supplies which he plans to purchase both
with credit and cash he will need a column for each classification: food, paper, and other
supplies, and one column headed "accounts payable" to accumulate the various charges
and credits pertaining to his current creditors. He wants to make a single summary entry
to these accounts. Consequently at the end of each operating day he will separate his
various purchase sources first by account category, classifying each invoice according to
the purchase classifications of food, paper, and other supplies, and subsequently separate
the paid from the unpaid invoices. The total of all the unpaid invoices will be recorded in
the accounts payable column with one entry. The total of paid and unpaid bills in each
classification will be recorded in their appropriate columns also with a single entry.
Expenses of operation that are billed monthly should have a separate column of their own
headed "monthly expenses." In addition two columns will be needed: one headed
miscellaneous expense: the other, general ledger. The format of the multi-column journal
for this operation is seen on pages 260 and 261.
At the end of the month the totals of the columns are checked to determine that the total
of the debits equals the total of the credits and the various entries are posted to the
accounts.
As always a left hand entry indicates a debit to the account and a right hand entry, a
credit. After all entries have been posted, the balance of the account is determined by
noting the difference between the two sides of each account. If the total of the debit side
is greater than the total of the credit side of an account the amount credited is subtracted
from the amount debited and the balance is entered on the
Simplified Records for Income Tax and Controls
253
debit side. Similarly, if the amount on the credit side is greater, the account will have a
credit balance.
THE LEDGER
A ledger is a book, or a record containing a group of accounts. When a single ledger
contains all the accounts needed for the preparation of the profit and loss statement and
the balance sheet, the ledger is called a general ledger. If a group of accounts such as
accounts receivable are removed from the general ledger, the record containing this
classification of accounts is known as a subsidiary ledger.
The number of accounts needed in any restaurant is based on the number of different type
business transactions that occur in operating the enterprise and the amount of detail
information management will need to operate profitably. For example, if both food and
alcoholic sales are contemplated and management wishes to compare the efficiency of the
two sales departments, four accounts will be needed: an account each for food sales,
alcoholic sales, food purchases and alcoholic purchases. In this manner, management can
later determine the relative efficiency of his sales departments by sales and cost of sales
of the food department with the sales and cost of sales of the beverage department.
On a different note, management may not wish to accumulate details of cost associated
with minor items such as the purchase of stationery, napkins, paper cups, menus. In this
case he will classify all such expenses in one account called paper supplies.
After the number of accounts needed for the enterprise is determined the accounts are
placed in a logical sequence in the general ledger. The customary format of the ledger is
that the balance sheet accounts are listed first and the profit and loss accounts are listed
last. Generally the first section of the ledger containing the balance sheet accounts is
opened with current assets such as cash in the bank, cash on hand, inventories, followed
by fixed assets such as equipment, building, and land. These accounts are followed by
current and fixed liabilities which are in turn followed by the proprietorship accounts.
The second section of the ledger containing the sales, various expenses, and income is
designed to follow the same logical pattern of the profit and loss statement.
Using one multi-column journal and one ledger assume that the balance sheet dated June
30, 1960 on page 244 is the previous balance sheet of restaurant "A."
254
How to Operate a Restaurant
1. The individual accounts in the ledger on June 30th would have the following net
balances. The only change made is the $500.00 taken from the bank and posted to the
Cash on Hand account.
Cash on Hand Cash in Bank Food Inventory
Equipment
Check the food Inventory account on page 254 and see how this determination can be
carried out through the use of debits and credits. The food purchases account is closed
with a zero balance by a credit of $7,500.00 (1). The food inventory account is
subsequently debited $7,500.00. (1). The total balance of $9,500.00, (2). is determined by
adding $2,000.00 plus $7,500.00. After the ending physical inventory shows that only
$2,000.00 worth of food was left, the ending inventory of $2,000.00 is debited to the
account, item (3) and the difference between total food available and ending inventory:
$7,500.00 is credited to the food inventory accounted and debited to the cost of food sold
account, item (4).
