The Key to Long Term Success? Operating Leverage. | Global Shared Services
Many restaurant owners I talk to see financial security as having the ability to pay their bills on time and meet their quarterly bank covenants while having a little extra money in the bank just in case things get tight. In other words, they see it as having some financial leverage.
Unfortunately, as we learned in 2020, financial leverage eventually runs out.
It’s like being confident you won’t starve because you have a fish in front of you. That is sufficient for the short term, but what you really need is a fishing pole. And an ocean. And a boat.
Let’s chat about what that looks like in your context.
Long Term Success is Found in Operating Leverage
I want to talk about a type of leverage that many businesses miss or undervalue – operating leverage.
Operating leverage isn’t found on the balance sheet like financial leverage, it comes from the income statement. Operating leverage measures fixed costs as a percentage of total costs.
By their very nature, restaurants start with low operating leverage, or high variable costs. But still not all restaurants are the same. Some restaurants and concepts just have more EBITDA or margin. What is different about these businesses?
It’s the “it” factor that enables successful businesses to keep winning year over year – a deep vendor relationship that decreases food costs substantially or a loved brand that keeps people coming back and allows you to charge more.
Financial leverage is the plug that you can use to slow down bleeding so you can go find operating leverage.
If you don’t find operating leverage, you are just hoping you don’t run out of fish (fingers crossed).
How to Find Your Operating Leverage
We have talked about this in recent newsletters, but the key is found in enabling your CFO (or CFO equivalent) to act as a pragmatic strategist.
Pull them out of the minutia of daily accounting practices so they can think strategically, find and solve issues limiting your growth, and create that operating leverage that can give your restaurants an edge.
Instead of acting as an expensive financial janitor for your accounting, they can start identifying things like G&A costs being above the 3-4% they should be, re-negotiating debt, and better leveraging supplier relationships.
I can’t tell you what operating leverage looks like for your business without talking to you, but what I can tell you is that operating leverage doesn’t happen by mistake. It’s the result of sweat equity and strategic decision-making.
Take Your First Step
Accomplishing this isn’t easy. What you need is a partner who can bridge the gap between accounting and strategic thinking.
GSS helps restaurant business owners, franchisees, and holding groups to create accounting order and access the strategic insight needed to gain operating leverage.
We bring systems to the table like Restaurant365 alongside proven processes that not only take care of the day-to-day but also to provide the insight required to make your financial future a bright one.
Ready to Get Started?
If you want to chat about what that could look like for your business, let’s talk. I’m not going to give you some long pitch, but I’m proud of the impact we have made in organizations that we serve and I want the same for you.
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