This procedure can be further simplified by eliminating a food purchase account and by
posting all food purchased to the inventory account.
256
How to Operate a Restaurant
Theoretically all supplies such as paper, cleaning, and other inventories should be
accounted for in a similar manner. For purpose of illustration only the food inventory
account is shown. Where inventories have been omitted, their values may be considered
negligible or minimal. In this instance the total purchases of $60.00 for paper supplies
and $47.00 for cleaning supplies has been written off as current expenses.
(b) The treatment of accounts payable, item (5) on page 254, is an excellent example of
the use of a control account. Ordinarily the general ledger includes all the accounts of the
business including an account for each purveyor from whom purchases are made on
credit. When a purchase is made on credit, the purchase column of the journal is debited,
and the individual account payable is credited. Every purchase on credit involves a daily
entry to the individual "accounts payable." Because the determination of the trial balance
is too long and unwieldy with numerous accounts in the accounts payable section of the
ledger and because of the difficulty in locating errors, and the complication of adding and
eliminating accounts in alphabetical order as business, customers, or creditors change, all
the individual accounts of the accounts payable section are removed from the ledger and
one account is substituted called a control account.
The control account is simply an account in the ledger that summarizes all information
pertaining to that classification that appears elsewhere. In the case of the accounts
payable control, the account summarizes for the owner the current information pertaining
to the total amount of money owed to creditors.
The details of the individual sums owed each purveyor usually appear in a subsidiary
ledger called accounts payable ledger.
Owner "A" does not want to operate with more than one ledger, so the file of unpaid bills
is his subsidiary ledger. Some time during the day, the total purchases are divided into
purchases made on credit and cash purchases. An adding machine total is taken of the
purchases made on credit and the amount is credited to the accounts payable control
Simplified Records for Income Tax and Controls
257
column. See the third entry of $180.00 entered in General Journal, pages 260 and 261.
The invoices are later filed alphabetically by creditor's name in a purchase file. When the
creditors send their monthly statements, each statement is compared with the individual
list of paid and unpaid invoices pertaining to the creditor in the purchase file.
(c)
Whenever a capital investment is made for an asset and the
asset has a reasonably predictable life, the problem of ac
counting for the disappearance of capital investment arises.
This disappearance of value from the time an asset such as
a potato peeler is put into use until the time it is replaced or
physically deteriorated is called "depreciation."
A depreciation charge should be made during each accounting period reflecting as
accurately as possible the disappearance of value for each tangible asset having a
predictable life. In this example tangible assets such as the building, or air conditioner
should each have a depreciation account.
For purpose of simplification and illustration only the equipment account has been set up
with a depreciation charge.
There are several methods of determining the proper charge to make for depreciation. In
this instance, the predictable life was determined to be approximately 200 months and the
straight line method was used by dividing the cost of the equipment by the number of
months of its expected life arriving at a monthly depreciation charge of $100.00.
The charge of $100.00 is shown on item 6, page 255. This charge will later appear on the
profit and loss statement as depreciation expense for the period. To reflect the change in
the value of the equipment a contra-asset account allowance for depreciation is set up,
item 7, which will later appear on the balance sheet modifying the book value of the
equipment.
(d)
The fifth entry in the general journal illustrates one method
of accounting for payroll. The total wages earned for the
week were $1,800.00. From this payroll deduction of
$76.00 for F.O.A.B. tax and $724.00 for withholding tax
258
How to Operate a Restaurant
were made. This means that the employees received only $1,000.00 as cash wages.
Consequently, the total payroll cost of $1,800.00 is debited to wages earned, $1,800.00 is
credited as bank disbursement, $76.00 and $724.00 credited to F.O.A.B. tax payable and
withholding tax payable respectively.
At the end of the month or accounting period, the total of the column Wages Earned in
the general journal is posted to the account wages earned in the ledger, item 10, page 255,
subsequently appears on the profit and loss statement as the payroll expense for the
period.
In a similar fashion, the columnar totals of F.O.A.B. tax and withholding tax payable are
posted to their respective accounts in the ledger, items 8 and 9, page 255, and
subsequently appear on the balance sheet as current liabilities.
3. Before the Balance Sheet and the Profit and Loss Statement are made a total balance is
taken to check the equality of debits and credits and to make any necessary adjusting
entries for the period. After the adjustments are made the balance sheet and profit and
loss statement are constructed. See page 259.
259
How to Operate a Restaurant
GENERAL JOURNAL
Simplified Records for Income Tax and Controls
260
Simplified Records for Income Tax and Controls
261
CHAPTER
23
What of the Future?
One thing we can be certain of regarding the restaurant business is that there will be a
great many changes in the years to come. The exact changes no one can predict but it is
relatively simple to identify trends and to assume that the trends will continue. What are
some of the more discernible trends?
The population of the United States is growing at a rate of four million people a year.
Population today exceeding 170 million is expected to easily reach 220 million by 1975.
Here is a graph showing what can be expected in population through 1975.
262
What of the Future? 263
The custom of dining out is an established part of our way of life. Twenty million of the
working population are women, many of them married. Frequent restaurant meals for
them and their families are a necessity.
We are a materialistic people. Eating out—once a luxury—is today considered by most of
us as necessary. Domestic servants are expensive and few. Even for the higher middle
class level it is much easier to eat out than to maintain a cook at home.
Large segments of the population have had income increases which permit them to eat
out more often not only as a means of relaxation and escape from the monotonous chores
of house keeping, but also as a form of pleasure and entertainment. Family income, even
after taxes, is at an all time high of $5,300 and is expected to pass $7,000 by 1975.
Individual savings are at a record level of $340 billion dollars. The value of meals eaten
away from home (now approximately 17 billion dollars) is expected to reach well over 25
billion in the next 15 years.
Types of Food Service Operations
There is a definite trend toward 3 types of food service operations. The growth of fast,
minimum service restaurants is apparent. Catering primarily to the shopper, young men
and women employed in offices, retail outlets, these restaurants satisfy their customers
need to save time and to obtain good food at moderate prices. Quick, self service is an
established mode in this country. Most Americans have been well oriented to this pattern
as evidenced by the rapid growth of supermarkets, self-service drug stores and many
other types of retail establishments.
Not so evident is the rapidly growing combination motel-restaurant all over the country.
Chains such as Interstate, Howard Johnson, Holiday Inn have in the last few years opened
many of these units to the general public. Individual operators have started hundreds of
motel-restaurant operations. As we become more and more a nation on wheels—travel
more within the country and be away from home a greater part of the time, eating out will
be a necessity.
In this respect more travel by air has caused several well known companies to concentrate
their attention on airport food service facilities. Even now the search for profitable airport
food contracts has resulted, in instances where a two or three million dollar facility is
being considered, to lease arrangements involving payments as high as 22% of the gross
sales.
264
How to Operate a Restaurant
The trend toward an open kitchen is exemplified here in Tad's Drive-ln,
Jacksonville, Florida. All food preparations and even dishwashing is in plain view of the
customers.
The third type operation that has and will continue to gain in popularity is the atmosphere
restaurant. The "two dollar meal served in the five dollar atmosphere" is a good formula.
Specialty restaurants such as Hawthornes' By The Sea in Massachusetts; Chardas
Hungarian Restaurant in New York City, atmosphere restaurants such as Creighton's in
Fort Lauderdale; the Forum of the Twelve Caesars in New York City are growing in
popularity and profitability. Eating out need not be merely an escape from routine
housekeeping chores. Glamour, stimulation of all the senses, excitement, a feeling of
satisfaction and well being are all part of the package that a good atmosphere restaurant
sells in addition to food.
Location of Restaurants
The standard quick lunch operation will undoubtedly continue to locate in areas where
traffic is heavy. Atmosphere restaurants on the other hand can locate in any area and
create their own traffic. Many restaurants of all kinds are gradually moving from
downtown districts
What of the Future? 265
to the edge of cities, to accommodate new shopping centers and suburbs. The importance
of location will increase, especially since higher investments will be needed to attract
patrons.
Restaurants on Super Highways are now big business, with lessees bidding as much as 22
percent of the gross income for the right to operate on the super highways, controlled by
various state authorities. Cafeterias—contrary to the predictions of some experts—are
among those restaurants that have discovered the suburbs to be good locations. Shopping
center restaurants—usually of the quick service type—are doing well. Of course,
downtown areas will still provide sound locations for many restaurants, particularly those
emphasizing luncheon business. Plenty of parking is the major factor in the movement to
the suburbs.
Number of Restaurants
The number of restaurants may well diminish. Atmosphere restaurants call for heavy
investment and force out of business the smaller, less exciting restaurant. Since more
money will be needed to start a restaurant, the thousands who formerly could start on a
shoestring will be kept out. The big chains are likely to grow larger. Some will specialize
in super highway feeding. One, The Interstate Company, a company with its antecedents
in railway feeding in the 1890's, has concentrated on airport food sales and has contracts
for the Los Angeles, San Francisco, New Orleans, and other airports.
More Pre-prepared, Portioned, Convenience Foods
Undoubtedly restaurants will purchase more foods that have been partially prepared in
some way—pre-cut meats; portion-size packages of crackers, jellies, catsup; pre-cut,
blanched potatoes—the list grows daily. Where specialized skills can be put to work
using specialized machinery, pre-prepared food should cost less to the restaurant
operator. This is not always proved true. One reason is that some parts of the country
with cheap labor can do the pre-preparation work at a lesser cost than can the prefabricator using specialized labor and equipment but paying high wages.
Prefabricated meat is an item which will come in for careful study of costs as compared
with purchase in carcass or retail cut form.
In 1957 the U.S. Army did an extensive study of costs of fabricating its own meat. The
costs averaged 3 cents a pound. They were able to get a 70% yield of meat on carcass
purchases and to save over 8 mil266
How to Operate a Restaurant
The do-it-yourself trend is much a part of today's restaurant. Here a customer selects his
own steak and brands it. The steak is not any better for this treatment but the customer
feels better in that he has had an active part in the selection and preparation of his food.
lion in 1957 in purchases of meat. Restaurant chains have found a cost advantage in
doing much of their own food processing. Firms like Hot Shoppes make their soup stock,
sauces, prepare their own potatoes using lye and steam cleaning, and prepare many other
items.
Centralized pre-preparation of foods by chains and institutional food service is almost
certain to grow. Centralized food preparation in hospitals, school lunch programs, and in
chain restaurants usually results in a savings over preparation in each unit of the
organization. In small chains, one restaurant may prepare all hamburger patties for the
chain, another may cut and blanch all french fries, still another may do all of the baking.
More use of dehydrated foods is certain to come but these are limited to what the
customer will accept. Dehydrated potatoes are well accepted for mashed potatoes and
dehydrated onions are acceptable for prepared dishes. On the other hand, dehydrated
steaks, chicken,
What of the Future? 267
peas, orange juice and tomato juice are not accepted and will probably not be used in
commercial restaurants in the near future.
Foods that are drastically changed in appearance or taste are likely to be used only under
special circumstances such as under combat conditions and high altitude and space travel.
Frozen meals sold at supermarkets will be improved in quality and variety. With the
microwave ovens which will be in many homes, these meals can be re-heated or
"reconstituted" in a matter of seconds. Still the glamour of eating in an attractive
restaurant will overcome the economy and ease of eating at home and permit the
restaurant business to grow.
Faster, Better Equipment
Microwave cookery is certain to increase in use because of its speed, cleanliness and its
relative ease of use. Restaurant personnel like it because of the minimum labor needed to
operate it and keep it clean. The absence of wild heat from a microwave oven is also a
big advantage. It does not appear, however, that microwave ovens will replace gas or
electric ovens for volume food production.
Dishwashing progress «is due for a big change. At present the peg or flight type of
machine is the most efficient, but it is considered relatively costly for the moderate or
small size of restaurant. This type of machine requires the least space for the volume of
tableware that it will wash and if operated properly will decrease labor cost in the
dishroom. The continuous conveyor belt using racks—the so called merry-go-round
belt—will probably find wide use in the average restaurant. Cold water sterilization using
a form of iodine as a bactericide or washing by sound waves may be practical before
long. Cold water glass washers are now practical, save space and labor. The emphasis is
on speed in cookery. Steam under 15 pounds of pressure presents a fast method of
cooking. The broaster—a pressurized deep fat fryer cuts frying time in less than half.
New equipment permits the use of dry heat for browning, steam for fast processing.
Stainless steel of the 18-8 type (8% nickel) grows in popularity so that it is specified for
many parts of kitchen equipment where it is not necessary. All stainless steel
refrigerators, for example, are 20-30 percent more expensive than aluminum refrigerators
with stainless steel fronts. The aluminum type does everything that stainless steel can do
except that the aluminum is softer, and scratches easier.
268
How to Operate a Restaurant
Automation
The time for complete automation-machines running machines— seems some years away
for the restaurant except where utility is all-important. Face to face service by people is
still important. Vending machine cafeterias are already in use, will probably become
more widespread, especially in institutional feeding. The mechanically operated
restaurant is a possibility even now—but will probably never replace waiter-waitress
service, at least in luxury dining out.
Centralized Purchasing
Mass purchasing gives a five percent or greater advantage to the buyer. Chain operations
have this tremendous advantage over the individual operator. To offset this buying
advantage, individual operators are like to form corporative buying associations as has
been done by a group of Chicago restaurateurs. These operators have their full time buyer
and a large warehouse.
Centralized warehousing seems to be declining, giving way to contract buying, by terms
of which restaurant operators buy in large quantities but have the items delivered to the
restaurant as needed. Contract buying with delivery as needed is especially valuable with
seafood items, canned goods which vary in price and require expensive storage facilities.
Labor Cost to Increase
Biggest problem in successful restaurants, say two out of three operators, is rising labor
costs. In a nationwide survey of restaurants made in 1957, Food Service Magazine found
labor cost had increased tremendously.
Only the cafeteria was able to reduce labor cost in the decade covered by the study, and
the decrease was but one percent. This is significant because the cafeteria represents the
self-service trend that has already changed grocery retailing from the small grocery to the
large self-service super market. On the West Coast, labor costs in most restaurants
approach 40 percent of the sales dollar and many restaurant operators have changed to
self-service. Walk-up drive-ins, where the customer gets out of his car and picks up his
order at a window, is part of the trend to reducing labor costs by self-service.
In spite of the trends to self-service, better scheduling and training,
What of the Future? 269
better layouts and other factors, the projection of increased labor costs per hour is a
certainty in the future.
Increased governmental regulations, changes in the various tax laws pertaining to payroll,
the steady growth of unions and their demands for higher wages, 30 hour work week,
longer and more vacations, all point to a minimum increase of about two percent a year.
Labor cost as a percentage of sales may well level off at about 40 percent. Increases in
wages per hour may be partially or wholly offset by use of fewer employees selected to
do a much better job in a well designed restaurant utilizing highly productive, labor
saving equipment.
Imagination Still at a Premium
Restaurant operation will always reward the imaginative, persevering operator who has
good business judgment. As working hours are reduced and life becomes more secure
economically for the average person, that average person will want stimulation and
excitement, escape from routine. The restaurant can give him this, not only in the food he
can expect, but in the decor, design, and service. He can take a fast trip to foreign and
exotic lands via a Polynesian restaurant, or experience a different taste thrill by trying a
Polish dish, be pleasantly excited by a waterfall, lights and color of a modern
restaurant—all for the cost of a meal. Volume food service will be upgraded by
garnished, well seasoned dishes, beautifully presented. Luxury food service will stress a
theme as is done by the Four Seasons in New York Cky. Fast food operators will become
faster. The restaurant business will become a field for experts.
Appendix
TRAINING FILMS
For Dishwashing Personnel
"Dishwashing Dividends"
Complete sequence for producing clean tableware by dishwashing
methods. Also operation of dishwasher with automatic detergent
dispenser.
Economics Lab., Inc.
Guardian Bldg., St. Paul 1, Minnesota
"Flying Saucers"
Fine pictorial presentation of best machine dishwashing methods.
Economics Laboratory, Inc.
250 Park Ave., New York 17, N.Y.
"Spotlight Breakage"
Modern breakage control methods.
Economics Laboratory, Inc.
250 Park Ave., New York 17, N.Y.
"How Clean is Clean" Food sanitation film. American Gas Corp. 420 Lexington Ave.,
New York 17, N.Y.
"Stop Feeding the Animals"
Proper operation and maintenance of dishwashing machines.
The DuBois Co., Inc.
1120 W. Front St., Cincinnati 3, Ohio
For Food Production Personnel
"Magic Knife"
Excellent film on knives and carving.
270
Appendix
271
Aluminum Cooking Utensil Co. New Kensington, Pennsylvania
"Recipe for Profits"
Using sectional oven efficiently in quantity food preparation.
G. S. Blodgett Co., Inc.
50 Lakeside Ave., Burlington, Vermont
"Easy as Pie"
Preparing pies.
Modern Talking Picture Service
247 Spring St., S.W., Atlanta 3, Georgia
"Human Element in Pie Crust"
Methods of 3 different pie crusts from one dough. American Society of Bakery Engineers
Department of Visual Education 311 - 2nd St. S.E., Minneapolis, Minnesota
"Rolls in the Making"
Shows variety of shapes of rolls. American Society of Bakery Engineers Dept. of Visual
Education 311 - 2nd St. S.E., Minneapolis, Minnesota
"Skill Counts at the Sandwich Counter"
Making sandwiches for quantity food service, recipes given.
Wheat Flour Institute
309 W. Jackson Blvd., Chicago 6, Illinois
"The ABC's of Beef Cookery"
Choosing best grades of beef for different preparations. Modern Talking Picture Service,
Inc. 247 Spring St. S.W., Atlanta 3, Georgia
"Anytime is Turkey Time"
Preparation and cooking of turkeys.
National Turkey Federation
P.O. Box 69, Mount Morris, Illinois
"Can you Carve"
Correct method of carving meats and poultry. Modern Talking Picture Service, Inc. 247
Spring St. S.W., Atlanta 3, Georgia
"Fashion in Food"
Inexpensive cuts of meat and how to use.
K & S Films, Inc.
5819 Wooster Pike, Cincinnati 27, Ohio
272
Appendix
"Make Mine Turkey"
Profit-making, time-saving cooking procedures.
National Turkey Federation
P.O. Box 69, Mount Morris, Illinois
"Never Keep a Good Steak Waiting"
Identifies beef cuts and how to cook them for best results. Modern Talking Picture
Service, Inc. 247 Spring St. S.W., Atlanta 3, Georgia
"Shrimp Tips From New Orleans"
How recipes are prepared—New Orleans.
Fish and Wildlife Service
U.S. Dept. of Interior, Washington 25, D.C.
"Good as Gold"
How grapefruit is made into a popular item on restaurant menus. Modern Talking Picture
Service, Inc. 247 Spring St., S.W., Atlanta 3, Georgia
"Salad Preparation"
Preparation of lettuce, endive and citrus fruits in food services. Department of Institution
Management Syracuse Univ., Syracuse, N.Y.
"Daily Double"
What every waiter and waitress needs to know about wine.
Wine Advisory Board
332 S. Michigan Ave., Chicago, Illinois
"Tremendous Trifles"
Proper methods of brewing coffee. Pan American Coffee Bureau 120 Wall St., New York
5, N.Y.
"Principles of Cooking"
Simple cooking processes. Visual Instruction Service Iowa State College, Ames, Iowa
"Foods, Fats and Fryers"
Excellent film on use of deep fat fryer.
Armour and Company
Union Stock Yards, Chicago 9, Illinois
For Service Personnel
"Daily Double"
What every waiter and waitress needs to know about wine.
Appendix
273
Wine Advisory Board
332 S. Michigan Ave., Chicago, Illinois
"It's Up To You"
Vital role which modern promotion techniques play in building
business.
Kraft Food Co., Sales Promotion Dept.
500 Peshtigo Ct., Chicago 90, Illinois
"Company's Coming"
Employee's importance in operation of restaurant.
National Restaurant Assoc.
1530 N. Lake Shore Drive, Chicago 10, Illinois
"Serving Foods"
Excellent waitress training and sanitation training. U.S. Department of Agriculture
For Safety Training
"Smoothing the Flow of Hospitality"
The best safety training film available for restaurant employees. Liberty Mutual
Insurance Co. Boston, Massachusetts
Index
Accounting, 239-259
balance sheet, 243-244
cycle, 240
debits and credits, 242-243
general journal, 249
journal, 240, 249
ledger, 240, 249, 253-258
profit and loss statement, 220-227, 245247
Advertising, 126-141
effective, 135
menu, 128-131
motivation research, 137-138
specialty, 131
successful ideas, 132-135
Bank, selection of, 65-72
Break even point, 229-230
or Build, 20-30
building, advantages and disadvantages,
20-22
buying, advantages and disadvantages, 22-24
Capital, 58-77
classification and sources, 58-60 Collateral, 64-65
Corporations, 35-37
Cost control, 150-168, 268-269, 207-215
labor cost control, 151-157
employee selection and scheduling, 159-168
food cost, 207-215
Credit and Credit Instruments, 40-57
Buy
basis of credit, 40
bills of exchange, 43
classification of credit, 40-41
description of, 41-57
Employee
listings, 145-147
needs, 182
selection and scheduling, 159-168
training pointers, 174-175
training, visual aids, 180-181 Equipment, 78-95, 105-107
automatic coffee makers, 82
carbonators, 81-82
coffee urns, 82
dishwashers, 82-84
food choppers, cutters, 82
food mixers, 90-91
fryers, 85-86
ice machines, 84
peelers, vegetable, 100
production capacities, 81
ranges, microwave, 95-96
selection of, 78-81, 100-101
refrigeration, 96-97
silver washers and dryers, 97
steam chests and cookers, 98-100
miscellaneous items, 100-101
Food cost control, 107-215 History of restaurants, 1Insurance, 115-125
classification, 115
co-insurance, 124
reducing costs of, 125
types of, 115-123
workmen's compensation, 119-121 Issues, food, 204
Labor cost control, 151-157 Layout, kitchen, 102-114
105
275
276
Index
Layout, kitchen— (cont.)
basic menu pattern, 103-
equipment, 105-107
food sequence, 107-108
rule of function, 113-114
seating requirements, 111-113
space allocation, 102-103, 111-114 Leases, 47-51 Loans, bank, 60-63
Federal Government, 72-77 Location, 13-19
example of, 15-17
determination, 13-19, 264-265
problems of, 13
Menu planning, 189-190 Mortgages, 52-57
Negotiable instruments, 41-42
Organization, forms of business, 30-39
number and types, 31
selection of, 38-39 Organization, personnel, 142-149
Partnerships, 33-35
Personnel management, 182-188
Personnel organization, 142-149
Profit and loss statement, 220-227
analysis, 222-227
basic rules, 221
format, 221-222
purpose of, 220
Promissory notes, 43
Promotion (see advertising, 126-141) Proprietorships, 32-33
Purchasing
food, 191-198
price determination, 26-28
Receiving procedures, 200-202 Restaurants
history, 1
kinds, 9-10, 263
nature, 7-8, 264-265
Seating requirements, 111-113 Selection of equipment, 78-81, 100-101 Space allocations,
102-103, 111-114
cafeteria, 111-112
dining room, 111
kitchen, 102-103 Storage, food, 202-204
Tax considerations in ownership, 29-30